Utilities Competing on Price

In an Energy Central article, Guidehouse explains how utilities can use pricing as a competitive advantage

For decades the utility industry has billed customers using rates based on commonly accepted principles, however, recent trends are emerging that are challenging traditional approaches.

In an Energy Central article, Guidehouse’s Margot Everett, director, discussed these new trends and recommended a framework to modern pricing design that regulators, policymakers, and utilities can all agree on. 

She highlighted the following challenges to traditional pricing:

  • Deregulation and disaggregation of the value chain
  • Incentive and outcome-based regulation
  • Competitive offerings to customers based on cost savings off utility rates
  • Shift toward higher fixed components of utility cost structures
  • Transformation of pricing in other industries (unlimited plans and subscriptions)

“The solution is easy: Eliminate the concept of rates and have utilities and all other stakeholders compete on price,” Everett said.   

She discussed the following components which are dependent on one another to create this new framework:

  • Product differentiation
  • Customer segmentation
  • Cost attribution
  • Incentive design

“This framework must allow all market players to compete while ensuring all customers access to standard, necessary services.” Everett said. “We propose that a framework that focuses on defining products, targeting customers, understanding costs, and designing prices that are understandable, actionable, and send clear signals is the future of rate design.”

 
Read the Energy Central Article

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