The Evolution of the Utility

03/09/16

Until recently, the vast majority of us have had a very similar experience with our local power utility: the utility sends you a bill, you pay it, and in exchange you receive the commodity they provide – in this case, electricity. In the past this has worked because utilities have generally been government sanctioned monopolies, and over time, electricity became an entitled commodity. We only notice it when it’s not there.  

In this model, a substantial focus on customer service has not always been necessary. With no choice in provider, customer service-orientated training and infrastructure don’t affect customer loyalty or retention - without competition, it can be hard to justify the investment in personalized customer service beyond consistent delivery of the product.

However, the relationship between the utility and the customer is shifting. Commercial, industrial and residential electricity end-users are gaining control over how they use, see and interact with energy – and with this control comes an expectation of increased choice regarding how the energy is obtained. For the first time, advances in distributed generation (DG) technologies, combined with decreasing capital costs and additional construction subsidies, are delivering this increased choice, and subsequent control, to the consumer.

DG enables the consumer to generate their own power on their property. This poses a twofold challenge to electric utilities. Utilities now have competition for the commodity for which they used to be sole providers, and are consequently losing their monopolistic hold on customer relationships. Additionally, since customers using their own DG are not paying the utility for their electricity use, utilities are losing money. Under threat of blooming DG availability and lacking a service platform of their own, utilities will need to evolve if they are to compete.

How can a utility evolve in the face of a changing world to meet the needs of an increasingly demanding customer base? One option is to put a stronger focus on a service-oriented business model. In this model, utilities would provide the standard power-for-a-fee but would also offer something else - as energy experts who know how to manage energy better than anyone else, utilities could feasibly provide fee-based services to help customers better manage and conserve energy, regardless of where it is obtained.

There are new programs and frameworks currently being used that could aid in such a transition. Strategic Energy Management (SEM) is one example of a program that easily fits within current utility models and not only works to help consumers manage and reduce energy use, but is measurable with a proven success rate.

The Northwest Energy Efficiency Alliance’s (NEEA) BetterBricks initiative provides a SEM framework that utilities could emulate. Under this framework, utilities partnered with real estate firms in the Pacific Northwest to establish baseline energy performance, define goals and targets, and create implementation roadmaps towards achievement of those goals. Milepost worked with NEEA to develop a bottom-up strategy focused on supporting building engineers in identifying and implementing low-cost/no-cost opportunities for energy savings, while a top-down approach worked with management to implement organizational strategies that embedded SEM policies and practices in the organization’s DNA. Although SEM tools have existed for some time, the BetterBricks initiative’s advisory services provided the key in moving the concept of SEM from a wish list item to an incorporated piece of routine building operations and maintenance.

With little out-of-pocket expense, the eleven participating firms were able to achieve an average annual reduction in energy savings of 4.5%. In the six years the program was in operation, participating firms collectively saved 17.3 million kWh; which, when translated to dollars adds up to $1,074,849 in achieved savings – and the potential savings from this program were calculated at more than 12x that amount.

Buildings and their systems have historically been the domain of specialized engineers and technology providers, but as buildings become increasingly viewed as holistic systems composed of individual technologies, how those technologies work together - and how people interact with them - is a new frontier. Utilities are uniquely qualified to take advantage of this opportunity and could provide fee-based services (such as those in the BetterBricks approach), such as support, training, and management advisory services to organizations wanting to improve their energy performance.

Utilities will have to evolve and find better ways of interacting with their customers if they are going to survive the 21st century energy market. Using SEM program frameworks as a model for future service could ease utilities’ transition from a commodity-only model to one that also offers support services. A service-oriented utility business model will help generate revenue to fill the gap DG has left and provide a beneficial service that will be in demand for many years to come.

Tashina Jirikovic
Tashina Jirikovic

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