Energy consumers: Three things you must know
Threats and opportunities abound in three simple points
With recent political statements potentially casting a pall over the future of smart grid and federal budget priorities still being formed, nothing has changed about utilities' need to determine their own future business models and, thus, their stance vis-à-vis their consumers.
Hence today's three things you must know about consumers, based on our reporting on the electric industry's work over the past year.
No. 1: In general, consumers know very little about how electricity is generated, transmitted, distributed and priced.
This is both a threat and an opportunity, mostly for investor-owned utilities, but also for municipal utilities and, to a lesser degree, cooperatives. It seems counter-intuitive, but this lack of knowledge may also be irrelevant. (In other words, you don't need to understand the internal combustion engine in order to purchase and drive a car.)
I'm told that in implementing grid modernization, utilities are well-advised to envision their business model some years into the future and lay the foundations for a business model that will support that vision. Then you can select the technologies that support that business case. If true, that means utilities must decide sooner rather than later if they will seek to "own the customer," partner with a third party or relinquish the customer-facing role to a third party.
This makes a lot of sense to me and a recent Accenture study and comments by Accenture's Greg Guthridge, global managing director of retail and business services for utilities, deserve attention. Read "Customer Segmentation and Tomorrow's Utility."
No. 2: Consumers have advocates.
Various groups, from the National Association for State Utility Consumer Advocates to AARP, are addressing consumer protection issues at the federal and state levels. For a sense of the issues, one can do no better than to turn to one white paper, "The Need for Essential Consumer Protections," presented recently to various executive branch agencies in the current administration.
The other essential issue that seems poised for greater attention, if only due to headlines about lapses in other sectors, is the notion that consumer data privacy is important to end-users and good for business. Insights and proposals from Ann Cavoukian, Ontario's information and privacy commissioner, are a great place to start to understand the philosophy and the technical solutions being discussed.
No. 3: Lastly, this strange animal, the consumer, is not entirely unknown.
Though utilities generally are often faulted for not having deep experience in consumer-facing issues such as outreach, engagement and education, not to mention offering compelling products and services, much is known about their energy attitudes and behaviors. Yes, they have attitudes and behaviors about energy despite not being terribly well-informed on its particulars. And yet, much is not known.
One white paper released earlier this year synthesized much of the public literature on consumer-oriented energy studies, which clearly defines many opportunities and threats in this area. That's the Smart Grid Consumer Collaborative's "2011 State of the Consumer Report." This report also documented where knowledge gaps exist, and further study would provide valuable insights.
Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757
Comments
Lifetime value of consumers
Thanks for the comments
It's official: the customer matters. Seriously now, good comments here. Thank you both for contributing thoughtful remarks to the discussion.
Regards, Phil Carson
Consumers Don't Care about Utility Issues
Consumers do not care about the utilities' issues, goals, objectives or problems. Plain and simple, it is about the consumer. They have their own challenges and problems and every marketer must start their marketing strategy with that assumption. We exist to solve their problems and not vice versa.
And we can only begin to deliver on that assumption when we begin to understand consumers. This requires utilities to develop closed loop marketing systems that allow utilities to collect data and information on consumers and then use it to learn and refine product offerings. This type of system will allow utilities to grow and adapt with their customers.
http://rubbervines.com/2011/04/a-simple-marketing-model/
"Owning" Customers
If I was a utility CEO, this would be the second most urgent question on my mind after carbon, but I'd bet most utility exectives are not focused on it. Having to decide whether to own customers means having to accept the notion of competition, which is a foreign concept in all but a few states. If you don't have to accept that competition might materialize, you either don't have to think about it or you can find a way to push the problem off to your successor.
I think, however, that many utilities are going to be quite surprised over the next ten years when threats to their franchises appear out of nowhere. It's not just the initiatives by Microsoft and Google. Solar PV costs are coming down rapidly while utility costs continue to increase. Once the two cross, the game changes substantially, particularly in California with it's crazy system of tiered rates.
If I'm thinking like an investor, I'd prefer to see greater business focus so I can choose which business and regulatory risks I want to assume. Separate distribution from the others, maintain the franchise and make it look like a bond. Make retailing, generation and transmission competitive and let investors choose which risks they want and what they're worth.
We can't reinvent the grid without also reinventing the industry's institutional structure. It's time the utility business joined the 21st century.
Jack Ellis, Tahoe City, California