Surveys keep tabs on Washington Gas customers in wake of deregulation

Fueling competition

The basic idea of deregulation is to open a market up and let competition work its price-lowering magic. The existing utility still owns the means of delivery and still administers the process, but additional suppliers are invited to enter the market and battle it out to meet consumers’ needs, driving prices down and service quality up. That’s the theory anyway. In practice, things are a little trickier. Unpredictable factors like the weather, production shortages, short-sighted public policy, and fluctuating demand can quickly derail the best-intentioned deregulation plans.

One region where it has worked encompasses the District of Columbia, Maryland, and Virginia, a market served by Washington, D.C.-based Washington Gas. In 1995, the company began offering some residential and commercial customers in Maryland the option of choosing a natural gas supplier other than Washington Gas. Similar programs were introduced in the District of Columbia and Virginia a few years later.

In 1998, Washington Gas chose Centrac DC, a Rockville, Md., research company, to conduct a multi-phase telephone survey. Interviews were conducted with customers in Maryland for three years, at the request of the Maryland Public Service Commission (PSC), which directed Washington Gas to survey consumers and demonstrate, among other things, that awareness of the program was reaching customers of all income levels.

The research had four objectives:

• to assess the satisfaction of program participants;
• to determine why non-participants (who were aware of the program) didn’t sign up for it;
• to explore differences between participants and non-participants; and
• to explore differences between participants and non-participants in the first, second, and third year of the program.

Started small

The Maryland program started small, but as more and more consumers signed up, Washington Gas went back to regulatory bodies for approval to expand its reach. “We were given permission to start a pilot program to see how things went,” says Sandy Holland, manager of the marketing research department at Washington Gas. “The first year that we offered a choice, only 6,000 people were eligible. Washington Gas had been a proponent of deregulation, so whenever we got near the ceiling [the maximum amount of customers that could participate], we would go to the Public Service Commission to request an increase. The research was used as a basis for justifying those increases, and to show that customers felt good about it.”

For anyone who liked saving money, there was a lot to feel good about. The gas still flowed through Washington Gas lines, and Washington Gas still read the meter and sent the bill, but consumers could choose an alternative, potentially lower-priced gas supplier (including Washington Gas Energy Services, a subsidiary of Washington Gas), and could sign up for a year-long contract to receive gas at a fixed price. (In the wake of the recent natural gas price fluctuations, many alternative suppliers have stopped offering fixed-price contracts.)

Telephone surveys were conducted with 200 Maryland participants in April 1999 and 200 non-participants in December 1998. (Initially, interviews were also conducted with consumers who had dropped the program but they were halted after it became clear that there was one main reason why people discontinued the program: they had moved.)

“One of the things we tried to do with the research was to understand the differences between the people who were signing up and those who weren’t,” says Jeff Adler, president of Centrac DC. “The number one reason for not participating is a lack of motivation. Depending on size of a person’s gas bill, the program could save them, say, $35-$40 dollars a year, which is worth the small effort it takes to sign up. For others, that might mean they have to get off the couch.

“Others feared that there would be some kind of billing mistake or other problem. And for some people, being able to choose their gas provider created tension. They would ask, ‘What does this mean? Will the quality of gas be affected? What if I have a gas leak, what are the implications?’ Guess what, it doesn’t matter.”

Holland: “Both participants and non-participants had some skepticism about whether or not this would save them any money. To a large degree there was a sense of inertia. People said, ‘I have been happy with my service and haven’t had to think about it. Now you are asking me to think about all this stuff. No thank you.’”

The four most important factors influencing the decision to participate were guaranteed savings (54 percent), receiving one bill (47 percent), a cap on the price they pay for natural gas (42 percent), and cash incentives from providers for switching (31 percent).

Direct mail (cited by 54 percent of all respondents) and bill inserts (17 percent) were the two largest sources of awareness of the program. Reading direct mail and consulting newspaper articles were the two main steps people took to learn about the program before deciding to sign up.

Not surprisingly, “low gas prices” was the thing participants liked best about their new gas supplier.

Helped later

The findings from the surveys of Maryland consumers were very helpful when it came time to roll out the program in Virginia and the District of Columbia a few years later, Holland says. “We were able to get programs in Virginia and D.C. going quicker than before and in the first year we did the surveys in Virginia and D.C., customer satisfaction was higher than it had been in the first year in Maryland because we were able to incorporate the lessons we learned.

“We were using the surveys to test different program aspects and every time we made a change another survey came up and it was used to measure customer satisfaction with the program to see what differences there were between participants and non-participants.”

Customers were adamant about receiving just one bill, instead of one each from Washington Gas and one from the alternative gas supplier. “The gas marketers wanted to bill the customers for the same reason we wanted to bill them: that bill is a very good tie that you have with the customer. It is a piece of communication that you get with them every month, and losing that is a big cost. The marketers wanted to send their own bills but customers absolutely hated getting two bills, so Washington Gas stopped billing them,” Holland says.

One area that still needs work is communicating that using an alternative gas supplier doesn’t change emergency response procedures, the quality of the gas, or the supply of gas. “We haven’t seen an increase in the level of customers understanding that things will not change over the five years that the Maryland program has been in existence. So that has been a disappointment for us and shows we have more work to do in getting those points across to people,” Holland says.

In Maryland, overall satisfaction with the program rose from year to year, as did the number of respondents saying it was easy to sign up. Research findings pointed the way to expanding methods of signing up for the program. Initially customers could only sign up by mail; Internet and phone sign-ups are now also an option.

And the number of respondents claiming to have found unexpected charges on their gas bill dropped to 8 percent in 1998-1999 from 20 percent in the 1997-1998 period. (In most cases these problems were a result of formerly aggregated costs being broken out on bills from the new gas providers.)

Running smoothly

The surveying has stopped in Maryland, now that 100,000 customers are participating in the program and it is running smoothly. Holland expects things to continue to go well as the Virginia and D.C. programs mature, though the energy market has surely changed since deregulation began. Natural gas prices may never return to previous levels – perhaps the good old days are gone forever – but they are bound to stabilize again. When they do, consumers will again turn to programs like the one offered by Washington Gas for consistent service and consistent pricing.