When Alex Laskey launched Opower eight years ago, there was just one chief customer officer in the entire U.S. utility industry — and that person initially refused to meet with the startup.
Opower has since become one of the biggest customer engagement platforms in the power sector. American utilities have also made some changes.
At Opower’s annual summit in Miami, Florida earlier this year, there were 26 chief customer officers in attendance. And there are far more throughout the utility industry these days.
“It’s an indication of our growth, but also of the industry’s transformation,” said Laskey in a recent interview.
“If you were to go back and look at historic order charts of the utilities, the person responsible for customers very seldom reported to the CEO,” he said. “They reported to operations, maybe to a COO.”
The customer relations position has since moved up the ranks, according to Laskey. And now there’s another transition taking place — customer programs historically viewed as a drag on utilities’ bottom lines are now being seen as profit generators.
New product offerings are helping utilities improve their customer service, from sleek online services (like Opower’s new customizable NextWeb platform), to advanced sensors that help avoid power outages, to energy storage that can reduce strain on the grid and save customers money.
But it’s not enough for these technologies merely to exist. It’s also about how utilities choose to interact with them. Rate changes and other regulatory reforms are an important factor in how power companies deploy new products and services, but they’re not the only driver either.
There are also internal shifts — both cultural and structural — that are now starting to gain momentum.
Thinking more holistically
The breakup of E.ON is probably the most extreme example of a structural change in the industry. Last December, the German utility spun off its conventional power business to focus exclusively on distributed energy and “empowering customers.” American utilities are also changing, in less dramatic but meaningful ways.
“Utilities are coming at [their business] from a different perspective,” said Julia Hamm, president and CEO of the Solar Electric Power Association (SEPA). “They’re thinking about all of the things available to the customer more holistically…versus siloing different product teams and offerings.”
The need to merge customer-facing departments was a key takeaway from SEPA’s closed-door utility solar conference this spring, said Hamm. The way many utilities are currently structured, different groups will contact customers separately about different products. So one week the customer hears about solar programs, the next week they hear about smart meters, the next they hear about new rate structures, and so on.
“Instead, utilities could be going to customers once, and asking, ‘What are your goals? Lowering bills? Higher reliability? What are you interested in? And here is the whole suite of things we have available to help you reach your goal,’” said Hamm.
This approach requires utility leaders to embrace the idea of serving customers, rather than ratepayers, she added. In turn, it makes utilities into key energy advisors, rather than just electricity providers — arguably a much more sustainable business strategy in the long run.
A recent Accenture survey of 11,000 energy consumers in 21 countries found that 66 percent of respondents are interested in products and services to help them save electricity — up from 56 percent last year. Interest in home energy generation is also up 10 percent, with 62 percent of respondents reporting interest in distributed energy products like solar and geothermal.
In addition, the majority of respondents said they trust their utility to inform them on how to optimize their energy consumption. Nearly two-thirds (62 percent) of respondents said they would be comfortable with their energy provider sharing their data with third parties, with prior permission. The same number (62 percent) said they would allow their energy provider to access their location information, either to provide outage information or to inform them about new programs and promotions.
“Energy providers can use this information to develop more personalized products and services,” said Tony Masella, global managing director of Accenture Energy Consumer Services, in a statement. “In fact, they must do this to remain competitive, given that barriers to entry are coming down and utilities must now compete with startup digital retailers and new entrants from other industries, which are offering new and bundled solutions and services.”
Creating new divisions
Last month, National Grid announced the launch of its New Energy Solutions team, on the same day the utility announced its proposed demonstration projects under New York’s Reforming the Energy Vision (REV) initiative. The team’s chief purpose is to focus on innovations and technologies that lead to cleaner energy generation, improved efficiency, and increased affordability and choice for the customer. The group will also oversee National Grid’s work on REV.
“It’s a broader mandate on how we are going to manage and serve the customers at the grid edge as these technologies gain more and more traction,” said Richard Stuebi, vice president of U.S. strategy and group technology at National Grid, in an interview.
The New Energy Solutions team is housed within National Grid’s customer division. The group will tap into other areas of the utility, such as the engineering, operations, financing and regulatory teams. But since the program is structured to provide customer value, it needs to be fundamentally customer-facing, said Stuebi.
