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Building the Next Generation Utility

Fundamental changes require bold strategies.

Fortnightly Magazine - January 2009

very different capabilities from the utility.

Customer as Price-Setter

First, the customer will demand more accurate billing. This means eliminating estimated meter reads, increasing the consumers’ trust in meter-read accuracy, and improving the accuracy of bill forecasting. Second, as consumer awareness increases and new technologies— including newer distributed generation and PHEVs—continue to mature, the customer will require power that is more reliable than what can be provided by today’s grid. Specifically, this means fewer outages, more accurate outage restoration estimates, and a reduction in the cost of outages due to either more proactive identification and restoration or implementation of new battery or backup technologies. Third, customers will demand the ability to manage their energy consumption through a real-time view of energy prices. Eventually the smart grid will reach into the home and manage demand by directly controlling appliances and HVAC equipment.

So, what does an empowered customer really mean for the utility? Consumption will be driven by customers and influenced by externalities, such as their desire to reduce energy expenditures or carbon emissions (see sidebar, “Changing Customer Expectations”) . Furthermore, consumption patterns no longer will be as clear as they once were and this will make load forecasting more difficult. In other words, utilities will be in yet another difficult position where they must maximize shareholder value while simultaneously accepting more risk without any corresponding financial reward.

Theme 8: Utilities will need fundamentally to change their customer-facing capabilities if they are to become key players in the provision of green solutions to their customers. While many utilities are focused on improving customer service and JD Power scores for current basic energy services, winning utilities will need to adopt a game-changing strategy. They must not only provide great customer service on current products, but aggressively position themselves to provide a much broader set of services around energy efficiency, sustainability and demand response. This would include time-of-use tariffs, micro-generation leasing, HVAC leasing, energy audits, energy monitoring, carbon offsetting, and large scale property portfolio efficiency management, to name a few.

While research shows consumers are willing to pay for additional, environmentally focused services, and are willing to entertain offers from utilities, it also reveals that utilities face a credibility gap relative to other organizations when it comes to the environment (see Figure 3) . This is compounded by the fact that the value chain for energy services is both extremely fragmented and extremely competitive, including organizations in the construction, energy provision, energy services, OEM and technology industries ( e.g., Google, Microsoft, Cisco). Not only is the competition evolving but so is the target customer base. Municipalities are playing an increasingly important role and looking at their energy providers as a way to create a green proposition, often threatening municipalization. While most utilities face a significant hurdle in terms of capability building, they also are well positioned in the value chain as current owners of the customer relationship. Utilities will need to drive change along two fronts, by first building customer-service capabilities that rival those provided in other sectors, and second by proactively shaping the