By Danialle Weaver

Ever wonder what it would take to sign up half a million new customers in less than six months? Then perhaps you should tear a page from the playbook of Tel-Save Holdings Inc, New Hope, Pa. Last December, Tel-Save began marketing its 9 cents/min long-distance plan to America Online subscribers. The vehicle: three separate ads that pop up on members' screens during the log-on process. The catch: To get that rate, customers must receive their bills on-line and pay them automatically through their checking or credit card account.

Thirty days after the ads began appearing, the campaign had attracted 100,000 new customers. Over the next four months, the momentum continued: another 400,000 signed up.

``The response has been excellent,'' beams Ed Meyerchord, executive vice president of Tel-Save. One reason the service is attractive: ``Our customers can see their unbilled call detail on-line, within about an hour of making a long-distance call. We've significantly reduced our bad debt, and there are no paper bills. As a result, our costs are 15 to 20% below everyone else's in the industry.''

As retail competition comes to the US electricity industry, utilities and other power providers would do well to emulate Tel-Save's strategy and tactics. In fact, many are now considering or implementing schemes to give customers more bill delivery and payment options, including using the Internet for invoicing and collections, and consolidating bills for several facilities and/or services.

Thinking of you

The rationale for these innovations is, of course, better customer service. Deregulation is forcing utilities to begin treating their customers as valuable assets rather than mere ratepayers, explains Chris Metcalf, product manager for International Billing Services Inc, El Dorado Hills, Calif, a statement processing firm. And the least any competitive business can do to show its customers that it cares is to give them more convenient payment options.

Compared to goods merchants who write up a sales slip for each purchase, power providers should find it easier to invoice customers: they typically bill customers only once a month. But such infrequent contact makes each billing a precious opportunity. Utilities, power marketers, and energy-services companies (ESCOs) can make that opportunity doubly fruitful. They can demonstrate their commitment to improving service by giving customers more payment options, and--while they have their attention--slip into sales mode.

According to John Hart, vice president of marketing for Saville Systems, Burlington, Mass, a convergent billing company, utility executives are beginning to realize that the hidden value of their company's monthly communication with customers is a door to selling additional products and services. Energy-industry prophets believe that, in the coming competitive era, few providers will be able to survive without such revenues--in addition to those from sales of commodity kilowatt-hours and Btus.

Beyond the extra income, selling ``extras'' has a less tangible but more important benefit. Once they've bought an additional value-added product or service, customers are also much less likely to leave, says Mark McCormack, executive vice president of Intertech, Chesterfield, Mo, a billing and customer-care software provider.

It may seem counterintuitive that something as unpleasant as a utility bill can--indirectly, by helping sell extras--improve customer loyalty. ``It's not clear to us that the moment of presenting the bill is a good relationship-building and marketing moment,'' says Mitch Diamond, a vice president with management consultant Booz-Allen & Hamilton, New York, NY.

But it is often the only real connection most utilities ever have with most of their customers, except, of course, when there's some sort of problem.

Some describe what happens when the light bulb goes on over the customer's head once a month in simpler terms. ``For the utility industry, the bill is the brand,'' asserts Richard Crone, vice president and general manager of PayNow, a secure electronic check service from CyberCash, Redwood City, Calif, that allows utilities to accept payments at their Web sites. ``Brand reinforcement is at its most critical point when the customer pays. As consumers, we don't think about PG&E or Con Edison when we snap on the lights, but we sure do when we pay the electric bill.''

Getting a grip

Adding marketing to the billing process doesn't lessen its importance to the bottom line. As it turns out, utilities are among the largest bill collectors anywhere, accounting for some $200-million of the estimated $500-million in recurring consumer payments collected annually in the US.

But ask utility executives how much it costs to prepare customer bills and process the resulting payments, and the responses range anywhere from 50 cents to $2 per bill. Some of this difference stems from varying cost structures, but many utilities simply don't have a good handle on their true costs, declares Jeff Reed, a Booz-Allen principal.

While cost estimates may be a bit fuzzy, one thing is certain: As competition grows, utilities will have to expand the variety of their billing services in ways that cement the relationship with the customer, predicts Carl Petz, head of customer communications for UtiliCorp United, Kansas City, Mo.

One way to do that is making bill payment more convenient. Another is consolidating larger customers' bills for several facilities and/or services. The move toward bill consolidation is being driven ``by the convergence of energy and telecom services, the continued deregulation of the energy services environment, and the desire to `own' the customer interface,'' explains David Burns, manager of customer service solutions for IBM's Global Utility and Energy Services Industry division, White Plains, NY.

A legacy of legacy systems

But most utility billing systems were implemented 25 or 30 years ago, and they are not up to the task of handling bills for multiple services, other than electric and gas, says John Gregg, vice president of marketing for SCT Utility Systems, Columbia, SC, a provider of customer management software.

Nor are existing systems able to help customers sift through a confusing array of unbundled rates in their search for the best energy provider, adds John T Powers, president of Energy Interactive, Berkeley, Calif, a supplier of consolidated billing systems and services.

