The emerging battle for the customer relationship

This post was originally published in the May 2014 edition of Utility magazine

As change gathers pace in the Australian electricity market, the entry of new players from telecommunications, entertainment and other service industries appears increasingly likely.  According to utilities and home service providers at February’s Smart Energy Summit in Austin, the key battleground will be for control of the customer relationship.

In its fifth outing, Parks Associates Smart Energy Summit: Engaging the Consumer examined the expanding market for energy solutions and home controls, along with their impact on utilities, service providers, retailers, manufacturers, and consumers.  Around 250 industry representatives gathered in the booming Texan capital to evaluate new partnerships, strategies for consumer engagement, and deployment plans for energy and management solutions in the Connected Home.

In an indication of the increasing importance of the topic, the event was around one third bigger than previous years.  Parks Associates’ breakdown of attendees highlighted the emerging competition from outside the sector, with an equal share of vendors, home service providers and utilities/energy providers.  My company Percepscion, a Melbourne-based home energy technology start-up, was invited to talk about our 2012 electric vehicle charging demand management project delivered with United Energy.

SES 2014 attendee breakdown

Attendee breakdown by industry at Parks Associates Smart Energy Summit in Austin, Texas, illustrating the cross-cutting appeal of the topic (Source: Parks Associates Research 2014).

Utility challenge from customer convergence

Presentations and discussions highlighted the convergence of energy and home service provider customer relationships.  Utilities, striving to adapt to more customer-centric business models, face a growing challenge from battle-hardened home service providers, who can leverage a broader and potentially more-compelling product portfolio beyond merely energy.

Utility heavyweights such as Duke Energy, Southern California Edison (SCE), San Diego Gas & Electric (SDG&E), Austin Energy, Reliant/NRG and TXU described their efforts to engage customers, who for the most part were described as apathetic.  Dennis Garman, Duke’s lead for Energy Management and Information, outlined their forthright efforts to engage customers through regular home energy reports.  In contrast Scott Burns, Reliant’s Director of Innovation, described their more passive approach of providing online tools for consumers who seek them out.

From the home services side, providers such as Lowe’s, Comcast and Alarm.com spoke of their success in engaging consumers with platform offerings that include energy management in the form of lighting and thermostat controls.  Tim Lott from Vivint described how his company has built out from home security services to now offer solar power system design, finance, installation and servicing.

Research presented by Parks Associates’ analysts helped explain the market development by pinpointing “lifestyle” as the most compelling aspect of the consumer value proposition.  Homeowners are seeking energy management solutions that provide greater convenience and improved amenity ahead of or along with cost savings.  In the context of the Connected Home, a typical quote that might sum up this sentiment may be, “My home makes my life easier and more comfortable, and even saves me money”.

Parks Associates research

Results from a survey of U.S. broadband-connected households, highlighting the overlap between energy and non-energy related products for the Connected Home (Source: Parks Associates Research 2014).

 

Future utility strategy – partner or compete?

The event underscored how the changing marketplace represents a tale of risk and opportunity for utilities.  Network services will continue to provide the business model foundation, on which utilities will then need to decide on their approach to the customer relationship.

The increased sophistication and growth in Demand Response program offerings from the utility industry was well represented at the event.  Austin Energy’s Debbie Kimberly described their connected thermostat journey, which is a key part of efforts to reduce peak load by over one third by 2020.  Anthony Hawkins, a group project manager for Landis+Gyr, reported on CPS Energy’s Virtual Power Plant initiative in nearby San Antonio which will support delivery of 50 MW or more of peak demand reduction into the ERCOT market in 2014.

Home service providers demonstrated their breadth and depth in terms of product offerings, national coverage and customer support.  Kevin Meagher from Lowe’s, a home products retailer with 15 million shoppers through their stores each week, described their approach to making homes safer, more efficient and easier to manage.  Joe Jankosky from Time Warner Cable, outlined the services delivered by their integrated home management platform including entertainment, home automation, health and wellness, energy management and home security, with car integration, garden and pet management, and presence applications in the pipeline.

Discussions arising from these presentations suggested that a potential path forwards may be utility-home service provider partnerships, where the distribution of responsibilities will reflect the natural alignment and strengths of each entity – home service providers will engage the consumer through brand recognition and compelling product offerings, while utilities will deliver Demand Response programs that leverage these products and enhance value to the consumer.

While this model had potential appeal to smaller utilities or those with a lack of brand recognition, the tensions arising around ownership of the customer relationship were felt to be a key obstacle, particularly for large vertically-integrated utilities.

CPS Energy Home Energy Manager app

CPS Energy’s Home Energy Manager app, the customer face of their Virtual Power Plants in San Antonio, Texas (source: CPS Energy).

Time Warner Cable IntelligentHome

Time Warner Cable’s IntelligentHome user interfaces, which include energy management functions such as heating/cooling and lighting controls (source: Time Warner Cable).

What does this mean for Australia?

Australia lags the U.S. on utility deployment of residential Demand Response and in the availability and adoption of Connected Home products and services.  However, with increased demand-side participation in the electricity market targeted by regulators and connectivity in the home growing daily, competitive pressures look set to increase.  As utilities ponder their transition to more customer-centric service provider models in response to increased solar uptake and affordable energy storage, the insights gained from the Smart Energy Summit may serve as a crystal ball into the future for Australian utilities.

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