Market Volatility in the Rearview Mirror Continued from p.13 market and do not remain static for extended periods of time, for purposes of competitive pricing and proper hedging. Internet-based enrollment offers the additional advantage of customer tracking, since customers are accessing their accounts online and these days it is easy to record their activity. With email and website tracking capabilities, a CSR can use this information to periodically follow-up with customers who frequently check prices but do not enter into a contract. Not only does this tracking and follow-up help close additional sales, it also provides valuable market feedback as to why that customer may be hesitant to commit. For example, customers may provide feedback that a program’s features, benefits and ultimate value need to be explained more clearly on the automated enrollment screen. Automate Volume Forecasting The other very important part of this process is to automate customer volume forecasts and apply discipline in limiting the amount of contracted fuel a customer can buy, especially for fixed-price contracts in a high-priced or volatile market. This capability can be completely automated and should be part of the automated electronic contracting process. The volume forecasting risk is generally less with a capped program, because capped price programs require downside protection on the purchased volume therefore, if a consumer does not take delivery of the full contracted volume, the remaining wet barrels hedged by the energy marketer are still margin-protected in a falling market. Conversely, if a fixed-price program is hedged with wet barrels and customers do not take delivery of that volume, the energy marketer takes it squarely on the chin with many unwanted, highpriced wet barrels when the market declines. Real-time Contract Execution Contract execution has everything to do with process automation, hedging and applicable contract law, which varies slightly in different states. Overall, the goal for contract execution is to use methods which eliminate contract-commitment delay, caused most notably by postal mail delivery. For practical purposes, the real time contract execution methods that most marketers will implement are internet contracts, telephonic contracts, telephonic/internet hybrid contracts, and customer walk-in signatures. All 50 states recognize the Federal Electronic Signatures Act (ESIGN Act), which allows internet-executed signatures on electronic documents. This is the preferred method, because it is fully automated, legal in all states, and provides a significant customer convenience factor. The second most effective and recommended method for contract execution is the telephone/internet hybrid contract. In this scenario, a customer can call a customer service agent over the telephone and set up a contract for price protection, which the customer service agent can then prepare for the customer and share either by email or a contract execution web page. For customers who do not have computers or access to the internet, a marketer can execute a contract over the telephone. From a legal standpoint, telephonic contracts are considered to be verbal contracts and therefore less enforceable; however, by taking a few safeguards, they can be very strong legal agreements. A few of these safeguards include: utilization of a telephone recording system, periodic mailing of general terms and conditions and postal mail of contract confirmation. Automate Budget Payment Methods Obvious but often insufficiently considered, payment methods play a vital role in the automation of price protection programs. As mentioned earlier in this article, capped-price programs are much more effectively sold using a budget payment plan, in which the entire cost, including any price protection fees, can be amortized over the term of the budget plan. In my experience, automating this process is key to its success. Some internet solutions conveniently have built-in budget calculators that allow customers to enroll in an entire plan covering all of their costs, including service plans for one monthly budget payment amount. Pre-buy plans have been very popular over the years and tend to gain in popularity when energy prices are low. I have never been a big fan of pre-buy plans simply because they are generally the lowest-margin plans a marketer offers, and they tend to be very price- and timing-sensitive. All these circumstances reduce customer allegiance and make it easy for customers to defect. Moreover, every marketer needs to recognize that, from a hedging perspective, a pre-buy plan is just a fixed-price plan, and so includes the same risk as any other fixed-price plan. An effective alternative is to offer a pre-buy option on a capped-rate plan. This lately has been a popular offering, since it provides a customer discount for upfront payment while also providing the overall market protection of a price cap. Proper Terms and Conditions The fine print has its place, too. Terms and conditions should be an automated part of the online contracting process, and they should be vetted thoroughly by legal counsel familiar with electronic liquid fuel contracts. Terms and conditions should also include a well-considered 26 ICM/March/April 2016
ICM March-April 2016
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