March 15, 2008

Conservation and the law of the jungle

Dr. Robert Peltier, PE

Ever wonder why many utilities receive so little respect from the public? In America, open competition requires every business to earn customers' trust before making a sale. Unfortunately, many utilities exploit their monopoly position to avoid the hazards of competition, including losses. It's no wonder that public utilities, as a whole, routinely rank near the bottom of surveys that measure consumer trust in U.S. industries. Their low rank is typically a result of questionable business practices and lack of transparency. If this sounds a little harsh, read on.

 

The challenge of conservation

In my opinion, the most pressing challenge facing utilities these days isn't the rising cost of nuclear reactor construction or falling pollution limits on fossil-fueled plants. Nor is it the aging workforce, high natural gas prices, or looming carbon controls. Although construction, compliance, and fuel costs are daunting, they are usually rolled into retail rates and life goes on.

The power utilities' most pressing challenge is the public's growing interest in energy conservation as a cultural and moral imperative.

It's axiomatic that when customers of any company start using less of its products, the company must either cut prices to make the products more appealing, develop better products with more features, or both. Firms that are slow to respond to nimbler competitors die a quick death at those competitors' hands. The law of the jungle means you are either well-fed or on the menu.

Many utility executives believe this law doesn't apply to them. Some have responded to their customers' efforts to use less energy by requesting rate hikes to replace revenues lost to conservation—in effect, treating customers as competitors. Such actions only reinforce the public's perception of utilities as greedy and hypocritical. But if you sell only one, fungible product—electricity—you can't recoup lost revenues by cutting its price and increasing sales volume, or by developing better electrons. The solution, in utility executives' minds, is to charge customers for the privilege of using less electricity. That “logic” is beyond comprehension.

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