We’ve often discussed aspects of the future of utilities, and the need to remake the relationship between utilities and the customers they serve. We are firm believers in giving people more than information, but also inspiration to utilize smart meter infrastructure and act upon the information it can generate (aka smart markets). Here are two interesting articles that examine the changing role of utilities.
The first, courtesy of Seeking Alpha, a rather provocatively titled article about the end of utilities:
“…Lee Willis rides the rails on a regular basis. So when the utility industry veteran and current vice president of the consulting firm Quanta Technology speaks at utility conferences, he likes to offer a train parable.
The brief historical lesson starts with the stagecoach, the dominant form of transportation a few centuries ago. With the advent of the steam engine, people first tried to fit the transformative technology into what they already knew, and the steam horse was born. But as history would have it, the steam horse was merely one stepping stone to steel wheels on steel rail: the steam locomotive. Stagecoaches became a relic, little more than a logo for Wells Fargo.
“Today we’re fitting ‘smart’ into our traditional distribution system and judging it by our traditional values,” Willis said at Distribution Automation 2011. He warns that the power industry could go the way of the stagecoach. To avoid that, he has a few suggestions. First, utilities need to change what the wires are for. Along the same lines, there needs to be a change in how the utility defines itself, including its purpose, role and the services it offers.
He acknowledges that it is tough to design plans for an endgame that hasn’t yet been defined. “You can’t fault an engineer who’s never built a jet for not building the best jet plane,” he said. However, there are ways to prepare.
Willis said that as markets deregulate, he sees the utility as the middle man between the consumer and the energy market. While similar comments often come from outsiders who have joined the industry recently, and most often from telecoms, Willis started out his career at Houston Lighting and Power Company before moving to ERCOT and then to ABB, where he stayed for more than 20 years. If his conference session ran longer, it’s easy to imagine he would shout, “I’m mad as hell and I’m not going to take it anymore.” But he’s as excited about the future as he is flustered by the lack of transformation in his industry.
Solutions will involve building differentiated solutions around the customer. The customer has been a hot topic as of late, even at a distribution automation conference, but much of it is still lip service. Utilities often mention their commitment to customers then immediately talk about operational benefits.
When asked who’s getting it right, Willis immediately offered up Duke Energy (DUK), which champions energy efficiency and its CEO Jim Rogers backed CO2 cap-and-trade legislation. He said that the executives at Duke approach the business by asking themselves, ‘How can we justify ourselves in a world where anyone could run wires and sell power?’” To answer that question, they’re bringing in new blood that can offer fresh solutions. “If you want out-of-the-box thinking,” said Willis, “you can’t have people who grew up in the box.”
Willis agrees that the regulatory framework is as much of a hindrance to innovation as utility culture. He does not fault engineers who are fitting smart grid technologies into an existing grid, but rather argues that this is the time to think big about how to take the platform to transform the business itself. If utilities don’t do it, others like Google (GOOG) — or a company that is just a whim of some 23-year-old today — will take advantage of the opportunity. But the utilities do have one advantage over the Googles of the world: they own the wires.
With respect to distribution automation, Willis urged utilities to look far beyond the operational benefits. “Don’t just fill the potholes in the electric highway,” he warned. “Or you’ll just be filling them while others have products and services that can ride on it.”
Willis suggested that in a smart world, utilities could offer societal benefits that competitors could not. During an emergency situation, the utility can make sure that essential services are turned on in a neighborhood, such as ensuring that stores are open for people to buy food and water, providing emergency services, refrigeration, etc. — while not allowing lights in homes to go on. “Begin to offer, institutionalize, and socialize services and benefits that depend on synergy,” he suggested. He also sees opportunities in managing solar assets or electric vehicles as just two areas in which utilities could own market space, if they act now.
After his session, Greentech Media asked Willis how utilities would bridge this cultural chasm to get to a place where they will be the sort of creative force that can develop services and benefits that will keep customers from jumping ship. He wasn’t sure they all would adapt and survive. “Eventually, the old folks roll over and die,” he said. Consumers have high demands and fickle tastes, and there might be some utilities that simply cannot embrace a changing business model.
What Willis often doesn’t share about his steam engine parable is that the companies that made steam engines were essentially put out of business by diesel engines. Even if you successfully navigate the first transformation, there needs to be a culture of innovation in place to ensure that a firm can stay relevant.
“If your smart phone can tell you where the closest sushi bar is, and then tell you if your friends are already there, and then you can check your bank balance to see if you can buy the first round of drinks,” he said, “then just having your smart meter shave a little off of peak demand is not good enough.”
The second, via GreenTech Media, looks carefully at the changing relationship between a utility and its customers:
“…During a break at The Networked Grid, a programmer from a utility in Australia offered up a story about an unnamed utility that was giving away iPads as part of a pilot to help people track and reduce their home energy use. Some people in the pilot returned the iPads, as they couldn’t believe the utility would offer something for nothing. They were sure that the cost of the iPad would eventually show up on their bill.
Although the details of that particular story are fuzzy, the lack of trust that most consumers have in their utilities is crystal clear. There is more than a whisper that utilities might be left just holding the wires while other companies cash in on goods and services that the smart grid will enable. To make sure that doesn’t happen, there will need to be a revolution in the relationships between most big utilities and the people they serve.
“Who does the customer trust?” asked Chris Villarreal, Regulatory Analyst in the Policy and Planning Division for the California Public Utility Commission. “People just don’t trust their utilities for one reason or another.”
When Nick Hunn, Development Director of Onzo, a U.K.-based company that provides customer solutions to utilities, talks to customers, he hears one message. “The first thing they say is they don’t trust the utility, the second thing they say is they don’t trust the utility, and then the third thing they say is they don’t trust the utility,” he said at The Networked Grid on a panel about dynamic pricing.
To combat that fact, many utilities have hired Chief Customer Officers — but there is still a chasm between top-level corporate speak and a meaningful change in how utilities interact with their customers. But some investor-owned utilities say they’re listening more than ever. “We hear from customers that they don’t feel they don’t have control over their bill,” said Karen Zelmar, Director of Pricing Products for Pacific Gas &Electric. Zelmar, who is looking at dynamic pricing options for PG&E customers, did not address the fact that the utility seems embroiled in a neverending public relations nightmare over smart meters.
Many large utilities are working on the trust issue — but the question is whether they’re moving fast enough. Ogi Kavazovic, VP of Marketing and Strategy for OPower, told Greentech Media that some of the utilities he talks to really don’t seem to get it. But that’s exactly what has kept things humming for business models like OPower. The company, which provides behavior modification techniques to help homes cut power consumption, can come in and offer tailored information to residents, allowing utilities to achieve reductions averaging 4 percent. There is a chance some utilities will never really ‘get’ their customers, but they’ll hire the people who do — such as OPower, Aclara, Google PowerMeter, eMeter or others (the list grows seemingly every day). The most successful utilities, however, will be the ones that integrate customer satisfaction into their organizational DNA.
Providing information is the first step for many utilities in rebuilding the trust with those that they sell power to — and then from there they could offer services to move far beyond efficiency gains in the single digits. The next step is keeping the ball rolling in a meaningful way. “So much of what happens is that people are engaged for one month, then they carry on how they were before,” said Hunn. “Being nice to the consumer is really important if you’re deregulated.” If the utility isn’t nice enough, there are plenty of companies waiting in the wings to fill that gap.
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