After Deregulation, ComEd Preps for Competitive Environment

Case Type: business competition/competitive response.
Consulting Firm: Bain & Company second round job interview.
Industry Coverage: utilities.

Case Interview Question #00397: Bain was hired by Commonwealth Edison (commonly known as ComEd). It the largest utility company in Illinois, serving the Chicago and Northern Illinois area. ComEd is a unit of Chicago-based Exelon Corporation (NYSE: EXC), one of the nation’s largest electric and gas utility holding companies. ComEd provides electric service to more than 3.7 million customers across Northern Illinois.

Although ComEd produces both gas and electricity, we will only concentrate on electricity in this case. The electricity market is being deregulated. Regulations are changing so that customers can purchase electricity from any producer. The regulations also dictate that the transmission and generation sides of any utility company will be run separately. That means that the client must provide equal access to all generators of electricity who wish to transmit their electricity in the local market.

What does the client ComEd have to do to prepare for a competitive environment?

Additional Information:

ComEd serves 3.7 million customers across Northern Illinois:

• 300 large corporations (30% revenues)
• 170,000 small firms (30% revenues)
• Remainder are residential customers (40% revenues)

Possible Answer:

The key idea here in this case is “business transformation”. To transition from being a publicly regulated utility to a profit-oriented competitor will require organizational changes, job/skill changes for empolyees, new procedures, and a new mindset. Some possible ideas are listed below.

Move to Activity Based Costing (ABC), which not only helps a large bureaucracy like ComEd re-organize into profit and loss centers, but also helps identify where costs are going.

Create metrics for sales, customer service, and installation. The new organization will need to develop a customer service orientation. In order to do this well, the client must set up ways of measuring customer service. One good way would be to associate a specific profit (price revenue) with each customer, thereby segmenting the customers.

Marketing and Sales:

• Have dedicated sales representatives for large customers.
• Use separate marketing campaigns.
• Focus on quality for large firms, lumpy orders.
• For regular customers, use team bonuses for meeting customer sales metrics.
• Retrain staff, hire new staff with customer service skills.

Try to expand geographically (since the client is an equal or lower cost producer.