Online services are popping up - for commodity trading, retail marketing and back-office billing. But is the Web right for every application?

A recent study by Connecticut-based META Group Inc. finds that while less than 5 percent of all utility commerce will be conducted electronically in 1999, 30 percent of customer service and retail bill payments will flow over the Internet by 2004. That prediction highlights a torrent of Web activity in recent months, from power trading online to retail solicitations to electronic customer billing and payment.

But do these Internet services offer real value for users? A related META study of nearly 400 energy utility websites finds that most allow little or no customer interaction. The few companies that have turned to the Web for customer interaction generally say they are disappointed with the level of use by customers. Nevertheless, the energy industry should soon approach other industries in Web use as it grows more competitive, according to META Group.

A majority of utility Web portals visited by the Fortnightly in recent months didn't appear to offer much customer interaction beyond email links, confirming META's website study findings. Innovations in online bill payment and power service, however, seem to have real benefits for customers, providing convenience and potential cost savings. And the latest attempt to move wholesale electricity trading onto the Internet, HoustonStreet.com, appears to address many of the concerns that have hindered past industry efforts. But can any Web-based system offer enough reliability to satisfy traders?

A look at what's new on the Web reveals that the biggest benefits for consumers may be not in the medium's supposed conveniences. Rather, the rush of Web-based activity itself may facilitate intense competition that will benefit customers.

Customer Billing:

TransPoint, CheckFree Square Off

The predicted trend by META of increased use of the Internet for billing has come to fruition for Consolidated Edison of New York Inc. and PECO Energy, which announced in May and July respectively that their combined 5 million customers no longer need receive their utility bills via old-fashioned "snail-mail." Instead, customers now may register to receive an electronic bill, or "e-bill," over the Internet through TransPoint, a joint venture of Microsoft, First Data Corp. and minority investor Citibank. The service is free, and allows ConEdison and PECO customers to view their bills and pay with a click of the mouse.

Con Edison touts the Internet bill payment service as easy on customers (no checks to write, no stamps to buy) and environmentally friendly (reams of paper are saved). In addition, the company will save money with the service, which costs 50 percent less than sending paper bills. A demonstration of the service through ConEd's website reveals that it is simple to use, and customers may sign up within minutes via the site.

Englewood, Colorado-based TransPoint LLC in May went online with its e-bill service for both utilities, which were pilot billers. But electronic bill presentment and payment, or EBPP, is not a new concept. (See Microsoft's Leap into Billing: A New Threat?" Public Utilities Fortnightly, Summer Supplement 1999.) CheckFree Corp., which has provided EBPP services to utilities and other billers since 1997, bills itself as the first and largest player. The Atlanta, Ga.-based company processed 13,000 electronic bills in June alone. It has electronic billing contracts with at least 16 energy companies, including American Electric Power, GPU Energy, Portland General Electric, Southern California Edison and Southern Co.

Furthermore, noted CheckFree spokeswoman Laurinda Wilson, there are differences between the two services: "TransPoint's service is what CheckFree launched in March 1997." And this fall, she said, the company will launch the third version of its service with new features including dynamic summary and customer magnets.

Dynamic summary allows customers to calculate their monthly accounts payable. For instance, Wilson said, "A utility might want to reward online customers. It could offer them a $5 discount to do self meter reading." The billing software then could calculate the bill and the customer would pay the precise amount owed.

Customer magnets, she explained, would allow a utility to target customer groups for special promotions or other reasons based on certain parameters. For instance, utilities could arrange a screen pop-up advertising a budget-billing program for customers with high winter heating bills.

"For consumers, you're giving them something that's targeted for them and automatic," said Wilson. "Then you're billing process becomes relationship-building."

But TransPoint's Russell Henn, vice president of sales to utilities, sees his company's recent entry into EBPP as an edge.

"CheckFree has been on the payment side only, so bill presentment is fairly new to them as well," he noted. "In a lot of ways, we have the advantage of coming in as a newcomer, identifying what's not working and designing a system that improves upon industry models."

But how receptive are customers to paying one or two bills online and the rest by snail mail? As of August, TransPoint and CheckFree had electronic billing contracts with approximately 37 and 64 companies, respectively - a tiny proportion of the thousands of billers consumers interact with monthly. What about paying bills to the paper boy, the babysitter or the dentist?

