Utility Business Evolution & Innovation

National Governors Association Center for Best PracticesLearning Lab on New Utility Business Models & Electricity Market Structures of the Future

Paul De Martini Newport Consulting

July 28, 2015

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Electric Retail Evolution

Utility functions will evolve over time as customer adoption of DER grows and the opportunity to enable the net value created in this transition

3 Stages of Evolution as DER Adoption Grows & Market Opportunities Expand

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$-

$50

$100

$150

$200

$250

eCommerce

Mobile

Broadband Video & Data

Wireline

Telecom Industry Transition Example

Revenue Transition

AT&T Break-up

1996 Telecom Act

Telecom revenue growth from new services leveraging modern broadband fiber and mobile platforms and market partnerships

Personal Consumption/Person/Month

Sources: FCC, Industry Analysis and Technology Division Wireline Competition Bureau, Sept. 2010US Census Bureau Retail eCommerce Revenue data used to estimate per adult monthly spend

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1970 1978 2000 2015 2025 2040

Cust DER Svcs

Market Enabling Svcs

Dist. Platform Svcs

Transp. Electrification

Trad. Distribution

Electric Utility Industry Hypothetical

PURPA

Question is how utilities may be allowed to participate in the new revenue streams that are being created in a more distributed future

Conceptual Regulated Utility Industry Revenue Composition

Revenue Transition

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Certain customers are spending more on electricity services when considered more fully - including enhanced reliability and home energy automation

Grid Energy 4%

T&D 15%

Solar PV 23%

Onsite Back-up Generation 46%

EE Spending 7%

Home Automation 5%

Monthly Residential - Self Optimization$200.00

T&D 55%

Grid Energy 36%

EE Spending 9%

Monthly Residential – Traditional Service$75.00

Example Customer Energy Budget Allocation

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Based on PA utility analysis and customer spend

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3° of Value from Information

Value derived within energy value chain across use, delivery and production

Value derived from insights on behavior of

things such as equipment/appliances

Value derived from insights on behavior of people related to non-energy related services/sales

Derivative information from customer & device behavioral analytics fusing independent information sources is creating new revenue opportunities

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Future Utility Business Options (depending on regulation)

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Innovation through Value Networks

Successful businesses today create value & revenue through their role and relationships within value networks

Utility industry thinking (regulation and business) will need to transition from “value chain” to “value network”

• Value Chain orientation is zero sum as roles and responsibilities change

• Value Network orientation seeks to expand opportunities for all based on cooperation and coopetition

This requires re-considering old paradigms regarding competition and innovation in electric industry about utilities’ ability to participate

Discussion should no longer be about “Us vs Them”, but rather “Us with Them” to create sustainable value for all customers

Electric Industry Value Network

info@newportcg.com