In order to adapt and remain competitive in the electricity industry of the future, it is imperative for local distribution companies (“LDCs”) to understand the evolving expectations of newly-empowered electricity consumers.
As rapidly improving economics create new investment opportunities for energy storage and distributed energy systems, consumers are facing choices they previously did not have. Still, it is difficult to ignore the widespread sense of consumer frustration with the cost of hydro in Ontario. Despite this frustration, in almost all cases (and for many reasons), customers want to stay with their utility for default supply and standby. What the consumer expects their utility to provide, however, is changing.
People want to be able to do everything, everywhere. This is a new expectation that is taken for granted as technology continues to get better and more inexpensive. Take the smart phone for example. With every new iteration, it becomes smaller, faster and cheaper than it used to be. Consumers expect better, faster service – often for the same (or a lower) cost. This is a useful illustration of a “disruptive idea”: one that offers an order-of-magnitude better service at an order-of-magnitude lower cost.
Is it Disruptive?
Although many people have assumed that new technology will pose the same disruptive threat to the electricity industry, it is actually difficult to find an analogous example in Ontario. There have certainly been advances in low-cost small-scale generation, but is solar power better or cheaper? No, not by order-of-magnitude standards. Lithium batteries were introduced to provide regulation service. However, we haven’t seen a single battery investment made in Ontario with the intention to operate as a load displacement technology behind the meter. Batteries are being built, with small megawatts, and installed with government contracts providing demand response or ancillary services. Again, not better or cheaper by order-of-magnitude standards.
Who’s Being Disrupted?
New technology like solar panels or lithium batteries will ultimately affect the regulator. Take, for example, Uber. Before Uber arrived in Toronto, the City was profiting by collecting a fee for taxi licences. Uber disrupted the City’s system, but didn’t put it out of business. After all, the Uber car cannot operate without roads or the use of City infrastructure. Similarly, new energy technology cannot operate without the grid. While new technology will certainly shape the electricity industry in the future, its impact on LDCs in terms of customer empowerment is less disruptive than might be assumed.
What’s Unique About Ontario?
Other jurisdictions are also talking about the disruptive potential of new technology in connection with consumer empowerment. However, other jurisdictions are unlike Ontario. Thus, insight coming from other jurisdictions is of limited use in the unique context of Ontario’s energy industry. In California, for example, a great deal of research has been conducted regarding customer engagement and empowerment. Utilities in California (and most other places in the world) are vertically integrated, with big customer bases and big footprints. In many jurisdictions, utilities have also been deregulated. Ontario, on the other hand, has a heavily regulated wholesale electricity market. All customers see the exact same wholesale price. There is no head room for retailer competition and, therefore, the policy perspective is that there is no incentive for utilities to add value. Since the market opened, the government has limited options for retailers and most assets are owned by the provincial Crown or municipalities. Ontario’s electricity system is also highly politicized because of this degree of government ownership.
What do Customers Value?
In order to move the needle on customer empowerment and engagement in the unique context of Ontario, LDCs should be mindful of what customers ultimately value. At the end of the day, customers want bills that are affordable. They also want choices, alternatives, support and reliability, but these priorities are generally secondary. Customers want to pay less for basic service, but may be willing to pay for enhanced services or share savings. So long as they see relative value reflected in their monthly bill, they will also see affordability.
Monthly billing represents the LDC-customer relationship. The hydro bill, emblazoned with the utility’s name and logo, is what the customer sees every month. This is their primary point of contact with the utility. The key to customer empowerment and engagement is responding to the way that customers view the service being provided through the lens of their hydro bill.
Strategic customer engagement with behavioural cues can deliver energy savings by LDCs and cost savings to customers. The way society uses energy is an entirely social and cultural phenomenon. However, the industry doesn’t always appreciate this. Thus, key industry players might consider engaging the expertise of more social science professionals, and examining behavioural approaches, such as peer-to-peer benchmarking. By focusing on what people do, rather than what they know, think or say, LDCs can utilize the psychology of consumption to properly respond to customer expectations. Empowering customers is about supporting their priorities. Focusing on cost savings as opposed to energy savings can help to achieve this goal.