In recognition of this obstacle to online payment, CheckFree-supported financial services sites offer integrated E-bill and paper bill payment, or "pay everyone," capability, for a small fee. Through the service, the consumer pays electronic billers via the Internet, and can direct CheckFree to issue paper checks to other payees using funds from the consumer's bank account.

TransPoint plans to offer the "pay anyone" capability within nine months, according to Henn. The company is working hard to increase the number of its contracts with billers in recognition of this barrier, he added.

"Based on our consumer research, a customer needs to have at least three to five billers offer electronic billing for them to make the switch. We're dealing with about 50 billers that have contracts or are in the process," said Henn. "We feel we'll make additional inroads here after Y2K and we think things will accelerate rapidly then."

Retail Marketing:

Suppliers Leaving Mortar, Bricks Behind

Energy companies are finding no limit to ways to use the Internet to grab customers and sell products. Utilities that offer online enrollment in bill-averaging or energy efficiency programs are nothing new. But now power suppliers are using the Web to market their electricity to utility customers where customer choice laws have been enacted. And they're signing them up directly online.

ConEdison subsidiary ConEdison Solutions, for instance, allows prospective business and residential customers to choose it as their energy supplier via its Internet site. By going to the sign-up section, large commercial, small commercial and residential customers are directed to the appropriate forms. Business customers are directed to a section called "Solutions for Your Business," where they are educated about energy management services, an interactive energy forum allowing them to submit questions to an energy expert, and a store where they can purchase products such as fiber optic lighting.

Conectiv Energy also allows residential customers to sign up for service via its website. But in addition to a choice of Conectiv's regular rate offerings (between fixed rate or electric-heat fixed rate), customers may choose the "greenness" of the energy. Through the Nature's Power program, customers can choose to pay a premium for 50 percent or 100 percent green energy.

A new power marketer with a cyber name plans to capitalize on the public's enthusiasm for all things online. Utility.com, which claims to have been the first company to sell electricity to residential and business consumers via the Internet, in March was launched in California. It will begin servicing Nevada customers in March 2000, and plans to offer service in Pennsylvania, Massachusetts and Rhode Island soon.

With a blanket guarantee of 10 percent savings and a promise to donate 5 percent of its profits to environmental causes or other charities, the company recruits, enrolls, bills and services customers directly from the site. Small business customers can email the company for a price quote. Once enrolled, the customer can track energy use and pay bills online.

According to chief executive officer Chris King, the fact that the company is entirely Web-based is what allows it to offer customers low prices. Said King, "This significantly reduces operating costs compared to a brick and mortar utility, resulting in additional savings that can be passed on to customers."

But, he added, what distinguishes Utility.com from other utilities is its customer-centric approach - not the Web.

"The biggest difference our customers have is choice; if they like us, they can choose us. If not, they can choose someone else to provide their electricity," said King. "This, except where there is true competition (such as Pennsylvania, where the state has had the foresight to establish a truly competitive market), is not possible with a traditional utility. The result is an intense customer focus on our part."

A similar service is offered by Essential.com, which serves customers in most of Massachusetts. The company, which in addition to electricity offers telecom service, natural gas, heating oil and other products, plans to expand in New England and into the Mid-Atlantic states.

In a deal that bundles services including electricity, and local and long-distance telephone service as a minimum in a two-year contract, the company promises 10 percent off the standard offer rate for the generation and supply portion of the electricity bill. Customers of Boston Edison, for instance, through Essential.com would receive 10 percent off the utility's standard offer of 3.69 cents per kilowatt-hour, or 3.32 cents per kilowatt hour. Further, while local service charges remain the same, customers are locked in at 9.9 cents per minute for all long-distance service.

Referring to the wealth of marketing opportunities offered by the Web and other media, public relations director Joe Palladino says, "We're enabled by the Internet, which is a fairly new tool, and by deregulation, which is new. With the advantage of these two concepts, we're trying to come up with different ways to reach people."

As an example of the innovative marketing tactics used by Essential.com, its website promises customers who sign up entry in a drawing to win a year of free electric generation service or box seat tickets to a Red Sox game.

