Facing an evolving power industry and Americans' changing relationship with the electric grid, utilities have been forced to alter traditional ways of thinking and are increasingly seeking growth in new areas.
That's one of the main takeaways from Utility Dive's recent report, the State of the Electric Utility 2015. A survey of more than 400 industry professionals, the report reveals utility executives see distributed energy and the customer relationship as their biggest growth opportunities over the next five years.
That represents a radical departure from distributed resources viewed as a disruptive, death-spiral inducing technology. And while utilities have always had to deal with consumers, they tended in the past to view them as a monolithic group of ratepayers, and the "customer relationship" has traditionally been one based around billing and outages.
All told, more than half of survey respondents identified distributed generation (DG) and the customer relationship as the largest growth opportunities — 31% identifying DG and 23% listing the customer relationship.
"Long seen as a threat, distributed energy resources may well become the biggest driver of industry growth, according to the executives we surveyed. While we hear frequent grumblings about the so-called 'death spiral,' utilities view distributed energy as a massive opportunity," the report concludes.
"Initially that might not seem like the case," explained Melissa Whited, an associate with Synapse Energy Economics. "But when you get to levels like we're seeing in Hawaii, it does become a big infrastructure development. That's where a lot of utilities are seeing growth opportunities."
The customer relationship is tied to the rapid proliferation of distributed energy resources, the report notes. Utilities need to better understand and engage with their customers, in order to enable and deliver their power use in more efficient ways.
"It’s not surprising that utilities view the customer relationship as another big opportunity," according to the report.
The question of just how much interaction consumers want with the power company is a difficult one. For many consumers the utility is something best forgotten until rates rise or the lights go out. But utility offerings, when targeted and delivered efficiently, also make for happier customers.
"In a way, the core of the business hasn't changed. Utilities appear to perform well when there's really no reason for a person to contact them," said JD Power Senior Director Jeff Conklin. "However, it's very clear that the more programs, services and offerings that a customer participates in with the utility, the higher their overall satisfaction."
Distributed generation, growth and opportunity
Utility Dive's report shows the biggest opportunity may also be a challenge. About a third of survey respondents each identified grid operations and profitability as the greatest challenges surrounding distributed energy, and the report notes that as utilities shift away from traditional profit centers, "regulators must enable them to adopt new business models."
Resource planning rounded out the top-3 distributed generation concerns. And more than half of those surveyed, 56%, said they see DG as an opportunity but are unsure of how to build a business around it, leading the report to conclude that "if utilities abandon traditional utility profit centers of the past, regulators must enable them to adopt new business models."
Almost half of utilities are now building new business models around distributed generation, the report found, and 55% say partnering with a third-party provider is the strongest investment in the new space, followed by potential regulated investment in distributed resources.
According to Synapse's Whited, performance-based rates and the need to improve infrastructure can both help utilities deal with the shift.
"What often times happens is, rates increase but customer bills decrease as a result of efficiency or distributed generation," Whited said. "But if you're actually reducing the overall revenue requirement of the utility, even though rates are increasing bills are still decreasing and you can use part of the savings to reward the utility."
The customer relationship
Some 72% of respondents said billing and customer support were among the top ways their utility engages with consumers, followed by outreach, conservation tips, energy usage data and service offerings. Remember: this was identified as the second largest growth potential.
"We've certainly seen some change over the last handful of years," said JD Power's Conklin. "Utilities are clearly putting more offerings in front of customers. We seem them putting more customer care offerings, meaning additional pricing plans, building plans, channels of contact. … Most every utility is trying to put themselves in front of their consumer base with the options of contacting the utility whenever or wherever the consumer feels is best for them."
Besides customer service offerings, Conklin said "there are a lot of other impactful offerings like demand side management, load control and efficiency. Probably the more emerging area is information services utilities offer consumers."
More than three-quarters of utilities are increasing investment in customer engagement, the survey revealed.
"Whether it's through the smart meter or other mechanisms, proactively informing customers and households how they're using energy today, suggesting how to save more and programs they may find valuable … there's a lot more interactions and offerings and communications than we've ever seen," Conklin said.
JD Power released its electric utility customer survey over the summer, finding that overall satisfaction was higher primarily due to improvements in corporate citizenship and outage communications. But the results also showed the rate of improvement lagged similar utility business models like communications and television services.
The irony to customer program growth is how much is based around automation. Technology is helping create a more engaged and efficient electricity consumer, while also ensuring we spend less time thinking about the power bill.
"We will see more automation, so it will be easier for customers to not be engaged," Whited said. "But I think we will see engagement increase as customers have more options and take more control of their energy sources, whether it's from their own solar panels or whether their participate in a demand response program. Customers will be more engaged and have more control, but I don't think they'll need to be as hands-on as they have been in the past.
"You really have to be providing value," Whited said. "When you get down to the bottom of it, it's about utilities finding new areas where they can provide value to customers. … utilities want to be competing in this marketplace."