An Energy Product Breakthrough!

Bob HughesManager, Product MarketingGeorgia Power Company

FlatBill for the Energy Industry

Residential and Small Commercial Customer Concerns

Some customers want to know exactly how much they will be paying for utilities – No Surprises!

They want a totally flat bill with no possible bump or additional, after-the-fact charge when costs are higher than had been expected as found with Budget Billing

Many customers dislike their bills for energy subject to the weather

They are better able to manage their energy bills if the bills are spread equally over the year rather than spiking in certain months

FlatBill: A Classic Win-Win Product on the Verge of Market Prominence

FlatBill is an exciting and remarkable pricing innovation!

Customer is offered a Flat price for an entire billing period regardless of underlying costs and usage changes

Conceived through market research directed at mass markets

Will capture a large market share AND Provides a healthy return to the provider!

Program Design

Target Customers Residential/small commercial At least one year history Good credit but may be ideal for bad credit

Electric Utilities Commission Approval Status Map

Permanent FlatBill Tariff Pilot FlatBill Tariff Without FlatBill

Electric Utilities Offering Flat Bill

Permanently approved tariffs Georgia Power Duke Power Progress Energy (NC, SC) Gulf Power Company Indianapolis Power & Light

Pilots Jacksonville Electric Authority Oklahoma Gas & Electric Alabama Power Company

Pending approval or roll-out Savannah Electric East Kentucky Power Cooperative Public Service of Indiana Electric Power Board of Chattanooga

Why Should Utilities Offer FlatBill?

Marketing and financial product catalyst

Customer satisfaction High retention Open access Custo

mer Satisfactio

n

Customer Choice

95% of those surveyed said Flat Bill met/exceeded expectations

71% of those surveyed said they are very “likely” to renew; 1% “unlikely”; actual renewals > 90%

Why Offer Flat Bill?Customer Satisfaction Results

Favorable public reaction (Ex. In Georgia received favorable press in local newspaper, AP Press, Local Radio/TV, Paul Harvey newscast)

Reduction to deferred payments 10%+ market penetration rate for residential

customers Enrollment rates vary based on customer

segment and profile

Why Should Utilities Offer Flat Bill?

Earnings + $1.3m EBIT per every 25,000

Pricing product portfolio fit Penetration 7-15% for residential; 5% for

commercial Growth

Primarily off peak

Why Should Utilities Offer Flat Bill?

Addresses some regulatory concern Creates bill simplicity by bundling

components Complaints due to unexpectedly high

bills Flat billing products approved by

regulators in at least 10 states Catalyst for product innovations in the

mass market

What to Expect from FlatBill?

Healthy growth mostly off-peak High customer satisfaction and renewal Reduced deferral payments and bad debt Good penetration rates with attractive

premiums Strong interest from budget pay

customers Manageable risks

Natural hedge

Flat Bill Data Management

Actual Usage

OFFERS

Analysis & Design*

Weather

Pricing Parameters

Customer Care and

MarketingCUSTOMERS

Accounting and

Risk MgmtAgents Pricing

Department

Historical Usage

Billing Systemand Data Bases

Tracking Software

Inputs/Outputs

Systems Offer Software

Reports

*Christensen Associations**Direct Options

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*

*

**

Flat Bill Issues

Accounting Above or below

Regulatory approval/Conservation Volatility of Fuel Cost Program Resource Needs

Target Marketing Renewals Segmentation Tracking software Reporting

FlatBill Issues

Pilot or permanent initial rollout Financial impacts Product design

– Bill algorithm and software• Risk coverage and premium

– Tariff design• Eligibility• Pro-rate

Force majeure Early termination Meter route changes

• Budget billing• History and credit

FlatBill

Separating Fact from Fiction!!

The Georgia Power FlatBill™ Experience

Pilot programs: residential, small commercial

500 customers – 2000-01 10,000 customers – 2001-02

Permanent program – 2002- present 130,000 customers approx. in population of

1.3 million Renewal rates: very high Issues:

Measurement of response Treatment of rapid-growth customers Pricing strategy (segmentation needed?)

Unfounded Risk Perceptions

System Capacity Will Suffer Customers Won’t Buy It Unmanageable Risk Regulators Won’t Approve It

System Capacity Doesn’t Suffer

There is an increase in energy and demand consumption

Occurred during off-peak times Program accurately measures participant’s

change in behavior Change in demand is quantified and factored

into following year’s pricing Efficiency rewarded with a lower offer Program materials encourage energy

efficiency

Customers Buy It

Customers value predictability and are willing to pay a premium to get it

Appeals to identifiable customer segments Can be modified to extend reach into

incremental segments Results have exceeded clients’ expectations

The Risk Reality

Program not designed to “win” every year Earn a given return over multiple years

Product not for every customer GPC exceeded goals in 2001, 2002 and 2003

and 2004 Need remains for a Budget Billing (EPP)

product

Regulators Do Approve

Shift risk away from customers to utility Reduces customer complaints to

commission Gives customer the opportunity to say,

“No” At least seven states have granted

approval

Offer Development

KISS – Keep It Simple & Sweet Focus on customer benefits Vary Terms & Conditions of offer to meet

needs of the market segment Facilitate customer understanding Provide meaningful comparisons Make it easy to say “Yes”

Market Segmentation

Various target audiences Customer segments are “offer sensitive” Product supports various offers and

pricing/payment options Propensity model assists in segmentation

Creative Materials

Tested a range of formats and messages

#10 Personalized Mailing Follow-up “Deadline” Mailer Enrollment Confirmation Package Avoid jargon, caveats and

“commission” language Allow customer to make informed

decision

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Bill Volatility

Extreme Weather

Bad Credit

Seasonal Effects

Developer Packages

Conservation Package

Multi-year

Apartment Packages

“Green” Package

Prepay w/Discount

Prepay

“Phone card” Limits Plus

Banded Flat BillStandard

Flat Bill

Flat Bill Family