Page 2: One key - becoming a trusted provider

By Jesse Berst

 

The revolution that is accompanying the smart grid offers great improvements to utilities. It also poses grave dangers. They include:

·         Regulatory constraints

·         Disintermediation

·         Hollowing out

 

In this article, we'll zero in on disintermediation. In economics, the word means "cutting out the middleman or intermediary." For our purposes, it refers to third-party

companies that strike up a direct relationship with customers to sell them energy or energy services. When they do that, they separate the utility from some or all of the potential profits. And they intervene in the customer relationship, closing off future avenues.

 

Utilities are starting to realize that disintermediation could have a meaningful impact in electric power. They see how Dell disintermediated computer resellers, how Amazon disintermediated booksellers and how Google and Apple are disintermediating cell phone companies by shifting customer loyalty from the phone company to the handset. They realize companies such as Wal-Mart or Verizon or Schneider or EnerNOC could someday disintermediate utilities.  If not from 100% of power sales, then at least from the high-margin portions.

Utilities have a head start... if they don't squander it

Yet utilities begin this battle with a head start. In 2010, Parks Associates, a Dallas-based research firm, surveyed consumer attitudes and preferences about home energy management. They found that consumers want information about their bills, of course, but they also want other services and conveniences:

·         Lights that turn off automatically when they leave the room

·         Thermostats that automatically adjust for savings when no one is home

·         Information about which devices are using the most electricity

·         Recommendations for saving energy and money

 

When asked who they trusted to help them with these energy management services, consumers answered:

1.     Utilities (by a wide margin)

2.     HVAC providers

3.     Home security, cable, telcos (virtual tie)

 

It may be comforting to realize that utilities are in first place. Remember, however, that it was only a few years ago that consumers trusted independent booksellers the most. Today, Amazon occupies that throne. And it was not that long ago that record companies occupied a position of trust, only to be overthrown by iTunes. Not long ago, newspapers owned the classified ads categories. Today Craigslist rules and local newspapers are rapidly shrinking or disappearing altogether.

Page 2: One key - becoming a trusted provider

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Current Comments (4)

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EUIC Consumer Engagement Webinar - May 23, 2012

Bravo on your commentary! At KMDR Research, a management consultancy, we have been advising utilities of the same. On May 23rd, we are hosting a webinar based on a white paper on the topic you addressed here. You can find out more information at http://www.euci.com/events/?ci=1650&t=O&e=WC. Attendees will also receive a complimentary copy of our white paper on consumer engagement: Business as Usual - that suit just doesn't fit. Thank you again for offering this commentary.

Kevin Monte de Ramos - 05/15/2012 - 07:29

Why Worry?

Why should we be concerned about the fate of utilities? If we see them as public servants providing a necessity to society in the public interest, then the mature and responsible thing to do is not for utilities to fear for their own survival, but to accept that those necessities can be better provided by other means, and to move out of the way. The idea that utilities should be concerned about lost profits is immature and regressive.

Greg Morris - 05/29/2012 - 06:33

Disintermediation very real possibility

This is serious business for the Utilities, the potential disintermediation will occur from an indistry that measures itself completely differently than the Energy Ecosystem. It is based on customer satisfaction, retention and average revenue per user increase. This reframes the battlefield for customers, and the new competition is well-suited and battle tested to fight of those consumers effectively. This could happen much more rapidly then conventional thinking would imply. As consumers and the HEM technology adoption accelerate (ease, simplicity and smartphone/tablet operation)the the new frame becomes more and more powerful. Playing catch-up will be challenging.

Kristen Bowring - 05/29/2012 - 06:46

Appropriate Analogs: Phones, Records & Books

IMHO, this is innevitable progress. To really turn up the contrast, one could reasonably claim that a Utility's only customer today is the Public Utilities Commission. To guide us, I think we can look to a couple of Analogs to industries that have already been through similar transisions: Phones, Records and Books. First, the breakup of the Telephone Monopolies over the last 30 years has lead to unprecidented innovation and a bigger pie for everyone in the industry. And with it came different service providers that didn't just address the regulators, but actually serviced the end-user customers. As a result we have lower cost service per minute, better customer service, yet significantly more revenue. (Who at AT&T would have imagined families going from paying $20 a month in the 70's to paying $300+ a month for cell phones and another $50 a month so their computer can call other computers?) The other consideration that Utilities need to keep in mind is the experience of two industries in how they dealt with changing markets: Records and Books. The record industry dug in their heels and resisted the change and even started suing their customers (and have come off as bullies). Their revenue is down and their resistance created the iTunes market that now sells songs individually rather than as albums -- lowering the per unit Asking Sale Price by 10x. Conversely, the Print industry embraced the new technology and significantly cut its costs for royalites, distribution and scrap with e-Books. Thus their financials are significantly improved. In summary, Electric Utilities are on the cusp of a significant decision that will have profound implications for us financially. The two main points I want to leave you with are: 1) Do we want to continue to view this as a fight over a shrinking pie as this "disintermediation" topic suggests, or do we want to proactively create a significantly expanded opportunity with more revenue for everyone (just like the telephone industry did)? 2) Do we want to handle it like the Record industry, delaying the inevitable until it blows up in our faces; or do we want to embrace the change, like the Print industry, and accelerate the new financial opportunities? That the change is inevitable is not in doubt. But how we choose to deal with change is. I'm confident that we are on our way to a significantly better energy system. Now it is in our hands to choose if we want to resist the change or embrace it.

Guy AlLee - 05/31/2012 - 10:49

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