Utilities have an imperative to deliver energy safely, reliably, and affordably. While these three objectives have always had a compensatory relationship, lately it feels like they exist in a zero-sum game. In an era of load growth and extreme weather, maintaining safety and reliability often creates pressure on the affordability piece of this mandate. Cost drivers vary by jurisdiction, but nationwide, distribution costs in particular are steeply on the rise, forcing rates up. As extreme weather increases, utilities are feeling the cost strain of hardening the grid against storms, wildfi res, and other disasters as well as investing in replacement and repair after disasters happen. Simultaneously, sustained demand growth is prompting grid upgrades that further add costs. With these factors and more, delivering on reliability and safety – as utilities must – is giving rise to new affordability challenges.
Energy costs are a substantial expense for many Americans, with the average family spending about 6% of their annual household income on energy costs like electricity and gas. Lower-income families feel this energy burden more, with energy costs comprising a median 8.3% of their annual income. In fact, one in seven households spends 14% of their income on energy costs, exceeding the threshold of 10% at which a household is considered energy impoverished.
Electricity Prices Outpace Inflation
As electricity prices stubbornly march upward, these increases are pushing more and more Americans into the energy burdened category. Since 2019, electricity prices have increased nearly 30% – outpacing inflation (see figure). And recent research shows that Americans are feeling the pain:
- A staggering 21.2M U.S households – 1 in 6 – are behind on their energy bills
- 31% report struggling to pay their electricity bills
- 73% of customers reported feeling concerned about rising utility bills
Rising electricity costs are not the only economic stressor on folks' minds. According to recent polling, 69% of Americans fear a recession and 90% are concerned about overall inflation in the economy. Against this backdrop, everyday consumers are looking for ways to reduce their household expenses across the board, including energy.
Utility Affordability Tools Already Provide Direct Benefits
The good news is that utilities are well positioned to tackle this challenge; for decades, they have been crafting comprehensive suites of energy offerings that support customers in reducing their bills:
- Energy efficiency: For homes and businesses, energy conservation can go a long way toward reducing bills. The average American household can eliminate 10-20% of energy costs through energy efficiency upgrades to reduce energy waste, facilitated by utility programs that increase access or reduce payback periods.
- Rates: Depending on their home or business characteristics as well as their ability to fl exibly shift their usage, many customers stand to benefit from time-varying rates. Providing customers with personalized rate comparison tools can help match each customer with their best rate.
- Demand Response: Customers earn a financial reward – most often in the form of a direct payment or a bill credit – for better operating the devices they already have to benefit the grid. Increasingly, utilities offer a wide variety of demand response offerings to homes and businesses to better manage their thermostats, EVs, batteries, water heaters, building management systems, and more.
- Electrification & Solar: Some customers stand to financially benefit from electrifying their homes & vehicles or adding solar generation. Utilities can help facilitate the process by providing education, rate structures, rebates or incentives, and analytic tools to help with their assessment.
- Income-qualified programs: From weatherization to energy assistance programs to budget billing, many utilities have a set of programs specially designed to connect income-qualified customers to energy-saving and bill-saving programs. Using customer analytics and engagement tools, utilities can identify likely qualified customers, proactively engage them with targeted messages, and connect them with the best program for their unique characteristics.
But across these beneficial programs, engagement still lags; with participation rarely exceeding a quarter of eligible customers.
Leveraging comprehensive customer data and advanced energy analytics, utilities can provide hyper-targeted and personalized recruitment into the right set of programs for each household and business. Now is the time for utilities to double down on customer programs to ensure we reach beyond early adopters to become a truly mass-market customer experience.
Customer Programs Can Keep Costs Low for All Customers
In addition to providing direct financial benefits to participating homes and businesses, expanding enrollment in customer programs places downward pressure on rates for ALL customers by reducing utility generation, transmission, or distribution costs. For instance, utility energy efficiency & demand response programs are typically designed using cost-effectiveness tests that ensure that utility savings (such as avoided generation costs) outweigh utility program costs (such as program incentives). As another example, leveraging a virtual power plant to provide resource adequacy provides a 40-60% discount over the cost of alternative options. By harnessing customer participation in clean energy programs, utilities can save on costs for the entire community.
It is core to the utility mission to deliver safe, reliable, and affordable power. Utilities would be well served to fully embrace customer participation in clean energy programs as part of their strategy to deliver affordable power.
Advancing Energy Affordability With Outbound Bill Summaries
Learn how Southern California Edison (SCE) uses personalized and detailed bill summaries to help LMI customers save money and energy, earning them a 93% program customer satisfaction rate.