Future of Utilities a Balance of Immediate Need and Long-Term Vision

The business model for providing utilities is shifting. Ask an electric utility leader what the future will bring, and the answer will likely describe an industry in transition from monolithic power supplier to responsive energy services provider. Utilities still recognize the importance of keeping the lights on, but they also want to better understand the customer in order to act as a facilitator for connecting people with the services they want. This is not only in the name of customer satisfaction, but to also thwart the reality of declining revenues in the face of energy conservation and the rise of clean technologies.

How the utilities industry will accomplish that shift ranges from basic infrastructure improvements and resiliency measures to better tools to manage customer engagement, demand response and the smart grid. It adds up to an industry positioned to split its investments between the things it already does well and the things it considers critical to continued growth.

Infrastructure First

A recent Pricewaterhouse Coopers global survey of utility executives showed that at least 40% believe the utility business model will be completely transformed by 2030. And it may get to that point. For at least one utility, that roadmap to the future begins by solidifying existing infrastructure while running smaller pilot programs for emerging technologies.

“No one really knows what the future is really going to bring. We have to get reliability right and resiliency right, just because of the nature of where we are in New York City,” says Lori Lybolt, a strategic planning director at ConEdison, during Columbia University’s Energy Symposium two weeks ago. “But while we are pressured to keep the power on, the ability to stay attractive to investors is still high.”

ConEd is spending $1 billion over the next four years to minimize outages and better protect its equipment. Spurred on by mass outages caused by Hurricane Sandy, ConEd’s project includes everything from installing new, submersible equipment and burying power lines, to improving communications and reconfiguring underground networks. At the same time, Lybolt says the New York grid operator is working on programs to develop microgrids and electric-vehicle charging stations as it looks to find where its growth opportunities as a distributor will reside in the future.

As John Banks describes it, the utilities industry is under a great deal of pressure to both spend money and save it. The pressure to invest is in part the result of aging infrastructure and the anticipation of stricter environmental regulations, as well as the need to address cybersecurity concerns and the call for greater resilience following recent catastrophic storms. At the same time, tightening margins and decreasing demand are forcing the industry to find ways to cut costs.

“If you step back one layer further, there is a larger societal trend happening, which is decentralization,” says Banks, a non-resident senior fellow at the Brookings Institution’s Energy Security Initiative. “We see this devolution of power, decision making, [and] choice, coming down to lower and lower levels, including the individual. Some call this the rise of customer sovereignty.”

The Rise of the Customer

Electric utilities and the power grid are two fundamental technologies that don’t typically capture the general public’s attention unless the power goes out or the bills get too high. However, in a world that increasingly places more value on customer-centric business, the utilities industry sees any lack of customer awareness as a potential weakness.

In a recent Capgemini-sponsored study, IDC Energy Insights found that energy executives view the digital transformation in customer service as a critical component to improving customer satisfaction and asset optimization. That translates into a need for IT strategies to help utilities manage big data and analytics, as well as wholesale improvements in customer engagement to advance overall satisfaction in services provided and to better understand what the customer wants.

Customers are taking more control over how they get their electric supply, or from whom. Alternatives like solar energy and wind power are more accessible, along with the rise of new tools such as demand response and automation. The move toward a more decentralized grid that incorporates nontraditional sources of energy puts more pressure on grid management, Banks says, which is in turn something utilities already do well. Leveraging those capabilities could carve out a role for traditional utilities to provide grid optimization and move toward the role of smart integrator, he adds, further reshaping the relationship between customer and provider.

In Nevada, for instance, NV Energy has taken a step toward becoming part of the integrated distribution conversation via its recent partnership with software-as-a-service provider, BuildingIQ. The program’s goal is to optimize commercial building energy use by automating HVAC systems to respond to environmental conditions and ultimately save money on heating and cooling. Utilities in several other states are deploying services to help manage residential response during peak times. This can also be achieved on the consumer side with connected devices like the NEST Thermostat, which gives homeowners mobile control over their own heating and air conditioning in a smartphone app.

However, the rise of these new tools leads experts to question whether the utility industry takes a bigger role or a smaller one in future distribution.

Future Grids: Smarter or Smaller?

“For a long time we all assumed the grid would be very, very smart,” says Patrick Haischer, a partner at management consulting firm A.T. Kearney. “Maybe we’re going exactly in the other direction to a dumb grid, basically providing a base load, whereas all the sophisticated stuff around it will be done in local microgrids that are highly sophisticated with demand response, with storage. But of course, from a utility perspective, this is a pretty dire picture. The interesting stuff, the sexy stuff, is playing somewhere else.”

ConEd’s Lybolt says that while it does indeed change the relationship by putting more power in the customer’s hands, it still takes considerable investment. The customer also must be willing to take on some of the risks associated with being a provider. Microgrids make more sense for large-scale customers, such as a college campus, for this type of independent grid infrastructure to fit in now. New York University (NYU) is one example of a microgrid in use today. However, she adds, in the future there might be possibilities for a group of customers – such as neighboring hospitals – to join together in operating a microgrid.

“Clearly microgrids offer, at least conceptually, a very interesting possibility of at least making sure that critical facilities have some access to electricity,” Anne Hoskins, a commissioner with the Maryland Public Service Commission, says of the technology’s potential application for disaster preparedness.

While microgrids and new distribution models are all on the table for the future of utilities, in the near term, Lybolt doesn’t expect changes in consumer behavior or energy efficiency to stifle ConEd’s ability to invest in infrastructure and future technology. “Based on what we’re seeing, we believe demand in New York City is going to grow.”

Granted, the situation in New York won’t be the same for every utility. And no utility is considering investment without return. Simply diving in to a new model of distribution could be a losing battle for utilities fighting for profits amid declining revenue. Hoskins says that while she sees many proposals for capital investment, the discussion often comes back to rates or the ability to quickly get a return on money spent.

“With all of the different proposals for capital investment in traditional infrastructure, as well as these new ideas including energy efficiency, these all have the effect of [impacting] rates,” Hoskins says. “We have to make sure that, as these investments go into place, there are mechanisms [for] keeping an eye on what the impact is for consumers, and we’re making sure, at the end of the day, that electricity and gas are accessible. One of the really great achievements in the United States is that we do have an accessible infrastructure.”


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