ABACCUS Report: “Little Concern” for Retail Providers from “Death Spiral” Facing Traditional Utility Model

If Providers Offer Value-Add to Customers (Commodity-Only Suppliers Face Pressure)

While 2013 outlooks for utilities were dominated by discussions of disruptive technologies and a potential “death spiral,” these issues are of “little concern” to retail energy providers which are offering value to customers in addition to commodity supply, the Annual Baseline Assessment of Choice in Canada and the United States (ABACCUS) report concluded.

The ABACCUS report, authored by Distributed Energy Financial Group LLC (DEFG), identifies the states that have the most active retail electricity markets in North America.

For REPs focused on consumer value, there is relatively little concern. … Consumers will pay for the desirable services, and will reward the companies that best satisfy their needs.

In addition to the rankings, the ABACCUS report includes a review of recent discussions about technological change in the industry, the emerging competitive forces, new customer behaviors, and how these may challenge the traditional utility business model. “The term ‘death spiral’ made a comeback, with pundits predicting — as they did in the 1980s — the demise of electric utilities,” the ABACCUS report notes.

While the ABACCUS report is not focused on the fate of electric utilities or the changes in utility regulations that may be appropriate to address changing patterns of revenue for regulated industries, “the speculations and predictions in 2013 have relevance to all retail energy providers who view their role as primarily a reseller of the commodity.”

Retail energy providers (REPs), “may face similar pressures if they have a commodity focus,” the ABACCUS report notes.

“For the REP with a business model that focuses on the resale of the commodity, these observations are a cautionary tale. Electricity use may not grow as it has in the past. Your customers may use less over time, even as their incomes grow,” the ABACCUS report observes.

Still, “[t]he pressures on the traditional methods of reselling the commodity are likely to continue, but it is difficult to accept ‘doom and gloom’ forecasts. The drivers of energy efficiency, increased consumer choice, increased consumer access to information, and new technologies all seem to fit well into a market-oriented, consumer-focused paradigm,” the ABACCUS report says.

Accordingly, the ABACCUS report concludes, “For REPs focused on consumer value, there is relatively little concern. The satisfaction of consumer preferences will result in growth, even as individual consumers use less of the commodity. Consumers will pay for the desirable services, and will reward the companies that best satisfy their needs.”