Gathering competitive intelligence.

• Author: Luecal, Scott
• Position: Includes appendices

As the electric utility industry continues to re-regulate, and become increasingly competitive and market-driven, it is impairative that consumer-owned electric systems gather, interpret and effectively use competitive intelligence.

Competitive intelligence may be defined as information and knowledge to be obtained and used to formulate strategies for effectively dealing with three entities: competitors, customers and regulators.

For competitive intelligence to be used effectively, it must feed into a system's strategic planning. Competitor intelligence is needed to acquire foreknowledge of existing competitors and to predict future competitors. In a recent Public Utilities Fortnightly article, electric utility managers "project, on average, a 50 percent increase in the actual number of competitors in their service territories by 2000." (PUF, 3/1/95, pg 22).

Customer intelligence is necessary to be able to negotiate rates and meaningful value-added services, particularly with commercial and industrial customers who are having to compete in their own global markets, and who are impacting the restructuring of the electric utility industry. One must always remember, policy follows the market.

Regulator intelligence, both on a state and federal level, is critical because the role of the regulator is changing and perhaps expanding, not being reduced. This is why we used the term re-regulating in the opening paragraph to describe the industry transition. As Congress and state legislatures enact new public policy in response to market demands, it will be the FERC and the state commissions who will be responsible for implementing the new policy.

The responsibility for competitive intelligence rests with the general manager of the system, and the general manager must recognize that all employees must be given some responsibility for gathering and/or interpreting competitive intelligence data.

This article will provide the reader with:

1. An analysis of how to accumulate and organize competitive intelligence, and why it is important to gather this information.

2. Sources for gathering competitive intelligence.

3. Types of competitive intelligence information.

4. A case example of cooperative strategies implemented as a result of gathering and analyzing competitive intelligence.

   COMPETITOR INTELLIGENCE

   There has always been some form of competition in the electric utility industry. It is greater today than it has ever been, and it will be greater tomorrow. Who are today's competitors? We cannot just focus on traditional rivals like the investor-owned utility or the municipal utility. Electric competition is currently coming from investor-owned utilities, municipal utilities and consumer-owned utilities; energy competition is coming from propane, natural gas and other non-electric energy suppliers. Competition is also coming from non-utility entities, including co-generators, independent power producers (IPP's) and power brokers or marketers.

   As an industry, we have accumulated a certain degree of knowledge about our traditional electric and non-electric utility competitors. However, most systems do not have a formal method for continually gathering competitive intelligence. In his book Thriving On Chaos, Tom Peters asserts that companies lack an effective intelligence infrastructure. Much of the intelligence gathered by employees goes nowhere because of conventional barriers to communication or, worse yet, because of an attitude of nonurgency, which means no alarm bell is tripped in the employee's head (page 283). We pick up bits and pieces of information via our daily contact with our competitors but we do not have a formal list of information to gather, methods to channel it, or ways to interpret and use it.

   Systems have a different problem with non-traditional competitors such as the IPP and the power broker. We have very little knowledge about them because they are new entrants into the electric utility industry. IPPs were born out of the 1978 Public Utility Regulatory Policy Act (PURPA), building smaller, more efficient, and cheaper power plants which, in some cases, are fired by renewable fuel sources. They were independently owned, and utilities were required to purchase their capacity at the utility's avoided cost.

   Today, many IPPs are owned by IOUs as unregulated subsidiaries; they may enter into contracts at avoided cost or at market rates; their operations may be domestic or international; and, if they are independent companies, they may be seeking alliances with IOUs, municipals and cooperatives. Power brokers own no generation or transmission assets; they seek to buy and sell power as if it were just a commodity. ENRON and DESTEC are two such brokers. We have to get to know these entities. Appendix A provides you with a list of possible competitive intelligence resources.

   An analysis of each of your competitors may be categorized as follows:

1. Ownership structure - The competitor may be investor-owned, a subsidiary of an electric or other energy utility, independently owned, a holding company or a publicly owned company.

2. Gross indicators - Identify the competitor's industry, revenues, sales, consumers, markets, products and services, cost structures, asset composition, financial ratios, financing sources, cash flows, etc. This information must be collected, updated and shared widely within the system.

3. Competitive position - Identify each competitor's rates and costs to produce and sell their products and services compared to your system and their other competitors for similar products and services. If possible, analyze on an unbundled basis.

4. Current strategies - Identify and analyze your competitor's current strategies and tactics, why they are pursuing these strategies and tactics, the opportunities and threats presented to your system as a result of these current strategies and tactics.

5. Future strategies - Develop possible scenarios which you believe may be their future strategies and tactics, why they may pursue them, and any possible opportunities and threats presented to your system. Remember, Wayne Gretzky was the National Hockey League's greatest scorer because he skated to where the puck was going to be, not where it was. You cannot follow the competition; you must take the risk and try to anticipate their moves.

   In order to perform this analysis, systems need to collect and interpret a significant amount of data. Appendix B lists and describes the information to be gathered.

   After reading Appendix B, you probably have concluded there is more information available for some competitors as compared to others. For example there is a great deal more information available on IOUs than municipals. However, the municipal will be able to provide you with information, including an annual report and a prospectus for...