Reference no: EM132257045

Alighting Innovation in the Utility IndustryThere are 3,200 utilities that make up the U.S. electrical grid that sell $400 billion worth of electricity per year. However, that’s slowly changing. Companies such as Comcast, NineStar Connect, and Vivint have started selling their customers electricity along with their services. Comcast offers its XFINITY customers in Pennsylvania the opportunity to purchase electricity as well as phone, Internet, and TV services. NineStar Connect offers electricity, phone, broadband and home security to customers in central Indiana. Vivint, an alarm system company on the East Coast, installs solar panels on alarm clients’ homes for free and then requires the homeowner to purchase the electricity that is generated. Any excess is sold to the local power company. Google, while it has not formally entered the market, has its own wholesale power license and has purchased Nest, which makes a “learning thermostat.” Industry experts speculate that it will only be a matter of time before Google formally enters the market.

With this influx of new competitors, utilities will have to start learning to compete. Michael Peevey, the president of the California Public Utilities Commission, states that these days utilities “hold their own fate in their hands. They can do nothing but complain or moan about technological change or they can try to adapt.”56

Utilities lose revenues when businesses and residential customers switch to solar and wind power and lose additional money from having to buy any excess electricity generated. Utilities have to maintain the power transmission lines across the grid. Customers often are assessed fees in their bills that help cover line maintenance, but those who are selling back power don’t pay these fees while still using the power lines.

Further, utility companies face a number of regulations and are limited in their actions. For instance, utilities in Louisiana, Idaho, and California want to impose fees or taxes on solar users but have been rejected by regulators. It is unlikely that U.S. regulators will ever completely do away with electric companies as there will always be a need to have a secure supply of power. Thus, these companies will always have to incur the expense of maintaining the power lines with a dwindling customer base.

Additionally, most utility companies are behind the times on technology. While there are smart meters, most utilities have a limited presence in customer homes with programmable thermostats. They could have a greater presence if they were to invest in developing better in-home energy management tools (like the thermostats offered by Nest). Nor have many utilities looked into apps for phones or tablets that can help consumers manage

Finally, the utilities themselves have been getting in the way of their own success. Over a decade ago, Peevey recommended to the California utilities to enter the solar power business. He suggested they put solar panels on people’s homes and then build the cost of installation into the rate base. CEOs of the utility companies balked at Peevey’s calls for change. Most CEOs replied back to his innovative ideas: “It’s not our culture.” This is true, as most electric companies didn’t have a need to innovate its production processes or products for decades.

1. What changes will the company need to make? In what areas should the company start making changes?