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Profiting by selling less.

"Demand-side management" is the key to electric and gas utility marketing these days.

Getting customers to buy into a program of conserving energy is the task today of marketers at Indiana's gas and electric utilities. It's called demand-side management, and the goal of the program is to convert Indiana's energy users to the most efficient possible use of electricity and natural gas.

"Our overall theme is a wider and wiser use of electricity," explains Dan Brackemyre, director of sales at IPALCO Enterprises Inc., the holding company for Indianapolis Power & Light Co.

"Our basic message is the wise use of energy," echoes Michael Hanley, marketing communications manager for Indiana Gas Co. in Indianapolis. "And we're doing that in a plethora of ways."

IPALCO and Indiana Gas aren't alone in marketing demand-side management to their customers. Nearly every utility in the state has jumped on the DSM bandwagon.

The reason is simple, especially for the utilities working the electric side of the street. Skyrocketing costs and stifling regulatory requirements have made the prospect of building new power plants unpalatable. Electric utilities call it adding base-load generation, and their experience with building new power plants has caused them to reassess the philosophy of growth for growth's sake during the 1970s and 1980s.

Cost overruns at the aborted Marble Hill nuclear plant in Southern Indiana nearly drove Public Service Indiana into bankruptcy court during the last decade--and did force Wabash Valley Power Association, one of the minority partners in the plant's construction, into a Chapter 11 filing.

"Our whole goal here is to delay the need for more power plants," says Tom Van Paris, manager of communications services at PSI Resources, the Plainfield-based holding company for PSI Energy. "Our goal is to save 120 megawatts by 1995. Originally, it was 85 megawatts by 1995, but we did pretty good on our first year."

That 120 megawatts is equivalent to about a quarter of the output of a new 400,000-kilowatt base-load generating unit. With construction costs for a new 400,000-kilowatt plant approaching $1,000 per kilowatt hour or more, the savings for deferring such construction could add up to $400 million.

Some analysts, in fact, believe that IPALCO's hostile takeover bid for PSI is being driven by the Indianapolis utility's desire to push construction of its planned Patriot coal-fired generating station in Southern Indiana back into the next century.

Today's effort is "not strictly conservation," explains Doug Stauch, vice president of marketing and communication at Hoosier Energy in Bloomington. "Delay of new plants is as important as straight conservation."

Hoosier Energy is what's known as a generation and transmission cooperative, or G&T. It generates and supplies electricity to 19 member rural electric cooperatives in Central and Southern Indiana. "We've been promoting, on behalf of our distribution systems, the Hoosier Energy Power Network," Stauch says.

"There are any number of DSM programs that we're involved in," Stauch adds. "Generally, on the residential side, we're looking at various technologies that offer DSM opportunity. We're trying to move energy usage off-peak. That'll delay the need for additional generation in the future."

In 1992, Hoosier Energy passed on $2 million in efficiency-incentive rebates to member cooperatives and their customers who purchased new energy-efficient equipment and appliances.

At Southern Indiana Gas & Electric Co. in Evansville, Jeff Davis, director of marketing, says DSM programs "are probably representative of two-thirds to three-quarters of our advertising efforts."

The Evansville utility offers a rebate program on high-efficiency residential heating and cooling equipment and does a fair amount of cooperative advertising on television, radio and in the newspapers with what Davis calls "trade allies," heating and air conditioning dealers in the utility's service territory.

For its commercial and industrial customers, Southern Indiana Gas & Electric uses a combination of direct mail and newspaper advertising--primarily in the business section of local newspapers--to reach customers who are potential candidates for interruptible-load-management electric rates.

Currently, the Evansville utility is experimenting with direct mail to explain load management programs to residential customers. "We're doing it one ZIP code at a time," Davis says.

DSM programs on the residential side typically push such programs as low-wattage light bulbs, efficient shower heads and insulation for water heaters. Marketing DSM for residential customers involves numerous media vehicles: radio and television, newspapers and magazines, and direct mail and telemarketing.

But marketing DSM programs for industrial and large commercial customers is a more personal effort. Demand-side management holds the promise of major savings for the state's industrial utility customers. Making steel and automobile plants more energy efficient holds the promise of increasing the state's industrial competitiveness and saving significant energy output for Indiana's utilities.