“Our customers are people — they’re not abstract concepts — who are paying money and buying products and services,” he said. “They’re customers, we have to think of them as customers, and it’s important to make sure that our culture reflects that.”
It’s a complicated process. As technology evolves, and utilities strive to accommodate those changes culturally and organizationally, the rules of the game are also changing. What regulated utilities must offer, can offer and are prohibited from offering remains in flux all around the country.
Regulatory reform is an enormous and contentious undertaking. SEPA’s 51st State Initiative is focused on overcoming the seemingly insurmountable wall between utilities’ 100-year-old business models and a range of emerging visions for the future.
But to say that utilities can’t start to redesign their services until new regulatory structures are in place is false — as several utilities are already demonstrating.
Shaping a culture
Take Southern Co. as an example. Five years ago, some would have considered the Southern utility to be one of the most conservative in the industry, with a portfolio heavy in centrally generated natural gas and coal. But in recent years, the utility has taken steps to diversify its energy mix and spur entrepreneurship within the company.
Georgia Power’s Advanced Solar Initiative is one outcome of that internal push. Southern Co.’s work on energy storage with Washington Gas & Electric and the Electric Power Research Institute is another. A few weeks ago, Georgia Power expanded its solar offerings further with a new residential solar program run through its unregulated arm.
Duke Energy is also exploring new services at the grid edge. Most notably, the utility has formed the “Coalition of the Willing,” a select group of vendors working on interoperability to drive the utility’s microgrid business.
There’s also Xcel Energy Minnesota, which joined forces with the City of Minneapolis and CenterPoint Energy last year to boost energy conservation and the adoption of renewable energy. Xcel hired a manager specifically to oversee the clean energy program, and in the last year the partnership has filed for a new efficiency program targeting multi-family housing.
Xcel Minnesota is also heavily involved in the E21 Initiative, a groundbreaking project to develop new performance-based regulatory models that has formed the basis of new energy legislation in the state.
“You’ve got to do things differently than what you’ve done in the past, and we recognize that,” said Laura McCarten, Xcel Energy regional vice president.
Exelon, another large utility heavily reliant on central power plants, is also taking steps to foster innovation. Two years ago, Exelon formed an emerging technologies group, currently led by Sonny Garg, the utility’s chief information and innovation officer. The team comprises several sub-groups charged with identifying technology that has the potential to boost productivity within Exelon’s existing businesses or to form the basis of new businesses.
The group also runs a venture capital arm that invests in early-stage energy technology companies that could either complement, or disrupt, Exelon’s core businesses.
“We rolled out a robust innovation program and framework to drive a culture of innovation,” wrote Garg in the company’s new sustainability report. “Changing the culture starts with inspiring people and getting them excited about the opportunity to get involved in innovation. The program’s goals are to embrace emerging technology to drive productivity, efficiency and cost savings.”
Utilities are not known as innovators. Rather, they’re known as continuous improvers, according to Stu Solomon, managing director of utility strategy at Accenture, who made the observation in an interview earlier this year at the International Utilities and Energy Conference (IUEC) in Chicago. So the reality is that new operating models are pivotal to achieving any major change.
At Exelon, “they have someone accountable for innovation at the executive level,” said Solomon. “And it’s not just about new technologies — renewables, or fuel cells, or whatever it may be. That person is responsible for designing and implementing a culture of change, and a systemic view of change within the organization.”
“I think sometimes the importance of that gets lost on the people looking at the operational technologies and saying, ‘Let’s just implement them,’” he added. “You need organizations to make [technology adoption] happen; you need a culture to make that happen; and a lot of executives are starting to reshape the culture of their companies to make that happen.”
A little bit of shaming
Attracting fresh talent as the existing utility workforce ages is a strong driver of this culture shift, perhaps as much as the emergence of new technologies.
“Energy is capturing the imagination of some of the boldest and brightest thinkers out there today. Everyone I meet wants to be in our industry,” said Anthony Earley, CEO of Pacific Gas & Electric, at Challenge Fest, a recent startup-funding competition hosted by the Washington, D.C.-based incubator 1776.
