That was the question the people at Accenture asked their utility retail and business services group to find out as part of the big consulting firm’s multi-year effort called “Revealing the Values of the New Energy Consumer.” to identify the IT and consulting business opportunities for their own future by asking their customers’ customers. The survey sampled the views of more than 9,000 customers in 18 countries.
I know—asking your customers what they want is not second nature to the utility industry. Many utility executives still think of customers as “load” and segment them into industrial, commercial and residential groups.
As you think about these issues consider the differences between energy utility growth and mobile communications—two different business models and two vastly different outcomes. So what did we learn from Accenture’s survey work that is applicable to making decisions about how best to provide reliable, affordable, high quality energy services for the future?
Lesson #1: My Utility is OK but 25% would Shop Around. The survey revealed that customers saw their utility essentially as a commodity vendor of energy but 25% of those surveyed said they would consider buying their electricity from another vendor if they had that option. The good news for utilities is 75% of customers probably would not shop around. Accenture was careful to characterize customers’ views as open minded to other vendors rather than hostile toward their traditional utility supplier. The message is clear, utility control of the gateway to customers is up to grabs, but the game is not over for utilities.
Lesson #2: Customers Trust their Utility to Deliver Reliably and would Respond to Utility Partnering with (recommending) other Vendors to bundle, package and deliver solutions that better fit their needs. That is good news for utilities—if utility regulators will let them do so. Customers would seriously consider utility recommended vendors that’s good news for gateway retention but utilities must use it or lose it to serve customers needs . Remember we’ve been down this retail energy competition trail before and it did not turn out well. Nonetheless, there is experience with retail energy competition in Texas and in many other states primarily for natural gas. Customers are ready for choice.
Lesson #3: Price Matters but Customers want Value, Convenience and Good Service. Customers expect their utility to keep the lights on. Customers have learned from their cell phone experience that it pays to shop around and bundling makes a big difference in overall cost. For utilities eager to introduce dynamic pricing this convergence of energy and communications in the mind of customers is a good thing. It has the potential to transform dynamic pricing from a ‘pain in the neck’ experience to a ‘great deal’ experience for customers if done well.
The Accenture survey results suggest customers will accept new pricing plans if they see value, convenience and good service as “benefits” from the change. What differentiates traditional energy utilities from competitive vendors in telecom today is the bright shiny gadgets and fresh marketing approach pitching new technologies like smartphones and services bundled to fit customers’ needs. Customers have been educated to expect more and shop around and their electric utility is going to have to ‘get with it’ to keep up.
Lesson #4: Price Matters but the Government messes with Energy for Social Engineering. In mobile communications markets the market rules and prices are driven by market demand. Energy prices, conversely, are regulated and the government uses that regulatory authority to force changes in energy use policies such as renewable portfolio standards, emissions reduction, and smart meter deployment to achieve social and political objectives. There are also “public goods charges” for energy efficiency and demand response programs and other policy costs embedded in rates. This government control strategy works in an average cost ratemaking system but breaks down in a dynamic pricing market where price is variable based upon demand and congestion.
Unless utilities are able to move away from pure commodity sales of energy toward dynamic pricing solutions that “bundle” energy with other products and services many of the consumer benefits from smart grid are not achievable. The lesson is the government policy of social engineering through energy regulation effectively prevents energy utilities from implementing the smart grid-driven bundled dynamic pricing regimes—-and without dynamic pricing the benefits of smart grid are not achievable for either customers or the government. But so far the government’s idea of dynamic pricing is tiered rates with no choice but to use less or pay more.
Lesson #5: Stay Out of My Business and Quit Trying to Change My Lifestyle! Customers surveyed also said clearly with 60% of those responding saying they do not want their utility or the government telling them how to live, when to use energy or intruding into their lifestyle. Customers will respond favorably to good value, convenience and bundling that fits their needs but they reject anything that smacks of ‘big brother’ telling them how to live.
Does this mean customers are unwilling to change? Of course, not. It means we want don’t want the government telling us how to live or what to do. But we have shown time and again that we will respond to market forces, to price changes and to behavioral trends. The market place is full of evidence of such change and energy is likely no different. Just don’t cram it down our throats or you get the “Bakersfield Effect.”
We’re at the ‘Energy Rubicon’ and must decide whether to stick with our traditional rate base regulatedstructure with fragmentation among many relatively small utilities or to unleash the forces of competition, dynamic pricing, bundling and marketing to give customers solutions that fit their needs at prices they see as a good value that live into our national goals and aspirations.
If we stick with traditional regulation we get stable rates and social engineering but much less benefit from the innovation, technology and opportunity our creative talents have devised. If we transform energy markets to look more like mobile communications markets we get scalable markets attracting new entrants, new products and better technologies, more choices and dynamic pricing which offers something for everyone. The government controls the current business model but customers control the second—choose!
- 5 myths and truths about dynamic electricity pricing for consumers (smartgridwatch.wordpress.com)
- When Smart Meter Customers Eyes are Opened (insightadvisor.wordpress.com)
- Customers Demand Smart Grid Benefits (insightadvisor.wordpress.com)
- Big Bets on the Energy Future (insightadvisor.wordpress.com)
- Pricing Launch Drives Improvements in Yahoo CPA (actionableinsights.covario.com)
- Ticketmaster To Introduce Dynamic Ticket Pricing (techland.time.com)