|
Contact
| PRESSROOM
Climbing the Learning Curve:
Rethinking Strategies for a Deregulating Energy Market
The energy utility industry is in the midst of
unparalleled change. Deregulation has moved beyond an academic topic to
the point of implementation, and as states such as California and
Massachusetts execute plans to bring competition to retail energy markets,
many participants are discovering that the development of a competitive
market is no easy task. Players in these deregulated markets have
encountered a bevy of complications that includes delays, critical price
swings, system problems, and other competitive issues. Where competition
has been initiated, consumer confusion, apathy, and even backlash have
surfaced.
"Deregulation of the energy utility
industry is not going as planned," said Chris J. Wallace, Senior Analyst
for Parks Associates. "While some strategies have evolved, others are
being rethought. If the utilities are going to survive and flourish in
this new era, it is imperative for them to understand the changing
industry, the problems they will face, and the winning strategies they
will need for future success."
In a competitive market, utilities stand
to lose a legion of customers, so customer retention strategies are
imperative for utilities wishing to succeed in this new era.
Electronic Living @ Home II, a national survey conducted by Parks
Associates, found that in a competitive market, the vast majority — 65% —
of customers would choose an energy provider based primarily on price. Of
these consumers, over half would switch to an alternate provider for a
discount of less than 20%.
Utilities have developed strategies to
prepare for these changes, only to find that one strategy does not fit all
situations. While some utilities focus on energy generation and delivery,
others aspire to become full service providers of residential services.
Security, telecom, Internet access, cable TV, bundled services — all of
these areas have captured the interest and investment of several
utilities. Over 50 utilities have journeyed down the path of value-added
services, with varying degrees of success. Entergy Corp. of New Orleans
started grabbing security firms throughout the South in 1996, acquiring
over 12 major firms in the first year alone. By early 1998, Entergy’s
security business had grown to become one of the nation’s top ten, but in
recent corporate restructuring, Entergy sold its security business to
security giant ADT.
Similarly, Utilicorp United Inc. of
Kansas City began an innovative program in 1995 aimed at creating a
national brand for energy, EnergyOne. Along with the new brand came a
package of services that bundled energy, telecommunications, and security
offerings. This concept was heavily marketed and well received from its
inception. Nonetheless, Utilicorp pulled the plug in 1998, citing
disappointment and frustration at the slow progress and piecemeal
development of deregulation. Utility management said the concept was
designed for a national market and that market had not yet arrived.
Disappointment is not limited to company
initiatives. The newly developed competitive energy market in California
has been besieged by unanticipated problems. Computer problems delayed the
original start-up date of January 1, 1998, by three months. Although
California is the largest energy market to implement full competition,
participation has been much lower than anticipated. Of the 300 power
marketers who originally signed on to sell power, fewer than three dozen
are actively seeking customers. On the consumer side, less than one
percent of all the customers eligible to switch providers have done so. In
one case, Enron Corp. in Houston, Texas, spent over $10 million in
California and attracted a mere 30,000 of the 8.8 million customers
eligible to switch energy providers. Enron subsequently pulled out of the
California market and reined in plans to enter similar, newly deregulated
markets.
In addition to erratic utility
strategies, customer confusion, and lack of participation, the
deregulating energy industry has encountered wild price spikes — up to 200
times their normal price — in the energy trading markets and heated debate
on the issue of stranded cost recovery. Furthermore, issues such as
ensuring fair competition for new energy providers; maintaining the
reliability of the nation’s power grid; and protecting public benefit and
environmental programs threaten to derail, or at least postpone, energy
deregulation.
Strategies and methods developed in this
historically regulated market will not work in the new age of competition.
In an effort to understand the new energy market, Parks Associates is
presently conducting the most comprehensive study to date concerning the
current changes in the energy utility industry – Climbing the Learning
Curve: Rethinking Strategies for a Deregulating Energy Market. This
study will include a strategic analysis of the developing market, the
strategies being implemented by utilities, and the problems that have
emerged. Through case studies, executive interviews, and consumer surveys,
Parks Associates will examine the competitive issues facing all companies
that wish to succeed in the deregulated marketplace.
Please contact Parks Associates at
972-490-1113 or
sales@parksassociates.com for more information.
About Parks Associates: Parks Associates is an
internationally recognized market research and consulting company specializing
in emerging consumer technology products and services. Founded in 1986, Parks
Associates creates research capital for companies ranging from Fortune 500 to
small start-ups through market reports, primary studies, consumer research,
custom research, workshops, executive conferences, and annual service
subscriptions.
The company's expertise includes new media, digital
entertainment and gaming, home networks, Internet and television services,
digital health, mobile applications and services, consumer electronics, and home
control systems and security.
Each year, Parks Associates hosts executive thought
leadership conferences CONNECTIONS™, with support from the Consumer Electronics Association (CEA®), and CONNECTIONS™ Europe. In addition, Parks
Associates produces the online publication Industry Insights in
conjunction with the CONNECTIONS™ Conference series.
http://www.parksassociates.com |
http://www.connectionsconference.com |
http://www.connectionseurope.com
|
http://www.connectionsindustryinsights.com
|
