The sustainably sourced guaranteed lower electric bill is the true disruptive challenge confronting electric utilities and their regulators. Competitors like Elon Musk are offering it. Utilities are not. And most importantly, customers want it and are buying it.
For example, customers in the approximately ten states that currently enable economic net metering are buying solar systems through financial contracts that guarantee lower monthly utility bills. By 2016 the price of solar energy is projected to be equal to or even less than utility rates in all fifty states. The potential for customers to buy sustainably source energy through contracts that guarantee lower monthly electric bills could soon explode across the U.S.
Three global mega-trends bigger than the electric utility industry
Technology innovations, manufacturing economies of scale and shifts in consumer decision making are three 21st Century mega-trends reshaping every business. This global phenomenon is now slamming against the traditional electric utility business model. The electric utility industry’s ability to stop or retard these disruptions has a limited, and eroding, time horizon.
The specific 21st Century disruptions confronting the electric utility industry include:
- Global investments in solar, battery, LED and smart-building technologies are achieving manufacturing economies of scale that deliver the type of continuous price declines associated with computers and smartphones.
- Well capitalized competitors to the utility business model have emerged with business cultures focused on delivering guaranteed lower customer electric bills.
- The 21st Century Information Age has displaced the 20th Century’s branded mass marketing strategies. Consumer peer postings in social media, rather than branded messaging, now drives what consumers buy, who they buy from and what price they expect to pay.
- The emergence of a consensus among mothers and the millennial generation that their health is at risk from 20th Century industrialization. These key consumer segments are actively deserting brands that no longer align with their growing expectations for value and values. They are actively seeking and buying price competitive products that enhance human health.
How global mega-trends are disrupting the electric utility business model
Global mega-trends are reshaping what consumers buy and who they buy. These mega-trends are now having measurable impacts on the historical utility business model. These impacts include:
- Utilities are losing value-alignment with their customers. Utilities do not have a competing product to customer-owned sustainable technologies packaged into financial contracts that deliver guaranteed lower electric bills.
- Utilities are losing their values-alignment with customers. Customers seeking sustainably-sourced products are increasingly able to buy home and office technologies that demonstrate their commitment to human and environmental health.
- Utilities are increasingly disconnected from their customers. Consumers now expect a social media conversation with the companies they do business with. Utility customers are increasingly bypassing utility messaging by using social media to harvest peer insights and to acquire issues-based learning through the comic wit of John Oliver, Jon Stewart and Stephen Colbert
- An emerging grassroots political coalition of strange bedfellows is challenging utility-centric regulation and legislation. Unlikely alliances like the one that emerged in Georgia between the Tea Party and environmentalists are challenging utilities at their commissions, state legislatures and the ballot box on the industry’s value and values.
If it is of any comfort to the electric utility industry they do not stand alone in attempting to deal with these disruptive mega-trends. These same mega-trends explain why Chipotle displaced McDonalds as the most valuable restaurant chain in America. It explains why companies from Apple to Walmart are greening their supply chains and have adopted goals for operating their businesses with 100% renewables energy. It explains why 21st Century business best practices are truly different compared to the 20th Century.
”Cost less, mean more” defines business success
The electric utility industry, and their regulators, now confront a 21st Century formula for business success. This new formula is to deliver “cost less, mean more” customer results. Market research is adamant that customers expect it all. They expect competitively priced products that align with their values.
This 21st Century business success formula contrasts with the traditional electric utility business model that too often is defined by annual rate increases, service interruptions and environmental impacts. The industry’s hallmark customer education programs and cash incentive promotions of energy efficient technologies may be reaching a point of diminishing customer engagement. Customers question these programs and cash incentives when they fail to achieve sustained lower electric bills as utility rates move higher. Utility cash incentive programs for energy efficiency technologies or demand response is losing competitiveness to customer-owned solutions that deliver sustainably-sourced guaranteed lower electric bills.
This trend will only accelerate as customer-centric innovations merge to deliver the Zero Net Energy (ZNE) building. ZNE buildings generate as much annual renewable energy as they consume through the design integration of onsite renewable energy, batteries, LED lighting, energy efficiency, collaborative living/work spaces, smart sensors and internet of things management systems. The financial community is on track to introduce innovations that will finance ZNE buildings to deliver guaranteed lower electric bills. California, the seventh largest economy in the world, has integrated ZNE into its building codes. Similar to what happened in solar, California will be creating consumer demand critical mass for ZNE. This will drive global manufacturing economies of scales that will move ZNE buildings to price competitiveness against traditional electric utility service.
Get weird, deliver guaranteed lower bills or lose!
Ironically, at one time the electric utility was viewed as being weird or outside the business norm. During its first fifty years utilities were a growth industry delivering annual electric rate reductions through innovation. The electric utility industry, and its regulators, must rediscover the ability to get weird.
The path to being weird begins with leadership and culture. Having worked with utilities and solar companies I can confirm their cultures are as different as night and day. Succeeding solar companies have a singular focus on innovations that drive down the customer’s monthly bill. They are consumed with a search for marketing innovations that will win customers. They are in constant dialogue on acquisitions or alliances that hold the potential for cost saving economies of scale, financing innovations, customer growth and expansion of product offerings.
To remain competitive and relevant the electric utility industry, and their regulators, will need to place their focus on the sustainably sourced guaranteed lower monthly electric bill. An industry focus on rate re-designs that preserve revenues plus programs to shape consumer behavior around the industry’s cost curve do not align with customer expectations. The sustainably sourced guaranteed lower electric bill is emerging as the consumer electricity procurement-metric of the 21st Century.
How to restore the electric utility’s mojo
Restoring the industry’s mojo by aligning with customer expectations on value and values is the path to achieving the industry’s quest for revenue success. Finding this new mojo will require an issues-structured dialogue between utilities, regulators and stakeholders with the goal of surfacing public policy innovations that will align utilities with customer expectations. To implement this new mojo the industry will need to develop and/or acquire work associates capable of identifying and executing innovations that win customers. To communicate their new mojo utilities will have to go through probably a humbling and frustrating learning curve to learn how to achieve interactive conversations with their customers via mobile social media. Their new mojo will inspire individual utilities to explore acquisitions and strategic alliances that enable the delivery of sustainably-sourced guaranteed lower electric bills. In summary, to win customers in the 21st Century the electric utility industry must get weird, or go outside its existing norms, in figuring out how to deliver a sustainably sourced guaranteed lower electric bill.
About the author
Bill Roth. First Green Business Coach for Entrepreneur.com. Founder of Earth 2017, a website that posts proven best practices for making money going green. President of NCCT, a consulting company that coaches CEOs and business owners on pricing and marketing best practices proven to win the millennial generation, and their moms, as customers. Follow Bill on Twitter.