YouTube, iPhone Apps, Kindle and the Utility Franchise

The explosion in consumer technologies and options, coupled with the utility industry's expansion into the smart grid, advanced meters and communications will do what all of the failed attempts at deregulation could not: create true customer choice.

This choice most likely will not come at a savings to consumers, for as we have seen with all technologies from telephony to games to the Internet, costs per household and per person rise even if the unit prices drop. These choices will also come at a huge potential cost to the traditional utility franchise system -- or a huge opportunity depending on how it is approached.

And, while the utility business attempts to react to consumer demands, the very underpinning of its operations (the meter), the cash register and billing mechanism will be under fire like never before. Those utilities that can manage the processes and develop new business models may prosper, but the change management and investments that will be required mean that the traditional rate making and investment models will also have to be altered.

Let us also remember that we, as utilities, are adding what are essentially 50 million communicating computers on the sides of people's homes, wiring the distribution system to act smarter and communicate better and encouraging (or at least allowing) millions to add their own generation or storage devices. At the same time we are incentivizing people to use less product or a different product (i.e. "green" electrons) than we have traditionally provided.

Consider today's business model even in so-called deregulated states. We communicate by bill stuffer or maybe email; we bill once a month on our timeline; we may or may not accept credit cards; we purchase or plan for electricity based on yesterday's information and tomorrow's predicted weather; we offer price differentials so small that it fails to impact customer behavior; we attempt to saddle consumers with greater and greater pass through burdens. While we remain smug in our belief that all the customer cares about is a low bill, the rest of the world is shifting under the utility's feet.

• A web search of "iPhone apps" yields 130,000,000 results including the Lights Out app that calculates savings for switching to compact fluorescents and the X10 Commander app that allows control of home appliances and electronic devices through an iPhone. Keep in mind the iPhone and other smart phones have already disintermediated the need for the key fob to open and remotely start your car (Viper SmartStart) and eliminated the need for GPS devices (Sygic), cook books (Easy Cooking) and levels (iHandyLevel).
• YouTube, celebrating its 4th anniversary this year has changed the way consumers grab information. Everyone is a director; everyone is a critic, and our worlds have been compressed into downloads of information. There are 448,000 YouTube videos on electricity, 33,800 on energy efficiency, and fewer than 1,000 when "electric utility" is searched. Even then, 98 percent have nothing to do with electric utilities but cover areas such as explosions, fires, going green and electric vehicles. A few utilities -- Ameren, PNM, PG&E Redding, Anaheim and Lakeland -- can be found, but none really focus on the customer experience and services provided.
• Amazon now sells 48 "e-books" for every 100 "physical" books with an amazing 1/3 of its revenue being tied to the Kindle. As if print versions of newspapers do not have enough trouble, the advent of instant newspaper and magazine downloads changes customer expectations. And, as an aside there are 44 e-books on the electric utility business.

These underlying market changes coupled with the perception of high prices (and the reality of increasing electricity rates to support carbon, smart grid and renewables) will force traditional utility enterprises to either innovate or be left behind. The regulatory wall of protection will be pierced by consumer technology and enthusiasm for higher (or perceived cleaner) levels of service at lower unit costs (even though the total units plus service costs may rise). We are, at long last, providing the technology for customers to be truly involved in their energy relationship. The question remains, however, whether they will be engaged with the traditional utility supplier or a third party.

While physicist Nils Bohr correctly stated that, "Prediction is very difficult, especially if it's about the future," here are five areas in which utilities should be prepared for this new world.

1. Ready your billing system now to be as flexible and smart as that of Amazon, Cabelas or E*TRADE. The very same billing mechanism you will need for plug-in hybrid electric vehicles (PHEVs) will mean that consumers will want to send the electrons they generate with their solar panels in Arizona to their children in New Jersey -- and you will have to bill them for it.

2. Develop, deploy and use real time information for grid management, and build on the extensive communications you already have in place to communicate and manage customer premises and devices.

3. The only thing you have protecting your franchise is your service, reliability and relationships with your customers. Do not be fooled into believing that your franchise is safe whether you are the largest IOU or smallest municipal entity. This is not about deregulation; it is about disintermediation and the customer-driven electric revolution.

4. Be proactive in the use of technology. Implement tools such as conservation voltage regulation before it is mandated. PHEVs, storage and personal renewable options will impact your system in ways we cannot yet imagine.

5. Figure out how your utility will make money in this new environment. Your business model is changing, and history will provide no protection.

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