Changing the Game
Tom Flaherty is a Senior Advisor to Strategy&, part of the PwC network, with over forty years of experience consulting to utilities. Most recently, he has focused on disruptive technologies and innovation models.
Utilities are entering an era where legacy approaches to market participation are undergoing design and delivery stress. No area will change more fundamentally than how to price future products and services.
The traditional value chain view has been a limiting influence on the business parameters of most utilities. Investment-based components, such as transmission and distribution, have dominated, while solutions-based elements, like energy services, have been slow to gain traction.
Value chain diversity now creates more 'places to play' and expands potential utilities offerings to customers. As value chain opportunity extends, so will the composition of the services portfolio, the business models employed and the pricing formats in-place.
While business model redesign will initially capture the attention of utilities, adoption of these models depends on a capability that has not been heavily emphasized or developed in the past — pricing. Changes here will markedly shift how managements think about competing.
Pricing as a Strategy
For utilities, pricing has been straightforward — all-in tariffs to cover expenses and returns on capital. Little innovation was required in pricing and tariff structures evolved slowly to meet policy or customer imperatives.