The traditional world of utilities is evolving in response to rapid transformation driven by digitalisation. Against this backdrop, utility companies are taking landmark decisions on several fronts by reviewing business models and finding new ways of engaging with consumers.
At this critical time for the sector, it is vital that utilities of all kinds retain their identities and remain relevant – especially as some observers question if the term “utility” is even fit for purpose any more.
These issues were explored at a recent roundtable dinner hosted by Utility Week and IBM. The event, at Le Pont de la Tour restaurant in London, was chaired by Utility Week publishing director Ellen Bennett and saw industry leaders from across the sector gather to discuss the theme: “Beyond Utilities: New and Emerging Business Models”.
Views differed in certain areas, but the consensus was that the old-fashioned idea of utilities has gone. Today’s modern utilities are about service provision, although there remain many positive connotations around the word utility, which still endures as representing something special.
One energy supplier revealed they no longer thought of themselves as a utility, but a service provider – albeit a provider of a critical service.
Meanwhile, a networks speaker said having physical assets perhaps made the label still feel relevant, although they hesitated to accept it was to do with being a monopoly.
“I think whatever you call us, the job for us is to provide the best service we can. That will always be at the bedrock of what we need to deliver.”
A fellow speaker said one of the things about being a network utility is that it is an “expected service”, while consumers may view suppliers differently because they recognise their brands. And a water company delegate said the work of a utility, and what customers look for now, goes way beyond sewerage and drinking water. It includes catchments, agriculture and biodiversity.
Another speaker pointed out that even if the word was starting to become old-fashioned, there was still “brand value” in it around certainty, familiarity, necessity and comfort. “I think it still resonates with customers. They understand it.” That value now is around service, it was suggested. “Utilities have become ‘super services’ providers for consumers. There has been a transition in the way they look at you.”
“The relationship as people connect to the electricity network will become much more interactive,” predicted one representative. “We’ll be expecting to use the network to trade energy, services and generate revenues. At that point maybe the label of utility starts to become a little bit limiting.”
Degrees of separation
Are we moving towards the disaggregation of the value chain then, the group was asked, with someone looking after the pipes and someone else the customers?
One speaker said the telecommunications industry was a good analogy, with phone companies no longer viewed as just fixed phone line installers, but providers of all services, including data.
“I suspect there will be increasing disaggregation,” said one speaker, “between the physical asset and the services the asset enables for the consumer/prosumer.”
An ongoing issue for traditional monopoly utilities is that the “one size fits all” model must change – although that’s not the way they are currently regulated and structured, said one delegate.
A water sector representative reminded the group of the difference between water and power in terms of resource scarcity. “If you take that and the usage issue, then suddenly in water you’ve got a different conversation with your customers.” Others felt this was likely to change, with flexibility in the energy system and potential demand-side response programmes. “This type of scarcity of resource is something that all utilities will struggle with in the future,” they believed. ”And that will create new technologies that we cannot even imagine at this point.”
Another question was whether the customer, competition, or the regulator drives investment. “The customer, 100 per cent,” was the general view, although one speaker said that value-added services were nothing if the basics were not perfect.
So how are utilities responding, the group was asked? Are current systems fit for digital transformation or are they, as one chief executive of a big six utility recently put it to Utility Week, “building on sand”?
The latter was not a view these delegates recognised. “Retailers have invested almost unprecedented levels in getting up to speed,” said one. “Do I think we’re building on sand – no. From a retailer perspective, there’s still a huge amount to gain from creating a really valid digital presence. It’s down to investment and capability.”
The direction of travel is clear, said a fellow delegate. There is no doubt that the threat of competition is starting to build. Reacting quickly to digital demands is key.
On this point, one of the group highlighted that while some businesses were comfortable with internal, innovative, digital projects, data issues remain common. “We’ve done a lot, but how do we deploy this at an operational scale?”
Collaboration was raised as potentially holding some answers. With huge opportunities for using data and emerging technologies, the group was asked whether there is scope for working together towards standardisation. Although one delegate questioned if integration might stifle innovation, another said there was a debate to be had.
In closing, many agreed with the delegate who said “utilities have still to inhabit multiple worlds”. It does appear they will still be around for a long time to come.
Rob Angus, head of smart and energy services change delivery, Npower
“Smart brings some ‘best in class’ capability to build on, but equally brings some challenges too. One of these is we need to manage customers’ expectations: many customers are used to ‘topping up’ their mobile phone and seeing that credit appear on their device within seconds. Topping up a smart meter, in a regulated world with multiple third parties involved, is much more complicated and means it may take longer to appear.”
Mark Adolphus, director of connections, UK Power Netwroks
“Whether the label utility is appropriate or not, I don’t think we get hung up about it. The thing is about the service we provide to our customers, and how we are viewed in the marketplace.”
Malcolm Horne, head of environment, Severn Trent Water
“The word utility also brings with it a certain ‘essentialness’. It is something I think I feel quite proud of – as a core service that society and our customers would seriously miss if it wasn’t there.”
Keith Wishart, UK account partner, IBM
“You are at greater risk of substitution in power – there might be greater adherence to the utility model in the water sector for longer than there is in electricity and gas. So, if you are getting substituted you could almost become like an insurance company. If people are going to smaller providers and they don’t have the same level of resilience as you do, then you might say ‘we can underwrite that’.”