Finding the Regulated Utility Role in a Shifting Energy Landscape
By Mat McDermid/GreenOrder
Energy is being reshaped as more than just a commodity: evolving customer expectations, new technologies and market entrants, and vying interests are challenging the traditional regulated utility model. However, regulated utilities possess an inherent advantage other industries could only dream of: a largely protected customer base. The first in our four-part series, we set the stage for how focusing on the customer can provide the pathway to growth and reinforce the relevance of the utility role in the future energy landscape.
For decades, end users’ relationship with energy (whether gas or electricity) has been relatively constant: our lights and stove work on demand, we receive a bill every month (that we don’t understand), and occasionally the power goes out. Regulated utilities earn reliable returns for keeping this system humming, which regulators make sure they actually do. This model is now being challenged, however.
Energy is being reshaped as more than just a commodity:
Customer expectations are evolving: Many customers’ primary concern remains cost, but what they seek and expect isn’t as simple as it used to be, whether it is the desire for more convenience and control over their energy use or concern for the environment and economic development. Additionally, the expectation of instant gratification and tailored/customizable solutions is increasingly creeping into the utility world, which is challenging for an industry that is structured to be slow-moving.
New technologies and market entrants are emerging: Infrastructure is aging as utilities look to meet high loads, satisfy cost-sensitive consumers, and provide unprecedented levels of reliability and quality to high-tech C&I customers. Meanwhile, their traditional monopoly is being threatened by a host of new technology and deregulated market entrants, providing solutions such as third party energy efficiency or distributed generation systems that could effectively take customers off the grid – and thus remove a contributor to maintenance of the overall system.
Numerous interests are vying for representation: If market pressures weren’t enough, many utilities are now investor-owned, forcing them to balance consumer (including their evolving expectations) and public interests with those of their shareholders, while numerous state and federal policies go beyond the required cost-effective, safe and reliable energy delivery to include various incentives and requirements for energy efficiency, renewable energy and grid modernization.
Given these trends, utilities may be inclined to protect a model that has been reliably profitable for decades, but should instead look to shape their role in this emerging energy landscape. To do so they can draw on an inherent advantage that other industry leaders could only dream of: a largely protected customer base.
How can utilities turn these trends into opportunities?
Have customers, not ratepayers: If utilities are going to succeed in expanding their energy services, they will have to speak the language of customer needs. The more utilities can engage customers on what they seek and expect from their utility—and learn about the non-traditional ways to engage them—the better they can develop and deliver new solutions, as well as shape their overall customer strategy. To borrow from Google, a company known for continually deepening their customer services: “focus on the user and all else will follow.”
Shape the market for new technologies: While a host of new players and technologies enter the market, utilities still have the greatest oversight of—and insight into—the system. Utilities are not just uniquely placed to better understand and serve their customers’ individual needs; they are uniquely placed to determine how new technologies can best serve the overall customer base, and thus, the utility’s role with new technologies. Whether it is rethinking the interconnection process to support congested areas or addressing an individual customer’s higher power quality needs, utilities can play a unique role in shaping the new energy market and the appropriate socialization of costs.
Move from stakeholder engagement to engaging partners: Utilities have a curious mix of stakeholders to please, and the changes taking place present an opportunity to go a step further to engage them as partners – especially the customer. Through partnerships, utilities can gain a deeper understanding of customer needs, new market entrants and technologies, and better assess the balance between the individual and collective customer.
By possessing the most comprehensive view of the energy system, and owning the physical connection and relationship with their customers, utilities are in a unique position to not just serve their customers, but better understand their energy needs—both the collective territory-wide base and diverse needs of individual customers and segments—arguably even better than the regulator. This can help build regulatory support, while concurrently growing the utility’s purview and contributing to more robust investment proposals.
Over the next few weeks, my GreenOrder colleagues will dive deeper into the opportunities listed above, where focusing on the customer can provide the pathway to growth and reinforce the relevance of the utility role in the future energy landscape.
2015 EIA Energy Conference
June 15-16, 2015 - Washington, D.C.
Platts North American Crude Oil Summit
February 26-27, 2015 - Houston, TX