Lynchpin of Utility Strategy
Ahmad Faruqui is a principal with The Brattle Group. He is an energy economist whose career has been devoted to pricing innovations. He has designed and evaluated a variety of pricing experiments in the U.S. and abroad and maintains a global database of more than three hundred tests of time-varying rates. Faruqui has testified on rate-related issues in several jurisdictions and presents frequently on tariff reforms.
The utility industry is faced with unprecedented change. A decade after the great recession ended, sales growth remains anemic. Yet the revenue model of utilities is premised on sales growth. The capital-intensive industry has to modernize its assets to ensure reliability, which is hard to do without growth in revenues. Additional pressure is coming from the need to change the resource mix to reduce and eventually eliminate carbon emissions.
The utilities continue to have an obligation to serve. But that's becoming increasingly difficult to do as new entrants have entered the picture, seeking to disintermediate the utility from its customers, vitiating its natural monopoly status.
How does a utility survive in such a disruptive business environment? Every CEO is seeking to create the utility of the future by getting ahead of change, but the strategy has been focused on cost cutting and changing the mix of generating plants. But the disruption is originating with the customer and the strategy has to be customer centric.
It's the customer who is engaging in organic conservation and using less electricity regardless of the price of electricity and regardless of whether or not there are utility programs, codes, and standards to promote energy efficiency. It's the customer whose voice is being echoed in legislatures.