ANALYSIS: Electric Deregulation - Texas deregulation PR planenlightens rest of country

California blackouts and Enron could have pulled the deregulation plug. But Texas' PR-heavy plan is set to be a guiding light for others to follow.

California blackouts and Enron could have pulled the deregulation plug. But Texas' PR-heavy plan is set to be a guiding light for others to follow.

The University of Texas fight song warns opponents that they can't escape the eyes of Texas. But where electricity deregulation is concerned, Texas can't escape the eyes of the nation.

Five years ago, widespread retail electric competition seemed inevitable.

Pennsylvania, New Jersey, and Ohio adopted deregulation successfully.

Then rolling blackouts plagued partially deregulated California last summer, and though Enron didn't get directly involved in retail sales, its pro-competition lobbying and questionable trading sucked lots of steam from the deregulation movement.

A few states pressed on, though. On January 1, Texas became the first state to throw its market open for customers of investor-owned utilities since the California blackouts. What happens in Texas - and the way it's communicated - could affect the adoption and pace of competition in other states, experts agree. And PR agency execs say electric competition is creating opportunities for them in Texas.

"We see Texas as a pivotal market. We will commit a lot of resources to communications there,

says Ray McManus, communications VP for Energy America, a division of the UK's multi-utility company Centrica. "It's the home of energy for the states. If they get (deregulation) right in Texas, it's going to be a big success. A lot more people will feel much more reassured."

Electric competition is a complex proposition in the US because each state decides what it wants to deregulate and how, and no two use the exact same framework. As of March, 16 states allowed some level of competition, seven had delayed deregulation, and California had suspended its program.

This patchwork regulation forces Green Mountain Energy, which sells electricity generated from renewable resources, to employ three different business models and marketing schemes in different states, says corporate communications VP Marcie Grossman. The complexity and uncertainty of competition has already driven companies like Shell out of the retail market.

But those in the energy business like Texas' competitive model. Wholesale generation was deregulated first in the mid-1990s, providing a favorable environment for power-plant construction. Power shortages, therefore, aren't likely in Texas.

The Texas Public Utility Commission (PUC) regulated electric monopolies, and is now responsible for getting the word out about the change in the way consumers buy electricity. Burson-Marsteller won a four-year, $36 million public education contract from the PUC in 2000.

In February 2001, Burson launched powertochoose.org, and established a call center to prepare for Texas' pilot project, through which 5% of customers in participating regions could switch electric providers. The site has drawn more than 16 million hits, says Mike Lake, Burson's MD in Dallas. Updates developed for the advent of full competition in January include a zip-code search for competing providers. Also, new Energy Facts Labels allow customers to compare providers by specific criteria, like prices and power-plant emissions. So far, nearly 230,000 retail customers have switched electric companies.

Timing the switch

Fresh off the presses is a full-color brochure that will be mailed to some five million Texas households as part of a broader PR and ad campaign.

"It's almost like a new product launch,

Lake says. The campaign is on hold to make sure no technical glitches prevent timely switching, but Lake says the PUC plans to start it before summer. Air conditioning drives up Texas electric bills, and market participants expect consumers to shop for lower prices as the mercury rises. Some electric company PR people say they will time their own activities to take advantage of awareness built by the PUC's campaign.

The Electric Reliability Council of Texas (ERCOT) has become another important referee on the competitive field. Once a sleepy association formed by utilities to manage the state's power grid, the nonprofit has gained new responsibilities. Now, all switch requests are routed through ERCOT to prevent "slamming,

or unauthorized switching.

ERCOT's staff grew from 50 to more than 300. Two years ago, Heather Tindall became its first communications director, and was charged with educating the public about what ERCOT does, and building confidence in the power grid. Last summer, ERCOT's website posted a top-10 list of reasons why Texas is different from California.

Consumer groups, meanwhile, aren't convinced that competition is good.

Janee Briesemeister, a senior policy analyst with Consumers Union in Austin, takes issue with the PUC's public education campaign. "It's a lot more spin to make consumers feel good about deregulation than real information they can use in the marketplace,

she opines. The PUC didn't do enough to let citizens know that they could now be charged late fees, or that getting electricity turned on at new homes would take longer, Briesemeister claims.

"From the state's perspective, it is completely neutral,

Lake contends.

"We're not telling you to switch; we're just telling you (that) monopolies are bad, and competition is good."

Some Texas cities aren't subject to competition, like San Antonio and Austin (because their utilities are municipally owned), as well as El Paso (because it lies outside the ERCOT grid). That leaves Dallas and Houston as the fiercest battlegrounds, and their incumbent utilities - TXU and Reliant, respectively - as the leading combatants.

TXU and Reliant have home-field advantages - and the most to lose. Their PR and marketing activities focus on building brand awareness in each other's territories. "We have a retention strategy in our home market, and an acquisition strategy out-of-footprint,

explains Reliant's advertising VP Rusty Ford, who also oversees Ketchum's PR work in Dallas. Reliant focused on Dallas during the pilot project, but redirected its attention to Houston after full competition began. "It's easier to retain a customer than to acquire one,

Ford notes.

Some newer rivals might be hard-pressed to belt out "The Eyes of Texas." Green Power moved its headquarters from Vermont to Austin, and Energy America's customer service reps are in Toronto. Centrica tried, unsuccessfully, to buy New York-based Enron spin-off NewPower, which claims to have signed up 88,000 customers during the Texas pilot.

Taking the fight to the streets

The competitors fight hand-to-hand for new customers. Replicating its UK model, Centrica claims to win over 1,000 Texans a week by sending salespeople door to door.

Through hands-on PR strategies, companies mix with the public at staged events and photo ops. Green Power dressed someone in a "Super Earth" costume to hand out seedling trees in Dallas' West End on the day that competition began. In Houston, TXU held a tree-lighting ceremony during the Christmas season, and a downtown "celebration of choice

light show. And through its "Project Hot House,

Reliant conducted an August press conference in a Dallas home with no air conditioning to call attention to the plight of the fixed-income elderly. Reliant also donated air conditioners to a community center.

While Texas electric companies scramble to position themselves as the cheapest, greenest, or most customer-friendly providers, they all shout a loud message with one voice: "Deregulation works in Texas."

Jim Owen, media relations director for Washington, DC's Edison Electric Institute, praises Texas companies for emphasizing the fundamentals they had in place - namely adequate generation capacity - before opening up retail competition. "In Texas, they went to school on what happened in other states,

Owen says. "I think the message that will be important for Texas is, 'We took our time.'"

PLAYERS IN THE COMPETITION

Incumbents

- TXU ENERGY (Hometown: Dallas; Agency: Porter Novelli; Message: "Unparalleled customer service")

- RELIANT ENERGY (Hometown: Houston; Agency: Ketchum; Message: In Houston, "We're changing so you don't have to"; In Dallas, "Lower rates, better customer service"

Challengers

- GREEN MOUNTAIN ENERGY (Hometown: Austin (founded in Vermont); Agency: Fleishman-Hillard; Message: "Clean the air we breathe")

- CENTRICA/ENERGY AMERICA (Hometown: Windsor, England (North American HQ in Toronto); Texas agency: Harrell Group (Dallas); Message: "Peace of mind, low fixed rates")

- NEWPOWER (Hometown: Purchase, NY (founded by Enron); Agency: Worked with Vollmer before entering unsuccessful acquisition negotiations with Centrica. Currently evaluating PR needs in Texas; Message: "The energy experts,

low price).

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