Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Making Efficiency Cool
A new business plan for capturing big saving.
consumers perceive these products and services. To considerably broaden and deepen efficiency’s appeal, innovative strategies must now be developed and fielded, repositioning efficiency, generating word-of-mouth buzz and speaking plainly and directly to the efficiency customer.
To illustrate, a set of strategies addressing customers’ fundamental needs, called “Cool Your Carbon,” includes branding, marketing and selling strategies that leverage customers’ inclinations to help the environment to motivate them to seek out and buy efficiency (see Figure 2).
Targeting consumer-facing businesses and consumers, these strategies recast the efficiency value proposition. The objective is to offer customers a practical rewarding action to cut their carbon footprint, making efficiency purchases highly conspicuous, even cool. For example, the smart-grid meter can be transformed in customers’ minds into their carbon-footprint scale. Customers’ attention can be directed to the meter, and the meter used to drive recognition, contests and prizes, all in the name of cutting carbon.
An efficiency and conservation contest at the University of Georgia exemplifies how a Cool-Your-Carbon approach can interest and excite participants. Two residence halls competed for prizes, the contest hosted by comical and memorable mascots, “Energy Hog” and “Efficiency Dawg.” 8
Similarly, BrainShift’s Energy Smackdown is a reality television contest pitting neighbors from the Boston area against one another in a battle to see who can make the biggest energy reduction in 12 months. Participants are motivated by lowering their utility bills, but especially by prizes and getting seen on television. In the middle of season two, one family reduced household energy use by 66 percent. 9
Transforming to a BEB
A BEB can become a material contributor to utility shareholder earnings. Political and regulatory leaders increasingly articulate the need to progress beyond decoupling to policies in which utilities who perform in efficiency with excellence can receive material incentives for shareholders.
In 2008, several states moved forward with decoupling-plus policies, which seek to yield rate-base equivalence for efficiency investments (see Figure 3) . Increasingly, utilities will be able to produce material shareholder earnings from their investments and performance in efficiency just as they traditionally do from their investments in power generation, transmission and distribution. This regulatory approach, pioneered by the California Public Utilities Commission, has become a positive model for legislation and regulatory decisions nationally.
Utilities that make the transformation will structure a business model that fits and leverages their own differentiated strengths and service territory characteristics. A first step will be to assess peer models ( e.g., alternative mixes of in-house versus contract-out).
The BEB will assemble a management team that is well-suited to operate in the Efficiency v.2 world. It might tap talent from the non-utility community with relevant marketing and sales development experience. And the BEB will leverage its current talent pool to identify high-potential employees who, with training and development, can lead a best-in-class business. To scale up quickly, the BEB may consider acquisitions, alliances and partnering.
The BEB will be measured by new performance metrics to hold it accountable and closely track progress against ambitious regulatory targets. Management information systems will provide transparency and report progress monthly, quarterly and