Wednesday, June 10, 2015

The Changing Utility Business Model – and the Consumer

By Patty Durand, Executive Director, SGCC

As most of you know, fundamental shifts in technology, utility practices and consumer behavior are affecting the power provision paradigm. The effects on the utility business model are many, while the outcomes remain uncertain. This theme was underscored by participants in our recent webinar, “The Changing Utility Business Model.” If you were unable to attend but would like hear the recording and see the slides, please go here.

Gary High, senior vice president for smart grid solutions at metering solution vendor Landis + Gyr, set the stage by describing a number of key trends now transforming the electric utility landscape.  Demand is flattening due to improvements in energy efficiency, conservation, demand response programs and escalating adoption of distributed generation. Consequently, revenue from volumetric sales has flattened, while fixed costs remain.

Other trends are buffeting utilities too. According to High, those trends include the advent of electric vehicle charging, energy storage, smart appliances and programmable thermostats. Utility programs affecting consumer behavior include transactive energy, prepayment, variable rates and net metering.

One trend that’s likely to impact the utility/consumer relationship is whether utilities achieve cost recovery from volumetric, kilowatt sales or through fixed rates that pay for infrastructure. High said this shift is being widely discussed and I agree with him that such a shift will be a major area of interest and concern to both utilities and consumers going forward.

Joe Barra, senior consultant for business model development at the investor-owned utility Portland General Electric, described the many ways in which PGE is adapting to the trends outlined by High. Most interesting to me was Barra’s description of how PGE mashes up metering data with customer segments (based on socio-economic, load-based and attitudinal segmentation) to better understand its customer base.

For instance, PGE has distinct summer peaks from increasing air conditioning use among its customers, while winter peaks result from legacy use of electric heating. These insights have driven PGE consumer programs offering demand response and dynamic pricing. My takeaway is that the advanced metering infrastructure (AMI) projects partly funded by the American Recovery and Reinvestment Act (ARRA) have begun to deliver useful data beyond offering utilities operational efficiencies and, in PGE’s example, this appears to be good for consumers.

In fact, PGE offers an online “Energy Tracker” service that lets consumers see their current electricity usage and a variety of related metrics and analyses. This is a fundamental service for consumers that allows them to make informed choices and, thus, empowers them. Consumer engagement is one result that meets fundamental utility goals as their business models begin to shift. It’s fantastic to see it happening.

Rob Caiello, vice president of marketing at consumer engagement firm Allconnect, cited SGCC research to frame the utility-consumer relationship. Generally, the public has low awareness of “smart grid,” but when smart grid benefits are described, consumers exhibit high interest, Caiello noted. Consumers also exhibit high interest in utility programs, but a significant proportion (more than 40 percent) don’t believe that utilities always act in consumers’ best interests. These attitudes may partly explain why the adoption of energy-related products and services remains low, Caiello said.

Asked what single factor drives utilities to request Allconnect’s services, Caiello cited consumer engagement and its corollary, consumer satisfaction. So utilities are certainly aware that in many cases they need outside help in that department.

Caiello described several shifts in utility practices that could create “stickiness” with their customers. In the past, utilities have simply sought to sell their most profitable products. But if utilities sought what was best for their customers, perhaps in personalized offerings, they can build trust and lifetime loyalty. Where a utility once sought to brand itself to its customers, in the future it should consider improving customer satisfaction to the point where customers become brand ambassadors via social media. Though utilities use data to make decisions, they could also use data to inform new programs.

Clearly, from PGE’s presentation, some of Caiello’s points are being put into action. Many utility programs in fact seek to work with consumers to mutual benefit. But because many trends discussed in our webinar are nascent or their effects have yet to fully impact the utility business model, these discussions inevitably will continue, perhaps with increased urgency.

We'll continue the discussion this September 24-25 at our annual members meeting in Houston, Texas, sponsored by CenterPoint Energy. As far as I can tell, CenterPoint Energy is out in front and a leader in terms of converging their IT and OT platforms. We’ll hear how they did it, what the challenges were, and what benefits both the utility and their consumers are experiencing.

SGCC members, please join us for the Members Meeting and Interactive Workshop by registering here. There is no charge to attend.