The sites and others like them are simple to use, assuming the customer knows they exist. By simply entering his zip code, a customer can begin the sign-up process. Unless he lives in one of the narrow areas served by the supplier, he will be met with a cheery message like Utility.com's: "Sorry, not there yet!" Then the customer may ask to be alerted by email when the supplier begins servicing his neighborhood. If the customer happens to live in an area that is serviced by the supplier, he can sign up for service in just minutes using a credit or debit card and information from his utility bill.

The sites compare favorably with similar, established Web portals offering gas service. WPS Energy Services, for instance, has been offering gas service on the Internet since late 1997 or early 1998, according to a spokesman. It serves unregulated markets in the Midwest. Customers of Columbia Gas, SEMCO, Wisconsin Gas, Consumers Energy, Michigan Consolidated Gas, and NICOR, can choose from between two to five pricing plans, including those with fixed and variable rates. The site also provides examples of what WPS customers have saved. WPS recently began offering electric service through the site to retail customers in Illinois, Pennsylvania and Maine.

Commodity Trading: Can

HoustonStreet Quell Resistance?

But the Internet is not only for the retail customer. Several websites for electronic trading in the $70 billion wholesale energy market have been established in recent years. An inherent advantage of the Internet is its inexpensive use compared to the costly dedicated lines that support such electronic trading platforms as Bloomberg Power Match. Although e-trading has proven to work well for the natural gas market, electricity trading on the Internet has been less successful. Concerns linger about security and privacy issues, site reliability and the lack of a paper trail to record trading terms.

Independent System Operator New England in May began operating a virtual trading floor via its website for New England's wholesale electric market. It ushered in the era of bid-based electric competition in six New England states, by allowing up to 130 electric generators, suppliers, marketers, brokers and load aggregators to use the Internet to trade electric supplies and services.

ISO New England, Andersen Consulting and ALSTOM ESCA worked together for two years to create the system and technology infrastructure needed to operate the competitive market. The systems designed for ISO New England allow it to receive bids and contracts for energy and related services from participating organizations, use the bids to schedule and dispatch energy resources, support settlements and billing for market services and publish reports detailing market and participant-specific activities.

But it was the July 8 launch of HoustonStreet.com that ultimately may bring traders around to trading wholesale electricity on the Internet. The initial launch established trading in the NEPOOL, NYPP and PJM markets, with trading throughout the Eastern, Southern and Central United States to be available by this fall. By early August the company had registered more than 60 percent of the active wholesale power trading companies in the United States. According to press materials, more than 270,000 megawatt-hours of electricity were traded in the first four weeks HoustonStreet was online.

In fact, interest in the site has surpassed the company's goals, according to president and CEO Frank Getman. "It's exceeding our expectations, but this is a marathon, not a sprint. We're trying to change the entire way an industry does business," he said.

Billing itself as the "first fully Web-based online trading floor," the company allows the entire purchase to take place online in real time except for the actual exchange of funds. In addition to trading at all hours, 365 days a year, traders may access weather, energy news and financial information through the site. They can even monitor other trades as they happen via a message crawl along the bottom of the screen.

So why would HoustonStreet.com succeed where other electronic trading forums for wholesale electricity have flopped? According to Getman, it's the Internet and its ability to deliver up-to-the-minute information that makes his system better than even traditional trading by phone. While previous trading systems have relied on proprietary software or hardware that limited trading to other users who have the same software or hardware, HoustonStreet.com is an open system.

"Also, I think the timing is right," he added. "Traders use the Internet everyday in their job, so it's not at all foreign."

The trading system doesn't compete with ISO sites, he said; in fact, it's linked to many of them. "ISO New England, for instance, serves a very useful service, but it's not really a trading floor," said Getman. "Our site allows you to trade with the flexibility you have on the phone - any terms, any price."

Furthermore, he noted, the trader maintains his relationship with the ISOs, so transmission problems that might affect a deal continue to be handled directly through the ISO.

Several concerns that have hindered widespread electronic trading of electricity in the past appear to have been resolved through the use of technology in HoustonStreet's design. For instance, proof of trading terms for accepted deals is provided through the site's automatic confirmation via fax and email. Two backup servers provide triple redundancy to ensure against site crashes due to overcapacity, such as those experienced by the eBay auction site. And system security is ensured through a threefold chain: (1) a user name and password required for logon; (2) the latest encryption technology; and (3) a firewall.

