For years now, U.S. utilities have been finding ways to make money outside their core business of building energy infrastructure and selling kilowatt-hours.
Some are putting their field service expertise to use for tree trimming and landscaping services, or using their call centers and service organizations to offer Internet, home security and cable and satellite TV to new customers. Others are selling surge protection systems, HVAC maintenance and outdoor lighting as a service, and many are leasing space to telecommunications companies along their transmission corridors and rights-of-way.
But with stagnant electricity demand and the growth of distributed energy undercutting the traditional utility business model, utilities are under increasing pressure to expand the definitions of what businesses they’re in. GTM Research’s latest report, Alternate Utility Revenue Streams: Expanding Utility Business Models at the Grid Edge, takes an in-depth look at the multitude of alternative revenue models being explored by the country’s biggest utilities.
The report also differentiates between low-cost/quick-reward opportunities, and those that will require more investment over longer timeframes to reap greater rewards. The differentiation isn’t just about time and money spent. It’s also tied up with the complex regulatory environments that dictate what utilities can and can’t do to earn money.
For example, “Almost all major utilities have robust call centers and are investing heavily in new online and mobile customer communication channels in their day-to-day operations,” wrote Steven Propper, director of GTM Research's Grid Edge program. “It is relatively straightforward to separate these businesses from the rate base and satisfy affiliate rules and local regulatory restrictions.”
Likewise, field services businesses are a natural extension for utilities that have “large-scale fleets and strong established presence in local communities,” he wrote. “For energy and home-related services, electric utilities are still viewed by many customers as a trusted resource.”
But some of the largest-scale revenue opportunities for utilities are emerging on the grid edge. Rooftop solar PV, on-site generators, energy storage systems, electric-vehicle charging infrastructure, and integrated microgrids are all potential utility business opportunities -- but they’re also realms where the rules and regulations for how utilities can play are far from clearly defined.
In some cases, utilities are being asked by regulators to share the stage with these customer-owned energy assets, as is happening in California, New York and Hawaii. In other instances, utilities pushing to own them outright. Arizona utilities APS and Tucson Electric Power won regulatory approval last year for small-scale, rate-based rooftop solar programs, and GTM Research predicts at least three more utilities will propose similar programs this year.
Different utility approaches can take the definition of “ownership” to different levels. In California, which recently opened up the opportunity for utilities to invest in electric-vehicle charging infrastructure, Pacific Gas & Electric is seeking to own and rate-base 25,000 EV charging stations at a cost of $654 million, whereas Southern California Edison wants to spend about $335 million to build the supporting infrastructure, but allow its customers to buy the actual equipment to build out the 30,000-station network.
The same questions could apply to microgrids, which require highly technical energy systems integration that’s likely to fall under a utility’s area of expertise, yet be sited on the property of customers who will want to maximize its economic value in relation to their utility energy costs. Utility Commonwealth Edison has proposed legislation that includes $300 million to develop six microgrids in its Chicago service area, for example. New York’s microgrid plans are considering both independently owned and utility-controlled systems.
“It’s newer things like this that have the larger-scale dollars associated with them,” Paul De Martini, former VP of advanced technology at Southern California Edison and CTO of Cisco’s connected grid business, told me in a recent interview. More fundamental regulatory changes could open up more complicated revenue opportunities, he added.
New York’s Reforming the Energy Vision proceeding, for example, is considering putting the state’s utilities in the role of distribution services platform providers, asking them to manage the interplay of customer-sited and third-party-controlled energy resources with utility-controlled assets. Utilities will no doubt face revenue losses to those outside parties, which means they’ll need to be offered ways to make money on the job of managing their integration with the grid.
Across all these potential business models, utilities will be building on their role of “trusted advisor” for their customers energy needs, he said. “It’s pretty clear that customers are looking for choices related to their ability to manage their energy budget and the level of reliability they desire. As part of that, the standard service may not be sufficient -- so they’re looking for differentiated service and differentiated offerings.”