(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Turning Toward Customers
Utility transformation guided by improved customer insight.
Electricity consumers are changing. Their expectations for reliability and customer service levels are higher than ever and continue to grow. Solar PV and other end-use generation technologies are becoming an attractive and affordable option for an increasing number of customers. And the use of smart meters is becoming ever more widespread in the wake of rollout programs across the United States.
As a consequence, the ground is shifting under the feet of utilities – and regulators. Recent publications, including from the Edison Electric Institute, 1 and public statements made by utility executives such as David Crane, CEO of NRG, 2 show how concerned the incumbents are becoming and how unsustainable the status quo is perceived to be. The question is not if, but how utilities – especially vertically integrated utilities – can transform into market- and customer-oriented companies.
A key component in making this transition is to develop more and better customer insight that will enable utilities to be much more targeted and strategic in the way they engage customers.
New Opportunities, New Threats
We have analyzed the implications for utilities of four classes of end-user offerings – energy efficiency retrofits, distributed generation, electric vehicles, and distributed storage. Taking Florida as a case study ( see Figure 1 ), we project that by 2030, more than two-thirds of residential customers will have installed some form of energy efficiency measure in their properties, and 7 percent will own a solar PV system. A fifth of residential customers will have adopted a combination of more than one end-use technology. Each of these individual purchasing decisions by customers – more than 7 million over a 20-year period – represents both an opportunity and a threat for existing utilities.
Improved energy efficiency and increased distributed generation will on the one hand mean that generation from central power plants would decline by more than 4 percent from what would be expected for the equivalent consumers using today’s technology mix, with negative implications for utility revenues. At the same time the value of the market for energy services to the residential sector in Florida will exceed $1 billion annually by 2030 – enough to more than compensate for the loss of revenue from centralized generation.
In addition to the direct revenue effects, this more proactive consumer base also presents an opportunity to build stronger brands and increase customer loyalty (and lower churn and customer acquisition costs) by offering customers a broader range of energy services and products. While the data we refer to here reflects the probable effects for residential customers, the same imperatives are affecting larger commercial and industrial customers, as well as small and medium-sized businesses. Indeed, the effects of these emerging technologies on customer behavior for these critical loads will drive the urgency for utilities to adapt to the evolving marketplace.