But how do traders know that their trading patterns and other information won't be tracked and sold? According to Getman, "We would be shooting ourselves in the foot to do that."

He added, "We really are building a community of traders. We want their feedback and we're going to build the system they want to use."

So is HoustonStreet.com, in fact, the system traders want to use?

"The promo's been good, but I question whether the industry will embrace it," said Mark Williams, vice president of risk management at Citizens Power.

"It doesn't matter which [online] company you look at," according to Williams. "There are three fundamental problems [with e-trading electricity] from a risk management standpoint. If they can get past these three hurdles, they stand to be effective."

The first problem he cited concerns market risk caused by the high volatility of electricity, and the trader's need to be immediately responsive to price change. While the Internet may be responsive enough to accommodate trading less-volatile commodities such as stocks and bonds, Williams said, power can have volatility as high as 200 percent - many times that of natural gas, for example. This high volatility substantially raises the stakes in terms of price, so it is imperative that traders be able to act quickly to buy or sell.

Another area of concern, said Williams, is credit quality, and traders' need to manage credit exposure. He noted that most Internet-based trading systems have only a red light or green light to indicate whether trading parties may deal, limiting the traders' flexibility.

"That doesn't allow you to turn counterparties on or off on either a buy or a sell transaction," he said.

Williams said the last problem area concerns operational risk related to system reliability. An Internet system can fail due to anything from server and software problems to acts of God. "But whether the problem is internal or external doesn't matter," he said. "For me, reliability has to be 99.99 percent."

While any competition against brokers is beneficial, said Williams, they play an integral role in trading that a Web portal can't displace. "Brokers add market color. You get a sense of how the market is moving."

Despite its inherent risk, the lower cost of using Internet technology vs. proprietary electronic systems means it's only a matter of time before electricity is commonly traded on the Web, he said. "I think it's inevitable just due to economics. Cost as a barrier to entry is so low that people are just going to jump on this bandwagon."

But resistance to Internet trading will persist until systems reach near 100 percent reliability. High reliability is imperative, according to Williams, because crashes are most likely to occur at the most critical trading times - when prices and site activity are highest.

Said Williams, "It's a matter of getting what you pay for."

Next Up: Megastores, or

Niche Products?

Vermont-based Green Mountain - not to be confused with the Vermont-based electric utility, Green Mountain Power - has entered into an agreement with Internet provider Yahoo! Inc. to market its environmentally friendly brand of electricity.

Green Mountain will run banner advertisements throughout the Yahoo! network in California, Pennsylvania and New Jersey, giving users of the Web search engine the opportunity to purchase via the Internet electricity made from energy blends featuring renewable energy sources.

"Through the intersection of the Internet and utility deregulation, our relationship with Yahoo! greatly expands our potential online customer base," said Kevin Hartley, Green Mountain.com's chief marketing officer.

Green Mountain serves about 75,000 customers in Pennsylvania and California. Several of its top executives previously worked at the Green Mountain Power electric utility.

Another innovative Web-based marketer, Full Power Group Inc., plans to use the Internet to establish its Online Power Supermarket. It recently acquired Meter Reader, a remote meter reading operation, and plans to build a database using accumulated information. The supermarket provides consumers with a true analysis of all power and utility costs, along with a complete list of providers in their service areas for one-stop comparative shopping. The user may assess the most economical buying program based on product availability and their individual usage profile.

Full Power wants to expand to include supplier comparisons for natural gas, water and heating oil. Eventually, all other types of utility service usage, such as long-distance and local telephone costs, alarm monitoring contracts, cable television and interactive services and maintenance contracts, will be part of the package.

According to Full Power chief operating officer Donald Johnson, "The Internet gives us the ability, through instant communications and sophisticated computer programming, to turn this evolutionary process to the consumer's buying advantage. The companies that accomplish this metamorphosis successfully will be the mercantile giants of the next century."

Lori A. Burkhart is a contributing legal editor and Regina R. Johnson is managing editor at Public Utilities Fortnightly.

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