Energy dot.com-uppance

By ADAM GIFFORD

Deloitte Consulting is warning energy companies they will face threats from new dot.com companies in the decade ahead.

The international consulting firm has just released a report, Utilities and e-Business, setting out six developments likely to affect the utility sector.

Adi Karev, Deloitte's energy industry practice director for the Asia Pacific region, says the report shows how the power of the internet will affect the gas and electricity industries as it has traditional consumer retailing.

"We'll see lower prices, decreasing consumer loyalty and new market entrants with totally new strategies within the energy industry in the next decade," Mr Karev says.

While some utilities may be happy to be suppliers to web-based companies which deal directly with customers, "utilities who want to stay in the retailing game will have to reinvent themselves as cyberspace merchants and become very adept at marketing, selling and retaining customers using the web."

The six possibilities Deloitte says should feature in any utility company's strategic planning are:

* That cheap but powerful e-business platforms will intensify competition, usually with the advantage going to challengers rather than incumbents.

* There will be new web-based intermediaries coming between utilities and customers that encourage customers to shop around for lower prices.

* Customers will want to design the energy products and services they buy, rather than just taking what the companies give them.

* Many transactions involving energy use will be conducted by machine-to-machine internet communications as smart devices become more common.

* Utilities may have to seek third-party endorsement and bargain for customer data because of qualms by some customers about doing business on line.

* Taxation will become confused and contentious as governments try to fashion policies for the e-business era.

The first of these possibilities is down to basic internet economics.

"If the internet can bring about decreases in transaction costs, we can predict this will change company and consumer behaviour in the affected markets," the report says.

The more companies can bring those transaction costs down, the more successful they will be.

On-line presentation and payment of utility bills, rare today, will be one source of savings. Another is tying website transactions to back end processes.

The risk for any retailer, including utilities, is that new dot.com virtual utilities using sophisticated web-enabled marketing tools can capitalise on the reduced cost of invading markets.

"Some traditional utilities facing incursions from web-based attackers [will] withdraw from retailing altogether, while others [will] go on the offensive, forming their own web-based retail units to invade fellow utilities' markets."

Already a California company, Utility.com, is providing online enrolment, billing and account management not just for electricity bills but for gas, water and heating. It guarantees 10 per cent annual savings off the incumbent's standard prices and a $25 signing bonus.

Customers are offered a CellNet meter, which allows the utility to analyse use and offer suggestions for the cheapest rate plan.

Utility.com's chief executive told a US Congressional committee in May that by using the internet his company can sign up, serve, bill and support customers up to 90 per cent more cheaply than traditional utilities.

Then there are the intermediaries, identified as "shop bots" which do automated comparison shopping, auctions, reverse auctions where customers specify their energy needs and wait to be offered a deal, and buyers' clubs.

In these customers are aggregated, perhaps by clicking on a website, to give them buying power.

Deloitte says, while some utilities may win customers through such intermediaries, "others have an 'easy come, easy go' experience as the same intermediaries that brought them customers find ways to entice them back to the website to sample their market once again."

Internet technology will allow a wider range of customers to specify what they need.

However, this shift could bring utilities in conflict with regulators, legislators, consumer advocates and others concerned about splits in society.

"To the extent customisation efforts tend to concentrate on commercial, industrial and upscale residential customers in large metropolitan centres, concerns can arise as to the implications for downscale customers and customers in remote areas."

New Zealand power companies are already aware of the challenges, and the two main local manufacturers of power-billing software, Peace Computers and Sanderson, have made their systems extensively web-enabled.

Alasdair McLeod from Deloitte's New Zealand energy industry practice says companies will have to form partnerships and alliances to cope with the new environment.

"This is as much a threat as an opportunity for New Zealand utilities. Low-cost technology platforms will make it incredibly easy for other people to come into the space traditionally occupied by utilities," Mr McLeod says.

"Around the world the data seems to suggest e-business favours the aggressor. Deloitte is talking with clients not just how to defend but to look outside the square and say what markets they could feasibly pursue using this technology.

"Initially that will be by alliances and joint ventures with other parties, but as technology makes it possible to provide individual products for a single person, utilities need to look at ways the individual energy and other needs of customers can be met."

He says New Zealand's history of being an early adopter of new tools should stand it in good stead.

"New Zealanders are remarkably adaptive people and its utilities are run by people with a good general appreciation of business and a real understanding of the technology."