Customer First: Is the current regulatory compact in anyone’s best interests?
Customers are coming to the forefront in the utility industry, driven by technology and a greater desire to be in more control of areas that affect their daily lives. Changing customer expectations are changing the role of the utility. These changes at first might appear incremental if viewed through individual offerings or applications, but in reality they represent a transformational shift for utilities and the industry overall.
In today’s always-on digital world, customers have become more demanding – and to some extent less forgiving in terms of how they expect to interact and engage with companies. For utilities, the change in customer expectations is affecting almost all facets of their business. This can be seen today through the range of communication channels that customers are requesting and that utilities are offering, as well as the proliferation of energy management tools and data in the hands of the customer; growth of renewable energy and environmentally friendly offerings; and increasing emphasis on system reliability – which in some cases is driving more customers to think about ways to reduce their reliance on the grid, but still requires utility assistance.
The challenge of serving today’s customers increasingly conflicts with one of the basic tenets of the traditional regulatory compact, namely, all customers will be treated with the same level of service regardless of need, expectation, or cost to serve. Today’s customers expect service on their terms, and are using a host of new technologies and channels to make sure their needs are met on a real-time basis. In short, there’s no monolithic customer that follows the traditional regulatory definition, but rather highly motivated and empowered individuals that expect service and choices that align with their individual preferences.
Changing customer expectations are putting pressure on regulated utilities to expand their role beyond the traditional boundaries of providing the infrastructure that generates and delivers energy. Products and services are taking on a greater role within the industry, but herein lies a fundamental challenge. Utilities today still make money by making capital investments in their business, adding more generation, more pipes and more wires – or a subset of the three. What customers are now expecting from utilities, in general, isn’t what drives revenue and earnings for the industry. Moreover, even as customers are expecting – and even demanding in some cases – new services and offerings that represent additional costs and investments by the utility, regulators and many consumer advocates are ratcheting down utilities’ allowed rates of return. More pointedly, the traditional rate-base investments that produce regulated utility earnings don’t fully satisfy the expectations of all customers.
The traditional regulated utility business model is unsustainable, because … (read online)
Charles R. Dickerson is vice president, performance management and support services, for Pepco Holdings Inc. Darren Brady is executive vice president at Distributed Energy Financial Group (DEFG), and previously served in executive positions at Five Point, EnerNOC, and Puget Sound Energy. Jamie Wimberly has served as CEO of DEFG since it was founded in 2003.