The utility’s role is changing, and regulation must change along with it – to spur innovation and respond to evolving customer needs. Modernizing the industry will require a dynamic approach.
Investor-Owned and Public Power Can Learn from Co-ops
Co-op Approach in Energy Efficiency
When it comes to energy efficiency, co-ops (typically smaller, and by definition customer-focused) have taken a different approach than investor and municipally-owned utilities. But the co-op approach is one that the larger players could learn from.
The co-op approach to energy efficiency is to offer their members programs that are consistent with their organizations' overall mission: customer satisfaction.
Co-ops focus less on whether the traditional cost or benefit analysis yields positive results (such as a Total Resource Cost result greater than one), and instead focus on providing programs that members want. The decision makers for the co-ops are more intent on keeping their members satisfied and dare I say it, happy, rather than getting the absolute biggest bang for the buck.
Co-ops make sure that the program benefits outweigh the costs. However, they use a broader definition of the word benefit. That is where the investor-owned utilities and their regulators, who are both constantly seeking higher customer satisfaction and increased engagement with energy efficiency programs, might benefit from adopting this broader perspective.
According to J.D. Power & Associates, customer satisfaction is higher when customers reported that they are familiar or very familiar with those offerings. And there is value to that customer satisfaction.
Two forward-thinking co-op programs that treat energy efficiency as a utility investment may be starting a bit of a revolution in the way utilities address these issues.
How$mart® from Midwest Energy in Hays, Kansas is a model designed after the Pay As You Save® concept that was initially conceived by the Energy Efficiency Institute of Vermont in the 1990s. How$mart® has four key components. With limitations, it requires no upfront capital from the customer. Efficiency is paid for on the regular utility bill. The surcharge on the bill is less than the energy savings (on average). The repayment of the utility investment is tied to the premise.
Because of these four components, the program overcomes two significant barriers to implementing sound, economic, logical energy efficiency improvements. The first is eliminating up-front cash outlays on the part of the consumer because those are paid for by the co-op.
The second barrier is commonly called split incentives. If utility service is in the name of the tenant, the landlord often has little or no incentive to invest in energy efficiency. Tenants often are unwilling (or unable) to make a long-term investment in efficiency if their tenancy is not likely to be long-term.
In this program, since repayment of the utility investment is tied to the physical location, payment for energy efficiency investment doesn't need to follow the individual tenant responsible for the current utility bill. Instead, given proper notification, a new tenant coming in can take over the payment while also reaping the benefits of that investment.
Utilities of all types and their regulators should understand