Customers don't really have a vision of the utility of the future, but they are certain of what it isn't: just a power provider.
Increasingly, utilities are also vocalizing the growing need to rethink infrastructure needs and pivot toward consumer needs when it comes to choosing energy supply and technological innovation. But there's still a gap in how the consumer sees the role of their utility and how the utility business model is evolving.
In the space between those two ideas, a new survey finds opportunity for the next generation of utilities willing to look beyond their traditional roles.
SmartEnergy IP's "Utility of the Future" report focuses on customer expectations: what they want versus what they get now. And the results reflect growing trends across many sectors. Customers want increased automation, savings and simplicity, the types of offerings now common in many retail sectors. But more importantly, they don't currently view electric utilities as innovative.
“While the perception is, 'my utility is not innovative,' the study indicates that what customers want is anything but basic service," said SmartEnergy founder and CEO Juliet Shavit.
In September, Shavit's firm surveyed 1,500 people with a web-administered series of question focused on the customer relationship. Among the queries were questions like: What is the role of your utility? What does the utility of the future look like? And, Do you think your utility is innovative?
Shavit's paper is conversational and at times downright humorous: "It was not a huge surprise to us that customers not only did not think their utilities were innovative, but that their expectations were low," it says. "We were, however, relieved and happy to see that a good 18% or so of customers wished that their utilities were more innovative."
Less than 10% of respondents think the Utility 2.0 model "provides energy and that's it." While more than four in 10 aren't sure what the utility of the future will do, they're open minded about those services. Almost a quarter want technology services from their utility, and 13% expect their power provider to also leading smart city innovations. About 13% are also looking for bundled smart home solutions.
But few utilities outside the largest providers are currently equipped to provide these types of products. Either through a lack of tech expertise or advanced metering infrastructure (AMI), Shavit says utilities are still judging customer demand and setting up necessary infrastructure.
“I work with a lot of utilities that have considered or are in the process of deploying smart grid technologies. It pretty much starts with a meter," said Shavit. "But in many cases around the country there’s been an evolutionary process." Utilities start with simple programs and then proceed to roll out more advanced applications, she said, driven simultaneously by a utility business case and consumer demand.
“Utilities are now making the business and operational case for AMI because they see a benefit," she said. "But what motivates utilities to deploy these technologies is not always the same as what motivates customers to engage."
Study finds customers open to a new utility future
Asked what they'd like from their next-generation utility, the top three responses each got about 20%: in-home smart energy products, easier-to-understand bills, and internet service. But Shavit's survey tried to delve a step farther and asked, "If my utility could do anything in the future it would be …"
And there, the results showed the potential for new business models to emerge. A full third of respondents wanted automated energy savings, and about a quarter wanted a broader range of services in the home. Another 20% envision utilities helping build smarter communities. More than 10% specifically said they wanted all services accessible by mobile app.
Essentially, when asked to describe the utility of the future, customers envisioned a more innovative business than they actually expect.
Customers are "very open-minded to a new kind of utility, one that offers a variety of bundled services to the home," the study concluded. "This certainly makes much of the current market competition among service and solutions providers more relevant. As the race continues to own the customer in the home, customers themselves are asking utilities to provide more."
Utilities turn to tech partners
The thing is, utilities aren't always best suited for the role of tech developer.
The evolution of the utility grid has turned a relatively staid industry into the new front-line of technology. “This is a very exciting time to be an energy company,” said Shavit. “It’s a game-changer. The new AMI networks can be optimized to now roll out new products and services."
But that's not what utilities are good at, said Shavit. In general, utilities have resource challenges, while technology development isn't their strength. While they are getting better at handling large data sets, third party providers for demand management services and smart device integration are jumping at the chance to access the grid. And generally, Shavit said utilities are open to that.
Shavit says Opower, the cloud-based demand response provider recently snapped up by Oracle for a half billion dollars, is an example of strong utility partnering. The company made a name for itself crunching enormous amounts of AMI data and then helping utilities send behavioral cues to control peak demand. It's the sort of service a traditional utility would find daunting to create from scratch. The company landed contracts with Commonwealth Edison and BG&E, showing its summer peaking programs could return about 5% savings.
“Any time a really smart provider on the tech side can come and assist them, I think (utilities) will be open to it," said Shavit. "Some utilities have very sophisticated IT departments, but the overall trend is to get some support because it’s not their core competency."
Besides, said Shavit, "I’m not sure you necessarily want your utility designing the latest app on your phone. You want your utility to work with partners. I really want my utility to focus on safe, reliable power.”
These concepts are being spearheaded by innovative utilities, but often are being pressed forward by progressive regulators. New York's Reforming the Energy Vision proceeding, which aims to reimagine the utility business model, is perhaps the strongest example of the future Shavit's survey envisions: the utility as a platform provider, a level playing field for third parties.
There, investor-owned utilities have been pressed to develop Distributed Service Implementation Plans: long-term visions for how they will modernize their grids and evolve their business practices to encourage distributed energy resources. And other states are going that route as well, pressing regulated utilities to take a holistic view. Hawaii, California, Maryland—at least 10% of states—have all launched regulatory-backed initiatives to modernize grids.
Customer experience alignment
It's possible that many of the more innovative ideas will be pioneered not by the large IOUs, but instead by cooperative power providers that often have more flexibility to be innovative because their members benefit financially from sound investment. For IOUs, it may require a second step to make the business cases pan out.
That's an idea recently echoed by Holmes Hummel, founder of Clean Energy Works, which advocates for the use of a Pay As You Save model of financing for efficiency projects, using an on-bill tariff. It's the type of program, cooperatives can more easily utilize because their business model aligns so closely with customer savings.
"Electric cooperatives have been by far the leaders in this innovation and the reason for that is the alignment they have between shareholder interests and customer interests," said Hummel. "Electric co-ops are, frankly, more nimble. They’re relatively efficient organizations."
Ultimately, says Shavit, customers want to reduce energy use and they want it to be easy. "In 2016 we’re a society and culture of the latest technology and solutions," she said. "I’m very optimistic great new partnerships will unfold and it will result in happier customers. ... There is some pretty wicked-cool stuff going on out there."