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MERCHANT MARKET ENTRY:  INITIAL  CONSIDERATIONS 

 

As an energy company pursues entrance into new market regions, especially the merchant markets, there are a number of items that EN SIGHT believes will provide a good model for ascertaining the economic feasibility of entrance into this new market.

Our Market Entry Checklist is based upon EN SIGHT's experience with developing business strategies for energy companies and our work with clients actively involved with various gas and electric pilot programs throughout the country. Obviously each market area will have different attributes but generally we believe the same or similar challenges and opportunities will be characteristic of each.  

For our checklist presented below, we will assume that a company seeking to enter a new market area, or expand sales to new classes of customers within a current market territory, is ready to deploy the manpower and resources to the new targeted market and that the sales force is prepared and armed with the proper tools and support to engage the market. From this standpoint, EN SIGHt's overview of market entry checkpoints should apply.   

Merchant Market Entry Check List

·        Review existing utility tariffs versus proposed amendments or new tariff filings relating to restructuring (i.e., the effective dates, issues related to unbundling of services and rates, and timetable for resolution of those issues). 

·        Evaluate utility distribution services, tolerances and rates. (storage and balancing, standby or back-up energy supply services, meter reading, invoicing, fees…).

 ·        Identify the applicable utility and PUC requirements for certification as a third party energy services provider (ESP) and the timeframe required for the approval process to be completed. 

·        Determine the credit requirements and limits imposed by the utility for use of its distribution services and transmission / transportation capacities. 

·        Conduct an initial market analysis and profile (i.e., customer counts, market segmentation, historical demand data, rate classifications, utility sales prices…) and determine competitive position based upon internal margin requirements.  

·        Determine the standard and customized products and services to be initially offered and develop the descriptions and price structures.  Additionally, consider product rollout and management procedures, as well as communications and advertising strategies. 

·        Consider customer sign-up strategies / processes and any specific requirements that the utility may impose that must considered (i.e., “window” period for customer switching / sign-up).

·        Develop credit approval policies and procedures for the targeted customers.  

·        Determine energy purchase requirements and supply costs to meet projected demand and evaluate strategies for supply portfolio development.  

·        Develop strategies for delivering energy commodities and services to the market -- logistical and operational issues – as well as managing scheduling and balancing.  

·        Evaluate the infrastructure, technology, and resource requirements to support entry into the new market and the associated increase in the numbers of customers (and transactions).  

The support functions required for new market entry will exponentially increase as the customer base grows, with the most rapid growth to be in the areas of logistics / operations and back office. With the expansion of business activities into retail and mass marketing, the magnitude of the increase in the volume of transaction activity for customers will most probably overrun the current capabilities of the mid-office and back-office. 

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Last modified: June 29, 2005