An article for Public Utilities Fortnightly explores what Netflix and Amazon pricing could mean for rate design’s future
More and more American consumers are signing up for subscriptions. From Blue Apron and Netflix, to Lyft and Amazon, customer perks such as convenience, control, choice, and comfort are fueling a subscription e-commerce market that has already grown by more than 100% in the last year. In an article for Public Utilities Fortnightly, Lon Huber, director at Navigant, and Richard Bachmeier, manager at Tucson Electric Power, say utilities and their stakeholders could benefit from adopting a similar business model.
“If other industries are transitioning from a pay-per-use and volumetric model to a subscription model, why should utilities not consider this option as well?” the pair asked.
A utility subscription model, or an Energy Service Subscription Plan, would essentially enable customers to pay a fixed monthly bill for energy use. And when combined with advanced analysis of customer interval load data and smart devices, customers can benefit from more choices, longer contract terms, and tailored offerings based on their preferences.
Huber and Bachmeier cautioned that defining proper subscription pricing will be challenging, requiring advanced analytics, cross-functional coordination, and measurement and verification of customer product offerings. Yet, the promise of a new pricing platform in terms of customer choice and access opens the door to predictable bills for customers, a hundred percent alignment between the utility and energy conservation goals, access to managed distributed energy resources for low- and moderate-income households, and improved fixed-cost recovery for the utility.
“Perhaps the competitive private sector is on to something,” wrote Huber and Bachmeier. “Subscriptions focus on uses of the service rather than overall consumption. Targeting customer preference and needs based on behavioral data rather than kilowatt-hour transactions empowers utilities to focus on increased customer choice, comfort, and convenience with a focus on high-value outcomes.”