I’ve always loved quoting what I consider one of the better 80s movies, “Better Off Dead.” The paper boy wants two dollars for the deliveries he’s made, and John Cusack has lots of excuses not to pay him. Every time I think about that scene, I can’t help but think about the utility industry and some of the reactions around solar.To be honest, I feel as if I have seen this before.
To explain, let’s start in 1998, when I was in college. I had just gotten a new cell phone that would allow me to call, untethered, from anywhere. That included when I was driving in my car, which wasn’t a big deal at the time. Cell phones had been around for a while, but Motorola had just designed a phone small enough to be convenient, with a battery that would last long enough for a 30 minute phone call.I was excited that I could not only be mobile, but take advantage of removing a long distance fee from my land line. You can imagine my frustration when the phone company told me that they would have to charge me for NOT having a long distance plan.
I was furious I had to pay for something, long distance, which I wasn’t using. I was young and naïve and had not yet stepped into my adult responsibilities. I had no idea there would someday be many things I would pay for and not use. Of course, now I have many tangible and intangible objects for which I’ve paid thousands of dollars, only to have them sit in a folder, insurance office or a garage, unused.
As an aside, I did not realize it at the time, but had I known that my cell phone would be such an integral part of my day I would have opened a retail store or invested in some strategic stock offerings. How could I have known that cell phones would cause such a fever? Meanwhile, the beeper I had to have as a teenager just sat in my room because no one was beeping me.
What is fascinating is the effect that disruptive market technology has on existing business models. It’s an interesting plot line that goes as follows: There’s a well-established industry rooted in a service which has not been modified for decades, operating on existing equipment and infrastructure established at the inception of the service. It’s had ongoing expansion, but without significant technological service modifications. The original investment, though expensive, has been paid for, with new investment coming at a subsidized cost. Now the plot twist. Though this service is a modern-day necessity, there’s new competition that doesn’t necessarily require all that existing infrastructure.
This script is brought to you by, not only an inability of Cusak’s character to pay the paper boy, but also by another story. I’ve been reading over the last year about utilities wanting to assess surcharges on customers installing solar panels on their homes to take advantage of net metering and take part in the renewable industry. While some of the cost and operational dynamics are different, there are striking similarities with the phone industry and newspaper delivery. There’s a lot of existing infrastructure with antiquated business models facing competition that wasn’t in the original script.
I’m not here to say that the utility industry will go the way of Ma Bell, Borders Bookstore or the San Francisco Chronicle. What I am saying is that innovation is causing very similar industry pressures in the power world that these other industries have already faced. Entrenched service providers are reacting by defending, rather than accepting a new reality. We have to realize there have been successes by companies willing to integrate the new technologies, and they are thriving even if it comes with a different business model.
As an energy industry consultant, I am more than a casual observer. My job exists as long as the utilities I serve exist. My hope is that the clients we serve are those clients who are on the right side of this energy debate. To that point, there are many service providers who are working with their customers to come to a common balance.
And so you might ask, “What will be the new service model?” My answer is, who knows! What we can do is monitor those investing in new technologies and new service models, and keep an eye on customer trends. The customer is the most important variable in this equation. I say that because I choose to pay almost $200/month for my family’s cell service and am happy to do it. I’m sure Ma Bell is turning over in her grave asking why a customer would pay so much for phone service when there is an existing service available at a fraction of the cost.
If there is one constant it is change. Those who refuse to change get challenged by those who embrace it. And if there are two constants, the second is that you cannot control a customer. When given a choice that customer may prefer a more expensive option in the spirit of good will, perceived value, actual value or because it’s more convenient.