It may be true that young talent is interested in energy, but it isn’t a given they will want to work for a utility. Many of today’s best and brightest are being drawn to cleantech entrepreneurship and companies like Tesla Motors, SunEdison and EnerNOC, or they’ve started their own venture.
Utilities recognize this and are starting to respond. The Edison Electric Institute, the utility industry’s main trade group, sponsored Challenge Fest in part to send the message that utilities are eager to form partnerships with emerging companies.
Utilities are also increasingly partnering with each other. For instance, PG&E spearheaded an EV task force at the CEO level to boost EV adoption, and support EV charging infrastructure for the public — a move that could eventually benefit utilities’ bottom line. Last year, PG&E published a roadmap to help all utilities further commercialize electric transportation technologies.
Watch an episode of GTM’s Rewired on how utilities are thinking about EV integration:
“What we’re trying to do is get those of us that are pretty far advanced to share how they’d set up their [EV] group, what kind of data they needed to get past the natural inertia of just doing what you’ve always done,” said Earley in a recent interview.
Last year, Earley challenged his colleagues to boost their internal adoption of EVs in order to lead the public by example. At EEI’s annual convention this spring, data was presented showing that EV adoption figures had jumped up significantly.
“Now you all know the secret to managing CEOs: shaming works really well,” joked PNM Resources’ CEO Pat Vincent-Collawn on a panel at the EEI event.
Winners and losers
Now that cultural and organizational shifts are underway within the power sector, there are questions about how policy changes will boost momentum.
Nicholas Akins, president and CEO of American Electric Power and EEI chairman, recently said that the EPA Clean Power Plan is unnecessary, because utilities are already electing to drive toward a cleaner economy.
“That process will continue, because technology is changing, and [workforce] cultural expectations and customer expectations are changing,” Akins said at the EEI convention.
But is the change happening fast enough? Are utilities doing all that they can? Many environmentalists, consumer groups and clean technology vendors would surely say no. But they’re not the only ones — people who work within the utility industry are also concerned that the sector is moving too slowly.
“I think, ultimately, there will be winners and losers,” said Gautam Chandra, the senior vice president of strategy and business development at Washington Gas, speaking at Accenture’s IUEC event.
“It won’t be like the internet business, where two years later you’re completely out of business, because the energy business is a large-capex business,” he said. “But over time, companies that don’t transform, that don’t pivot, that are not nimble, will find they become just a commodity that ultimately gets sold to other people who figure out how to make better use of those assets.”
“Sometimes I think that companies think regulators will never allow this to happen, because [energy] is a very precious resource,” Chandra continued. “But once people start coming out with systems that are as reliable as the grid and potentially more economic, regulators will be tied to some extent — they can’t force you to be on a grid that’s not competitive.”
Mark Sherwin, managing director of interactive for Accenture, made a similar point. Just because utilities are regulated doesn’t mean that they can’t be totally upended.
“There are opportunities for [new market entrants] to slowly chip around the edges [of the regulated utility industry] and start to change the business model,” he said in a presentation at IUEC.
Partner or die
The tension between incumbents and new players is particularly palpable in distributed solar.
Recently, some utilities have started offering their own rooftop solar programs. On the one hand, this seems adaptive and good for the overall climate movement. On the other hand, startups and their funders have put large amounts of capital into launching the U.S. solar industry, which has raised serious concerns about the fairness of utility-owned rooftop solar.
But it’s not just solar. There was a time when Opower, a software company, would have been worried about utilities doing more on their own, said Laskey.
E.ON, for instance, has launched an analytics and marketing department on par with most U.S. credit card companies. Opower works with E.ON, but could it do more if that department didn’t exist?
“Yes,” said Laskey.
“As for others, I think if you can’t innovate in a way that accommodates partnership, you’re going to fail no matter what industry you’re in,” he said.
So maybe utilities aren’t the only entities in need of a cultural shift. Recent market entrants may also need to change the way they run their businesses.
Elon Musk’s appearance at the U.S. utility industry’s annual convention last month underscored this need. In his speech, Musk explained that the future growth of his businesses depends on partnerships.
“[Musk] is a successful entrepreneur who’s willing to change business models to accommodate new realities,” said Laskey. “I think utilities are doing it, and the rest of us have to do it, too.”
Source: Greentech Media. Reproduced with permission.