There's still a cautious entry into the emerging deregulated market, with marketer skepticism mostly traced to the $20 billion utility market in California.
California, the only state so far to fully deregulate electricity, has suffered from unfulfilled expectations, and an unlucky confluence of events has had a chilling effect on marketing plans across the country.
California was expected to provide a robust start for consumers having the freedom to choose an electric service provider. However, of the about 10 million Californians who could have switched electric utility providers, so far a little more than 1% have done so.
PROBLEMS FOR CONSUMERS
Problems began when several hundred marketers signed up to offer electric service in California. Consumer mailboxes filled with mailings touting benefits like environmentally friendly energy, big savings and friendlier service.
Then the Jan. 1 kickoff date for deregulation was pushed back to March 31 because of state computer glitches. Wary consumers wondered if they should switch when the computers that handle the switching and billing maybe weren't quite ready.
Then came a spate of media reports on potential fraud by unscrupulous electricity marketers.
Finally, Enron Corp., one of the biggest marketers-expected eventually to spend up to $50 million in California-pulled all its consumer advertising and marketing efforts, and abandoned California's residential electricity market.
Enron still isn't doing any advertising locally or nationally. A spokesman said the company will focus on attracting large business customers until a consumer transition period-which he estimated at two to four years-has passed.
"We'll do very little if any advertising, maybe some business-to-business," the spokesman said. "Advertising is a very costly endeavor and if only a handful of customers act, it's not really worth it."
WPP Group set up the New York office of its Conquest group to handle Enron.
Some marketers and media blamed California's sputtering start on DDB Needham Worldwide, Los Angeles, which handled the state-mandated education campaign on the impending deregulation.
The state allocated about $80 million for the education program, but only $20 million was spent on paid media, and half of that went to ethnic advertising.
"The cornerstone of the campaign was consumer education, not to get people to switch. The point of this was to understand that things are changing and, if anything, maybe to see that you don't need to make a change," said Russel Wohlworth, DDB Needham project manager for the campaign. "It irritates me that people thought we would instantly change people's longtime behavior with a $10 million general ad campaign. It just doesn't happen like that."
DDB Needham has just begun a follow-up effectiveness study on the campaign that ended in May, while the state public utility commission has hired its own independent research company to do the same.
LESSON OF CALIFORNIA
"What needs to be taken away from California is two things: Consumers are uneducated and so they don't want to make a move; and second, no one has come in and offered them anything else, other than price, to make a compelling reason to switch," said Mike Rucker, principal of utility consultancy Second Opinion.
Outside California, another recent deregulation failure was EnergyOne, a joint marketing agreement between PECO Energy Co. and UtiliCorp United.
The venture tried to entice other electric companies to join its national EnergyOne branding and packaging effort, which planned to bundle electrical service with other services, such as telecommunications and home security. But no other utility ever joined, and EnergyOne spent about $25 million over three years on marketing, analysts estimate, before calling it quits.
Nevertheless, a few utilities are forging ahead with national branding campaigns, though their focus is turning more heavily on business customers.
Southern Co., the largest utility in the Southeast, recently launched a $20 million effort to target decisionmakers and large energy users (AA, May 4).
"Our goal is to position us as a global energy leader," said Lee Birdsong, Southern Co. advertising manager. "We don't want to be ahead of where the markets have opened up."
MARKETS SLOW TO OPEN
In the end, the state and national markets may follow a telecommunications-type model and open up slowly.
"A lot of people in the industry are taking this and saying, `See, we told you so, no one's moving.' But I think the battle is just beginning," Mr. Rucker said. "With telecom, it took a couple of years to understand that it takes more than a price difference to get customers. Watch what will happen over the next three years."