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Building the iUtility

Market forces are transforming the IOU business model.

Fortnightly Magazine - August 2008

Similarly, investments in smart-grid, smart-metering and net-metering technologies promise benefits for consumers, and might improve system reliability and strengthen utilities’ access to distributed resources—both supply and demand. Applying such technology as advanced metering infrastructure (AMI), the iUtility might give customers greater control over their energy use and provide more accurate bills, while reducing service costs and detecting system disturbances earlier and with greater precision. Such technologies also will enable the iUtility to implement more effective demand response programs, reducing peak loads and increasing the potential for using non-dispatchable green power sources. Regulators will be challenged to assess these technology investments and account for them in the iUtility’s rate structure.

Beyond the New Regulatory Compact

Market flexibility is essential to the iUtility’s success. As energy and environmental markets change, regulatory and business models must allow the iUtility to respond. Consequently, some portion of the iUtility’s revenue stream (possibly an increasingly large portion) will be outside the regulatory compact as the iUtility earns revenue from an array of products and services. Examples include:

Green Electricity: Consumers can choose to purchase renewable power, for which they will pay a premium or a flat fee. In this way, green-pricing programs can create markets for clean-energy technologies. In another version of green pricing, the utility can offer an opportunity for customers to make contributions to support the development of alternative or renewable energy sources. Recently, the DOE’s National Renewable Energy Laboratory reports that over 500,000 customers are participating in such programs, and that in 2006, green-power sales exceeded 3.5 billion kilowatt hours (KWH). 5

Energy Efficiency: Energy efficient gains in buildings, appliances, and cars can reduce demand for fossil fuels and can stabilize the power grid, and increasingly utilities are treating efficiency as a resource. Studies suggest energy-efficiency programs applied across the country could yield annual energy savings of $20 billion and net social benefits of more than $250 billion over the next 10 to 15 years. Additionally, such programs could defer the need for 20,000 MW of new power capacity requirements while reducing U.S. emissions by more than 200 million tons of CO 2.6 Changes to the industry’s business and regulatory models will allow the iUtility to make a business out of improving the efficiency of end-use facilities, equipment and appliances.

Personal Energy Service: The iUtility can resemble its namesake, the iPhone, in one particular way. An icon on a handheld device, such as an iPhone or Blackberry, will provide a variety of personal energy information and control. The device might allow the user to establish or change energy-use parameters, such as the price sensitivity of home cooling and other appliances. It also might track a variety of energy-use information, such as the user’s auto gas mileage (or the electric-vehicle equivalent); the amount of energy lost in the user’s home; current retail prices for electricity, heating oil, gasoline and carbon credits—and contracting and offset options; options for choosing alternative energy suppliers and products; energy-efficiency tips; and other environmental and energy information that might help the user save money and reduce the