Public Interest Comes First
Ken Costello serves as principal researcher for energy and environment at the National Regulatory Research Institute. He previously worked for the Illinois Commerce Commission, the Argonne National Laboratory, Commonwealth Edison Company, and as an independent consultant. Contact him at kcostello@nrri.org.
Experts define business models differently, but they all come down to how a company makes money. A business model has three essential parts. First, the value proposition, or what the company offers to its customers. Second, value creation and delivery. Third, value capture, or how the company retains the value it has created for its customers.
A company must produce something that has enough value to customers to make a profit. Essential factors are what services a company offers its customers, how it prices those services and what costs it incurs.
A business model links different elements of a company's operations in a harmonious and complementary way. It is broader than a strategy, which is a plan to reach a goal.
Instead, a business model describes how the pieces of a business fit together to make it profitable. It is really a holistic perspective on a commercial enterprise that strives for financial viability by selling a product or service.
What makes a utility business model unique? Besides making money, the utility has a duty to serve the public interest in noncommercial ways. Utilities must not only function as for-profit enterprises in covering their costs.