ANALYSIS: Client Profile - Deregulation sparks TXU power tripacross the globe

The makeover of TXU has been so drastic that the company doesn't even call itself an electric utility anymore. Embracing deregulation was the key to making TXU an international power player. Sherri Deatherage Green reports.

The makeover of TXU has been so drastic that the company doesn't even call itself an electric utility anymore. Embracing deregulation was the key to making TXU an international power player. Sherri Deatherage Green reports.

It's a long way from Dallas to Ipswich, England. But the fact that TXU sells electricity in both places shows how far utility companies have come in refining their businesses - and their images.

Once stodgy, conservative, and geographically limited, many electric companies are rushing - or are being dragged - into the free market. In Texas, full-scale competition for residential customers began in January.

On this new and unproven battleground, TXU came out with guns a-blazing after years of careful planning. And the ambitious, 120-year-old North Texas company wields PR as its heavy artillery.

Hiring global communications EVP Susan Atteridge in 1998 was among TXU's first moves. A 14-year AT&T veteran, Atteridge saw the electricity industry exploding with possibilities, but knew its deregulation wouldn't mirror that of telecoms. "The biggest difference is it's state-by-state, so it's a harder battle,

she says. Fostering phone competition meant breaking up a national corporation and dividing services among smaller spinoffs. For regional electric companies, however, it brings the possibility of expansion.

Big investor-owned utilities (IOUs) initially viewed deregulation with skepticism. Eventually realizing its inevitability, IOUs tried to influence public policy to their advantage, recalls Smitty Smith, director of Public Citizen Texas. They also saw new business opportunities: TXU's government affairs operatives helped push the current law through the Texas legislature in 1999.

TXU (then Texas Utilities) didn't wait for the home-field advantage.

It bought the prominent Eastern Group, and later Norweb Energi (both in the UK, where the 10-year phase-in of deregulation began in 1989), as well as interests in other European countries and Australia. "What we learned was the basics of the business model, and then refined it," Atteridge says of TXU's experiences in the UK.

Ramping up for competition, CEO Erle Nye put Atteridge in charge not only of corporate communications on three continents, but of branding, advertising, and marketing communications. Atteridge's 54-person team led repositioning by, among other things, creating a global brand council that wrote a strategy statement shaping acquisitions and business development.

Reorganizing for global reach

Going global meant creating a new brand and selling it in places where nary a "y'all

could be heard. So in 1999, Texas Utilities became TXU.

"It tested Texan in Texas, and not Texan outside of Texas,

Atteridge says. Kass Uehling in New York created the new logo, while Prophet in Chicago helps keep things consistent and on track, Atteridge says.

Her group also helped prepare employees for the change from the quasi-bureaucratic management of a regulated monopoly to the scrappy aggressiveness of a free-market company. Activities included creating intranet and internet sites, and upgrading workforce feedback surveys.

Internal relations has also been transformed. "We've had to hire for the skill gaps,

which included beefing up marketing communications capabilities, Atteridge says. Functions have become much more specialized, adds media and PR director Joan Hunter. The company now takes more initiative in pitching stories, and the number of annual media contacts has tripled.

In December, TXU hired Porter Novelli as its first agency of record (TXU previously used several outside agencies for projects). "We decided to go with an agency of record for efficiency,

says Atteridge, who foresaw the need for more PR help in a competitive environment. PN helps with national media relations, as well as consumer PR and event marketing.

TXU uses several agencies in Europe, but is considering a more consistent approach abroad, Atteridge claims.

Reporters who cover TXU regularly say the company is fairly open compared to its competitors, and makes its executives available for interviews.

"They've done a pretty good job of convincing their customer base that staying with TXU ... is the safe thing to do,

observes Public Citizen's Smith.

Position and reputation

The remaking of TXU has been so drastic that the company doesn't even call itself an electric utility anymore. Instead, it's an "energy services company

- the eighth-largest in the world, in fact. The company describes its business model as "portfolio management,

meaning it doesn't base generation goals on the amount of electricity its retail customers buy, but on how much it might trade to other companies. Messaging focuses on explaining what TXU is and, perhaps more importantly, what it's not. It's not Enron, for example.

Atteridge describes energy trading as the "operation on which our business model rests

- the glue that binds electric generation with retail sales.

If Enron had the glue, unlike TXU, it had few hard assets to paste together.

"Enron's failure was really a business leadership failure, not a deregulation, accounting, or industry failure,

Atteridge contends.

TXU's PR people also spent more time than they would have liked insisting that Texas is not California. "Our challenge was explaining that the issues really are not the industry, or deregulation,

Atteridge says. Permitting hurdles and unwieldy trading rules left Californians without the means to generate the power they needed, or to buy it efficiently. The Texas system is different, and since generation was deregulated in the mid-1990s, Texas built enough plants to keep the lights on, she explains.

Deregulation has made TXU's organizational structure more complex, and has required the PR staff to implement stringent internal confidentiality guidelines. Under Texas law, electric transmission lines and natural gas operations remain regulated, and companies must separate free-market functions from those still under government oversight. While some competitors spun off their transmission operations, TXU kept it under the corporate umbrella as a subsidiary, and recently renamed it Oncor.

The right hand, TXU Energy (the retail sales and generation division), can't always legally know what the left hand, Oncor, is doing. This means the PR staff can't speak for Oncor and TXU Energy in the same interview, and they can't always tell the retail people what they learn about the regulated business. But Atteridge prefers these tactical difficulties to the alternative: not keeping the communications function integrated.

One detail the PR staff hasn't worked out yet is community affairs for TXU Electric. The 5,000-plus Oncor employees, who make up more than one-third of the parent company's head count, include linemen, installers, and other employees who have the most public contact, and have historically handled community relations.

TXU's messaging also varies depending on where in Texas one lives. To existing customers in Dallas, the company says, "You don't have to change.

To those in Houston and Corpus Christi, served by other incumbent providers, the message is, "Please change,

Atteridge says. (San Antonio's and Austin's electric systems are city-owned, and don't have to compete.)

Atteridge doesn't discuss how many customers have left or joined TXU, other than to say the company has exceeded its competitive goals so far.

"I think its a glorious time to be in this industry in this state,

she says.

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