"We do a lot of one-on-one marketing," says IPALCO's Brackemyre. "You don't see advertising with that. It's consultive, a direct one-on-one contact with customers."

Brackemyre says 69 percent of IPALCO's kilowatt-hour sales went to commercial and industrial customers in 1992, up from 66 percent in 1991. The company is currently working with industrial customers on the application of electro-technologies, primarily the installation of electric arc furnaces for heavy industry. Last year, IPALCO set up an industrial energy fund through the Indiana Department of Commerce to promote electro-technologies; the Indianapolis utility endowed the fund with $1 million.

IPALCO is also working with Navistar, a truck manufacturer on the southeast side of Indianapolis, on a prototype of the world's first electric infrared sand reclaimer. Besides producing electric efficiencies for the plant, the new technology will free up 1.4 million cubic feet of landfill space.

"We're fighting to retain jobs and keeping jobs here," Brackemyre says. "Without jobs, we don't have residential customers. The commercial/industrial sector is so darned important."

That's a sentiment with which John Higley agrees wholeheartedly. As director of special accounts and revenue planning at Northern Indiana Public Service Co. in Hammond, Higley is in charge of a group that deals directly with the Northern Indiana utility's top 20 electric and gas customers. Those 20 customers alone account for 42 percent of NIPSCO's annual kilowatt hour sales.

Those customers include the USX Gary Works at Gary, Bethlehem Steel's Burns Harbor mill, Inland Steel's mill Indiana Harbor, the Amoco refinery at Whiting, LTV's East Chicago mill, American Can and the rolling mill operated by the Midwest Division of National Steel at Portage.

"These are basically world-competitive mills," Higley points out. "They think in terms of world competition. And we're always keying on keeping them competitive."

Higley, a 25-year veteran with U.S. Steel, says his group has been set up to be more responsive to the needs of the company's top customers. "We can serve their interests in a broader way," he says.

Higley and his group are currently investigating the feasibility of capturing excess blast-furnace gas at several mills and converting that to process steam to run turbines. "Capturing excess BTUs" is the way Higley puts it.

"It's win-win-win all around," he notes. "It reduces their load and helps us avert putting on more base load."

Higley points out that the size of the industrial DSM programs at NIPSCO is an important consideration in the utility's strategic planning. "One of our programs may be the equivalent of another utility's entire DSM program," he says.

"One blast-furnace project results in an average of 87 megawatts of savings," Higley says. "And we have several programs in that order of magnitude. It's significant."

Demand-side management is driven by a different set of circumstances for the state's gas utilities. In recent years, Congress has substantially deregulated the nation's natural gas industry, and Indiana's gas utilities are learning to play by a new set of rules.

"There's more change in the industry than people think," says Hanley of Indiana Gas, who adds that deregulation, especially on the pipeline side of the business, is "forcing changes in how we sell our products."

Much of the marketing that Indiana Gas does is designed to educate customers on getting the most efficient use from gas appliances. Congress passed new appliance efficiency standards in January 1992, and Hanley says Indiana Gas does informational advertising using television, print and direct mail.

"We found out through research that new homebuyers, even though gas is the second or third biggest outlay, don't know much about how to use it."

Hanley notes that most people buy only two or three furnaces in their lifetime. "I only have a three-hour window of opportunity during a 15-year period to reach people to talk to them about their furnaces," he says.

Jim Calhoun, executive director of marketing at Citizens Gas in Indianapolis, estimates that there are "40,000-plus energy decisions made each year. We want to make sure that natural gas is well represented to customers when they make those energy decisions." The utility works closely with builders, heating and cooling contractors and trade associations to get the word out about efficient gas appliances.

The utility generally communicates with its 220,000 residential customers in the print media, with bill enclosures and with limited television and radio campaigns. Bill enclosures are particularly convenient. "We send out gas bills every month," says Calhoun.
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Title Annotation:marketing technique of Indiana's public utilities
Author:Beck, Bill
Publication:Indiana Business Magazine
Date:May 1, 1993
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