Location, location, location: winning site selection proposals.

• Author: Pittman, Robert H.

Attracting energy intensive commercial and industrial customers to a local community can significantly enhance the utility's bottom line. Moreover, when a C&I customer moves into or expands in a service territory, the "ripple" or local economic multiplier effect creates even more jobs and electric load as local spending and population increase.

Because of the significant contribution C&I customers can make to the bottom line, many investor-owned and municipal utilities, as well as cooperatives, have established economic development programs to help recruit new firms to their service territories and retain and expand existing C&I customer operations. Company executives and site selection consultants often work with utilities when making location decisions, and a professional economic development staff can significantly increase the "capture rate" of C&I customers for the local utility.

In economic development and business recruiting, as in any marketing effort, understanding the customer and the location/expansion decision process is a key ingredient to success. When a company has narrowed its list to the final three or four locations, understanding the hot buttons driving a location decision frequently makes the difference between closing the deal and losing the customer to another service territory. Co-op executives and local leaders who understand the business location process and know how to write a winning proposal enjoy a significant competitive advantage.

This article will provide an overview of the typical C&I customer's location decision process and offer guidance on how to be more successful in attracting new businesses to the utility's service territory. The article will discuss the different reasons companies make expansion or relocation decisions, who the decision makers are, and the three phases of the typical site selection process. The article also includes some tips on how to increase the recruiting success rate.

The Decision-Making Context : Risk Aversion

Location decisions are fairly rare events for most companies. For many small or medium size companies, new facilities are required only every few years, if ever. For larger companies or smaller high-growth companies, facility expansions may be more common, but usually different executives within the company are involved in each project. Because company executives are generally inexperienced in the site selection process, many aspects of the decision can be subjective. Moreover, company executives are almost always risk averse, especially if a professional consultant is not involved in the process. The irony is that often economic development professionals or staff members from utilities or state or local economic development agencies are more experienced in the site selection process than the company executives themselves.

Many companies, especially the larger ones, do hire site; selection consultants to help' make location decisions. Site selection is both an art and a science, and location decisions are usually made only after careful analysis of data sets and sophisticated financial and risk modeling. Site selection is an investment decision, and most companies calculate the costs, benefits and returns on investment among alternative locations. In today's globally competitive business environment with rapidly changing product markets and new technologies, the location of a "bricks and mortar" facility is a decision with long-term implications that companies cannot afford to get wrong. The prevailing wisdom is that professional consultants are employed in 35 to 45 percent of the location decisions, but economic development agencies report a wide variation in this number. Smaller, privately owned companies are more prone to undertake a site search without the help of a professional consultant.

Economic development representatives from utilities that are perceived by company executives or consultants to be highly knowledgeable and professional in the site selection process and who evoke a sense of partnering to solve a company's location "problem" are more likely to win the project. Risk evaluation is paramount in the location decision. Missed deadlines for bringing new facilities on-line or building facilities in unsuitable locations can be financially disastrous for the locating company. Therefore, when local authorities and economic developers say "trust us" that, for example, the power line extension will be completed before the facility is built, companies are understandably skeptical. It is far better to have the new power line already in place to the site, or at least have some concrete indication that it will be in place (firm schedule, committed funding, etc.) when the facility is ready for operation. A "development ready" site and community (utilities, transportation, labor, etc.) will win more projects.

Factors That Drive New Facilities Development

What factors motivate a company to relocate or expand? A new facility is a costly and often risky undertaking for a company. Most companies make the decision to relocate or build a new facility only after careful consideration of the alternatives, which may include re-engineering or expanding current facilities or outsourcing production. There are several common reasons why companies decide to relocate or expand. Generally speaking, they can be divided into product/market and non-market reasons.

Some of the more common product/market reasons include:

* Growth of existing products or services

* Development of new products or services

* Development of new regional markets

* Expanding sales territories

* Demographic shifts

* End of a product life-cycle

Some non-market reasons include:

* Vertical or horizontal integration of the firm

* Unfavorable...