Evolving the Utility Business Model

Evolving the Utility Business Model

By Michael McCullough and Joey Marquart

Earlier this month a joint statement from The Edison Electric Institute (Edelman client) and the Natural Resources Defense Council hinted at some macro changes to come for the electric utility industry. The question on everyone’s minds – is this good news for consumers, especially those that have invested in residential solar panels?

The announcement encouraged state utility regulators to adopt policies designed to give power customers more options and greener choices. The industry is formally acknowledging that the business model needs to evolve to survive. This is good news for a couple of reasons:

  1. Utilities and regulators need to get more comfortable with risk, something the industry has notoriously been averse to. The complex web of regulations makes innovation very difficult. It’s good to see progress towards a mutually-beneficial scenario.
  2. The statement notes that “recovering the fixed costs of the grid is becoming more challenging.” From a trust perspective, industry leaders need to continuously explain changes in the newly proposed energy pricing model in a way that’s understandable and comfortable for consumers. There’s fear of the unknown. Showing that future energy pricing mimics many models already accepted by the public is the key opportunity for the energy industry. Consumers demonstrate a willingness to pay premiums for goods and services – but not usually electricity.

So here’s a simple solution to restore and increase trust levels in the new paradigm.

Historically, the cost of electricity depends on where you live, how much you use, and possibly when you use it. Improvements in grid infrastructure are bringing new energy pricing options to consumers. Energy costs will rise with or without these improvements. The key is to empower consumers to take advantage of available technologies and information so that they can make smarter choices. But the industry needs to get rid of the one-size-fits all mentality.

Commuters are accustomed to paying higher tolls to escape clogged roads during rush hour; but some alter departure times to when tolls are low or even avoid pay roads altogether.

In the past, mobile callers knew they would pay more if they rang during the day and instead chose to call at night or on weekends, when they could save money.

To secure the trust of consumers, utilities and their advocates need to achieve a major feat: they need consumers to understand how much power and choice now lies in their own hands. Consumer aren’t accustomed to thinking of their power decisions as being dependent upon multiple options and alternatives. If utilities can crack that code, and get better about explaining the value proposition to consumers, the trust will follow. Smarter infrastructure is the utility’s investment in technology that will create economic, reliability and environmental benefits. But many feel “icky” about how the industry has been going about this, which might be costing it support.

EEI’s decision to partner with NRDC on this announcement is a move in the right direction toward securing this trust. Our Trust Barometer shows that NGOs are the most trusted information source, which means that the private sector can gain credibility by partnering with NGOs. Historically, the utility sector has been slow to partner with NGOs since the two camps are often at odds with each other. But as EEI and NRDC show, strange bedfellows can yield a convincing message.

Photo Credit: J.D. Power & Associates