Texas Competitive Market Center
The state of Texas has applied innovative concepts
to foster competition; however, certain customer information, which is critical
in determining Retail Electricity Provider (REP) profitability is not readily
available. MAISY products and services are assisting Texas REPs in improving
profitability by providing detailed information on Texas utility customers.
Texas Customer Profitability Assessments
Separate tariffs for transmission and distribution, profile-based settlement
procedures, cost of service issues and limitations of ERCOT-provided customer
information make evaluation of customer profitability so difficult that many
Texas REP's have been "chasing kilowatt hours," that is, focusing on market
share, rather than targeting the most profitable market segments.
Without detailed customer profitability analysis, REPs, at best, break even
with a mix of profitable and unprofitable customers. As some REPs become
more experienced and efficient at identifying and acquiring profitable customers,
REP's who pursue untargeted acquisition campaigns or less effective targeted
campaigns will acquire a larger share of unprofitable customers leading to
a continuing decline in profits earned on commodity sales.
Developing a comprehensive customer profitability analysis capability is
an essential first step in developing corporate strategies to increase REP
profits. MAISY-based profitability analysis identifies individual customer
profit contributions for:
This information is critical in profit-building activities such as new product
development, strategic pricing, customer profit scoring, market segmentation
and target marketing and DG technology/economic analysis.
Jackson Associates provides clients with customer profitability analysis
capabilities in several ways including:
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MAISY utility customer information resources
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MAISY profit analysis products
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Consulting support service including application of MAISY utility customer
information resources and profit analysis products
Each of the topics below briefly describes some MAISY utility customer
information resources and profit analysis products which can be applied in
Texas and other competitive markets to boost REP profitability.
Customer Profit Scoring
Financial services companies have been leaders in developing the application
of profit scoring models to identify their most profitable customers. Since
variation in costs is even greater among utility customers it is not surprising
that profit scoring is becoming a priority for competitive REPs. Profit scores
reflect commodity and other revenue and costs guiding REPs in target marketing,
price bidding, goal setting and other marketing activities. Jackson Associates
profit scoring models have been used to score more than five million individual
customers in competitive electricity markets. Profit scoring models estimate
profit for customers prior to their acquisition.
A summary description of profit scoring
models is provided in the description of MAISY service area databases
while the Market Insight article "Pennsylvania Profitability
Analysis Identifies Individual High-Value Electric Utility Customers With
83-96% Accuracy" describes customer profitability and profit scoring
in more detail.
Profit scoring models can be developed by clients using customer profit and
other characteristics data form MAISY Utility Service Area Databases or by
Jackson Associates. Profit scoring provides the greatest single advantage
available to REPs for improving profits.
Texas Electric Utility Service Area
Databases provide critical market information on customers
within each electric utility service area in Texas. Service Area Databases
include the same extensive firmographic and psychographic information on
individual customers provided in the MAISY State-Level
Databases (e.g., business type, number of employees, income, demographics,
equipment and building structure detail, energy use including hourly load
profiles) and also include electric bills and measures of cost of service
and profit for each customer record.
Electric bills reflect current utility rate structures and each customer's
monthly and/or hourly electricity use; customer-detailed cost-of-service
is determined from each customer's hourly electricity use profiles and both
hourly generating costs and capacity cost allocations. Customer profit shows
the difference between revenue derived from the customer through monthly
bills and the cost of actually providing electricity to the customer. Use
Service Area Databases to immediately calculate service area headroom,
size and profile individual markets, assess revenue and profit potentials,
analyze cost-of-service issues and evaluate competitive threats, opportunities
and strategies. Databases are available for all electric utility service
areas including investor-owned utilities, municipal utilities, public utility
districts, and co-op areas. Electric Utility Service Area Databases use the
standard MAISY chart-based drill-down software described above. The Service
Area Profiler can also incorporate load profiling to
determine monthly profit (or loss), revenue and cost of service for both
residential and commercial customers and customer segments whose settlement
is determined by distribution-utility dynamic load profiles and monthly meter
readings.
While deregulation is in effect for most of Texas customers, existing rate
structures, customer loyalty (or lack thereof), cost-of-service characteristics
of the distribution utility, weather characteristics and other utility-specific
factors distinguish each service area as its own market area. MAISY
Service Area Databases are a cost-effective and timely source of information
available for individual utility service area market evaluations and marketing
analysis.
New Product Development
New product development requires detailed information on customer characteristics
equipment, operating and building characteristics as well as information
on customer behavioral characteristics and preferences. Texas Electric
Utility Service Area Databases
provide this customer information.
Developing profitability information on Texas customers and developing a
comprehensive customer profitability strategy for Texas markets is challenging,
to say the least. While monthly kWh and customer contact information is available
through ERCOT, this information, by itself, provides very limited insights
on customer profitability. Jackson Associates works with clients integrating
all available customer data resources to develop comprehensive inhouse customer
intelligence systems.
Revenue and Cost Management
Jackson Associates also works with clients to develop comprehensive customer
profitability strategies. JA Revenue and Cost Management
Systems immediately reduce costs and increase revenue by focusing on
individual customer cost of service, demand response programs and other
options with a quantitative revenue maximizing and cost minimizing
process
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