Blog Post

Could Utilities Embrace the Business Model?

At first blush, your local electric utility and online shopping behemoth (s AMZN) have about as much in common as Obama and Snooki. But last month the always media-genic Jim Rogers, the CEO of utility Duke Energy, told an audience that he saw Duke acting as “Amazon Duke,” and using a smart grid to offer customers discounts on energy-efficient appliances in the manner that Amazon sells low cost books through its Kindle e-reader.

It sounds like the idea would be to sell an energy efficient device (like a smart fridge) via a utility and then sell discounted services or even electricity bundled into that device. The idea conjures up images of the utility as part retailer, part energy management provider, and at the end of the day owning the relationship with the customer.

It’s a nice idea. And one that could help utility customers develop a new found appreciation for their electrical provider. Amazon’s (s AMZN) or eBay’s (s EBAY), customers don’t have the same type of contentious relationship as, say, PG&E (s PCG) does with its customers in California.

But there’s a major hurdle: most utilities are regulated in such a way that there’s generally no incentive for them to act in this way. Rogers acknowledged that in his talk. For most utilities selling energy efficiency products that can reduce energy consumption just reduces their revenues.

However, some energy providers in deregulated markets are actually testing this idea out. TXU Energy (which is an energy retailer and has to manage relationships with both energy distributors and consumers) sells the broadband-connected thermostat iThermostat, a device that it designed, developed and sells itself, and which plugs straight into the existing broadband network. It’s unclear to me how well this program is doing, but it shows that in deregulated markets there’s some innovation happening.

Rogers also went on to say in his talk that Duke wants to convince its customers to embrace electric vehicles so that vehicles will become a further extension of that business model. That is actually a much bigger opportunity in the current regulatory environment, and in that way utilities could even act as car dealer, and gas station owner, facilitating EV and fuel (electricity) sales.

Moving deeper into the electric vehicle sales distribution could be particularly interesting, and necessary, for the overall management of the grid. Utilities could then work with third parties and auto makers to offer customers discounts on electricity in exchange for using their batteries as storage devices. For example, the customer could plug-in their electric vehicle and have the utility manage the rate of the charge at certain times of day in exchange for a discounted electricity rate.

However, at the end of the day there’s a variety of companies that want to own the customer relationship (and get their branding in front of the consumer) from the charge point seller, to the auto maker, to the software and mobile app maker, which will all be competing with the utility for the customer’s attention. In reality, even if the utility evolves more interesting business models and the regulatory environment changes, utilities will more likely act in the way that a telecom company does, owning the pipe and enabling services, instead of like Amazon that owns the platform, but also sells devices and services. For utilities to morph into a technology and business innovator will take a lot more than changed regulation.

For more research on the smart grid check out GigaOM Pro (subscription required):

Report: Open Source & the Smart Grid

Home Energy Management: Consumer Attitudes and Choices

Cisco Seizes Smart Grid Low Hanging Fruit

2 Responses to “Could Utilities Embrace the Business Model?”