As a result, many utilities are spending heavily to add flexibility and functionality to their billing systems, says Booz-Allen's Reed. Booz-Allen recently surveyed 25 electric and gas utilities about their customer-care, billing, and call-center functions, and found that three out of four were spending $10- to $100-million each on such systems. Reed points out that for utilities only seeking to increase billing functionality, average spending was between $20- and $30-million. The larger expenditures reported by survey respondents were targeted at enhancing their trading capabilities and extensive proprietary software development. Reed adds that, while a few utilities are rolling out their own systems, most are turning to name-brand software and reputable systems integrators.

Generally, the big reason for farming out a system-upgrade project--a lack of in-house expertise--doesn't hold water for customer-service upgrading. As a rule, utilities are loath to outsource customer-care functions--although they may outsource parts of the process, such as statement processing, explains Intertech's McCormack. ESCOs and power marketers just getting into the retail business and lack an existing billing infrastructure are naturally more apt to outsourcing the billing function, he adds. But the more established and conservative utilities are, the more likely they are to be concerned about ceding control of customer data amassed over decades (see box).

Sticker shock

Billing problems don't lend themselves to one-size-fits-all solutions. It's important to recognize that big users have different billing information needs than smaller homeowners and apartment dwellers, says Dave Heyamoto, marketing and sales manager for Washington Water Power Co (WWP), Spokane, Wash. Commercial and industrial customers want the convenience of summary billing for multiple locations or multiple services because customer accounting departments want their charges a consolidated bill to reduce transaction and accounting costs, explains his colleague Terri Orr, director of marketing for WWP's energy services subsidiary, Avista Avantage, Spokane, Wash. Avista Avantage's ACIS system is currently in over 3500 sites in 48 states.

Residential customers, by contrast, tend to suffer from ``sticker shock'' if presented with a single bill for multiple services, says David Samuel, vice president of customer care for Boston Edison Co, Boston, Mass. Also, with a consolidated bill, residential customers would find it harder to stretch out their payments to match their cash flows.

A new toy--and much more

The novelty of paying bills on-line may help cushion that shock, at least temporarily. According to Gary Craft, vice president and senior research analyst with BancAmerica Robertson Stephens, San Francisco, Calif, the attractions of electronic bill presentation and payment are clear and compelling. As Tel-Save Holdings proved, e-billing provides better customer service and lower costs.

Whether handled by the utility or a third party, electronic bill presentation and payment is ``an emerging technology,'' says Michael Herd, a spokesman for the National Automated Clearing House Assn, Herndon, Va (Nacha). Nacha is the trade association that sets the rules governing the automated clearing house network, an all-electronic payment network linking billers and banks.

With this new technology, options abound. Bills can be ``pushed'' to the customer's e-mail box, or ``pulled'' by the customer from the Web site of the utility or that of a third-party payment concentrator. To pay their bills electronically, customers authorize the biller to debit their checking accounts, usually on a recurring basis, Herd explains. Or, they can initiate payments themselves using their bank's Web site, a third-party processor's site, or personal financial management software, such as Intuit's Quicken or Microsoft Money.

Customers can also charge their utility bills to their credit cards. Lisa Brzezicki vice president of industry acceptance for MasterCard International, Purchase, NY, says her company will knock 30% off its usual interchange fee for utilities that agree to accept its card for bill payments on a recurring basis. MasterCard's interchange fee typically ranges from 2 to 6% of the transaction value.

Moving to all-electronic bill presentation and payment is a win/win situation: Customers gain flexibility in financial affairs, while utilities gain bottom-line benefits. Adopting electronic billing formats reduces biller's costs to pennies per transaction, says BancAmerica's Craft. Plus, utilities can collectively reap up to an additional $200-million a year in interest income by reducing the ``float'' inherent in paper-based billing mechanisms.

Into the era of on-line banking

With mainstream subscription businesses from America Online to The New York Times proving that on- line billing works, the question is not whether but how quickly utility customers will embrace it. Booz-Allen's Diamond expects commercial and industrial businesses will adopt the technology much more quickly than residential ratepayers. Businesses are more accustomed to paying bills through electronic data interchange. Residential customers, on the other hand, have been slow to accept direct debit and on-line banking, and they're much more worried about Internet privacy and security issues, he says. Utilities realize that no one is expecting adoption rates of more than 5% of their customer base in the near future, notes Bill Zielke, product manager for CheckFree Corp, Columbus, Ohio.

Still, utilities shouldn't feel that they must wait for residential adoption rates to rise before they can begin reaping some of the benefits of electronic billing, says CyberCash's Crone. With PC penetration in homes constantly on the rise, he reasons, more consumers now have the means to be ``early adopters'' of the technology. Significantly, those in this market segment are very desirable customers: They have more disposable income and are more likely to remain loyal to their incumbent provider and buy additional services offered, Crone adds.