(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Beyond-the-meter technologies challenge the utility monopoly.
distributed generation, home area networks (HAN), and non-AMI dependent home automation technologies. With more consumers purchasing such technologies, power retailers have the opportunity to move beyond commodity sales and offer new products and services in both regulated and competitive markets. Smart grid might be the impetus for a boom that the power retail market has awaited for decades.
Power retail is the ultimate bridge between generation and load, but most utilities have taken it for granted because of the regulated monopoly in which they operate. The introduction of beyond-the-meter technologies will challenge the monopoly and force regulated utilities to re-think their relationships with customers beyond business-as-usual activities ( e.g., billing, outages, connect and disconnect). Moreover, it will allow power retailers to compete with utilities under a regulated monopoly umbrella. Power retailers will leverage these smart-grid technologies to enable the introduction of new products and services, leveraging the same capabilities and skills developed in competitive markets. They also will have the opportunity to insert themselves between the final consumer and the local utility in regulated markets and to expand their services in competitive ones. By doing so, power retailers expect to create a deeper relationship with customers, which ultimately will be translated into better economics for the business. In short, power retail has the potential to finally deliver on the promise of growth over the next decade.
Regulated or Competitive?
Power retailers historically have focused on selling commodity power, but that is about to change. The change won’t happen because the other 29 states are going to embrace competitive markets or because the current 21 competitive states will make competition easier. The change will happen because evolving technologies will allow customers to manage their energy consumption, as well as generate their own electricity. This change will turn the current centralized generation model upside down and shift the control from the utility to the customer. The more utilities try to shift risk from themselves to their customers by either increasing tariffs for energy efficiency programs or by demand response, the faster these technologies will become competitive, i.e., in-the-money. Power retailers and others, such as security companies and equipment providers, already are active beyond-the-meter market, while most utilities still are debating whether this change will or won’t happen. The reality is simple: Technology will make the distinction between regulated and competitive markets much less relevant.
The evolution of smart-grid technologies does in fact have an attractive value proposition for customers. The continually growing slate of available technologies potentially will provide customers with the ability to lower their electricity expenses, to take control of their usage, and to become stewards of their carbon emissions. For power retailers, it drastically expands the market by removing a barrier that has kept the market from reaching its full potential. The evolution of smart-grid technologies will provide an avenue for power retailers to reach inside consumers’ homes without interference from distribution utilities or state public utility commissions.
While the utility landscape will look dramatically different over the coming decades, it’s important to note that the penetration of these