Buying service, not kilowatt-hours
Texas electricity retailers offer consumers more than 2,000 plans, creating a dizzying array of prices and options that are often difficult to comprehend.
Prices are at the top of every offer, ranging from 6.8 cents per kilowatt-hour to 12 cents. Terms range from one to three years, with special introductory offers, clean energy options, free nights and weekends, and even home security bundles.
But how much electricity do you really need, and when do you need it? What is a kilowatthour, anyway?
Readers frequently complain about the process of choosing a retailer and then feeling disappointed when the plan wasn’t what they expected. Some even miss the old days when Houston Lighting & Power Co. hooked up every house and the Public Utilities Commission set the rates.
Some electric companies have heard your complaints and recognize the need for new business models. The industry is buzzing about offering “energy as a service,” where instead of paying for a kilowatt-hour, you tell
retailers what you want from your appliances, and they give you a set monthly price for providing that service.
For example, if you want your house kept at 76 degrees when you’re home and 84 degrees when you’re not, and you want your freezer at 28 degrees and the refrigerator at 36, then the retailer quotes you one price. Lower those numbers, or work from home on a desktop computer, and the price goes up. Either way, the electric company makes sure you get the service you want, and it manages how many kilowatt-hours you use.
Engie Resources, the Houston-based subsidiary of French utility giant Engie, has devoted itself to making this concept work. Engie sold its old-school power plants and is focused entirely on building a retail electricity business, which it anticipates in five years will generate as much revenue as its electric generation business.
Engie Resources President and CEO Sayun Sukduang explained to me why his team is all in on energy as a service.
“You have never woken up in the morning and said, ‘I’d love to get my hands on some kilowatthours.’ But you do wake up in the morning and say it’s too hot or too cold. You do wake up expecting your milk to be the right temperature for your cereal,” he said. “You don’t want to buy kilowatt-hours, so why can’t I sell you the temperature you want and optimize the way you live with society’s needs while making sure you get that outcome?”
Making this possible are the smart meters that transmission companies have installed at almost every Texas home. They record electricity usage and can report which appliances operate when and how much they consume. Smart home technology, and internetconnected appliances, make it possible to monitor and control a home’s consumption from anywhere in the world and make it more efficient.
Retailers make their money managing consumption and trading contracts on the Texas wholesale electricity market, where the price changes every 15 minutes. A retailer can save money by carefully managing what turns on when and for how long.
“My job is to deliver them climate control, light and device functionality at the right environmental impact, in a secure way and at the lowest cost,” Sukduang said. “And if they can give me flexibility because their home is now smarter than it was before, that allows me to do it in a much better way than I do it today.”
Many customers will feel uncomfortable with an electric company having that kind of control. Even more have lost faith in retailers because of questionable sales tactics. Sukduang said overcoming customer reluctance is one of the biggest barriers to energy as a service.
“We, as an industry, don’t know how to talk to customers,” he said.
Tens of thousands of Texans, though, do allow their electricity providers to turn up their thermostats on hot days so we all avoid blackouts. And people are buying smart home technology to control thermostats and lighting to save money.
The next obstacle for energy as a service is the Texas retail market, which was designed long before anyone dreamed of controlling thermostats with mobile phones or using an electric car’s battery to balance the grid. Under the current system, Texas retailers compete only on the cost to acquire customers, the cost of electricity and retaining customers.
Usage data is critical to energy as a service, and today’s retailers can only see the records of existing customers. To see a potential customer’s history to put together an energy-asa-service bid, they must get a waiver and wait 24 hours.
New York, California and Ohio, meanwhile, are overhauling their electricity markets to allow energy-as-a-service companies to compete.
Texas lawmakers need to update our electricity market rules, because allowing energy as a service will lower costs, boost efficiency and reduce the need for new power plants and expensive transmission lines.
When Texas liberalized the energy markets in 1999, it was at the cutting edge. But almost 20 years later, the time has come to update the rules and give customers even smarter choices when it comes to electricity.