The procurement and supply-chain functions of today’s utility are the Rodney Dangerfield of the utility cost-cutting paradigm: They don’t get any respect. Supply chains in most industries extend...
Building the iUtility
Market forces are transforming the IOU business model.
environmental footprint. The iUtility could market these services, provide the online tools and information, and retrieve, compile and synthesize customer information for its own business planning.
• Energy Audits: For decades, utilities have provided energy audits as a service for customers—sometimes in compliance with state regulatory mandates. The iUtility might develop this service as part of its business model, earning returns by performing energy audits for customers and advising businesses, governments, consumers about how best to realize energy savings, select from supply options, and improve the efficiency of buildings and processes. Additionally, the iUtility can advise those same customers about the range of options for energy portfolios.
• The Efficiency Utility: The nature of an electric utility might be reconceived as industry leaders explore new approaches to delivering energy services. For example, Efficiency Vermont is a unique entity, the first of its kind in the United States. 7 It is a public utility charged with helping state residents save energy and protect the environment through energy efficiency gains. It was created by the Vermont Public Service Board and is operated by a non-profit service organization called Vermont Energy Investment Corp.
The efficiency utility is funded by an energy-efficiency charge (EEC) on consumers’ electric bills. Efficiency Vermont provides technical assistance as well as financial incentives to help customers reduce energy costs through energy-efficient equipment and lighting, as well as energy-efficient approaches to construction and renovation. Early reports indicate the EEC has caused little or no increase in monthly electricity bills for most customers. Efficiency Vermont reports that during 2006 it reduced customers’ retail energy costs by $6 million, with nearly half of those costs coming from more than 685 businesses. Net lifetime economic value for its 2006 efforts could exceed $47 million, with total costs at roughly $28 million, yielding net benefits to the economy of $19 million. 8
• Energy Risk Management: The iUtility will be an integrated energy provider. To survive, the iUtility must have a comprehensive understanding of its energy portfolio. What mix of energy resources, including negawatts, energy efficiency, energy futures, and carbon reduction strategies, 9 must the utility have to deliver electricity and other energy products and services at the lowest cost and the highest return? What energy product investments should be part of the iUtility’s investment portfolio? Its investment strategy can include hedging energy and energy-sensitive commodities, derivative instruments and other securities. The iUtility becomes an energy trader and investment manager, 10 developing valuable intellectual property in financial-risk management that itself can be sold as a service. By offering this service to customers, the iUtility can help them plan future energy resource and investment strategies.
Competing for Capital
Traditional utility regulation has run its course. The iUtility, operating within an evolved regulatory construct, will meet the challenges of the future and will be poised to capture a good portion of the new investment capital as it moves from an electricity-only provider to an energy-services provider.
Forward-thinking companies with technological savvy, a diversified energy portfolio, and a broad and varied mix of energy efficiency and environmentally sensitive products—as