Allison Bates Wannop is the policy director for the DER Task Force, an independent industry voice and community of DER enthusiasts, advancing DERs’ role in the energy future.
In December 2022, I sat in a Louisiana Public Service Commission hearing room and witnessed mortal combat over electricity retail choice. Retailer choice providers vs. utilities, arguing that retail choice saves all customers money on their electric bill (slide 9), or that in fact, it absolutely does not, at least not for residential customers (slides 6-7).
I didn’t have a dog in this particular fight, and couldn’t say that I was squarely convinced by either side. Yet I’ve often thought back to this debate, as I’ve come to the realization that this is an outdated argument — about Retail Choice 1.0 — which distracts from the conversation we should be having: making Retail Choice 2.0 work.
The traditional idea of retail choice — Retail Choice 1.0 — is competitive retailers buying power in wholesale markets to serve competitively acquired customers, in an attempt to offer lower electricity costs for consumers when compared to vertically integrated monopolies. In Retail Choice 1.0, retailers are energy traders. Only cost matters.
In Retail Choice 2.0, retailers are technology companies. They build software to manage data and distributed energy resources. They create fun, customer-centric products, engaging with customers beyond just a bill. They nimbly manage a suite of technologies — smart thermostats, electric vehicles, storage — while recognizing that customers have a variety of motivations. Sure, some customers want to save money, or even make money, but others might want a cleaner power supply for their home, to recoup some of the money invested in a DER, or to create a cleaner, more efficient energy supply for their community by having their individual DER aggregated into a virtual power plant.
Retail Choice 2.0 creates innovation and customer engagement, such as:
- Retailers initiating a rule change to bring new DER capacity to market in less than a year, thus improving reliability and costs for all customers.
- Residents near rural wind farms being able to join Octopus Energy’s “Fan Club,” to receive 100% renewable energy from their local “fan” and up to 50% off their local rate when their turbine is spinning. In some places, the turbines even light up when customers are getting a discount.
- Texas retailers managing a site’s DERs so that customers receive a “negative bill” — a credit instead of a charge — while also reducing wholesale market prices to the benefit of all consumers.
- Increasing customer energy consumption through software or behavioral “plunge pricing” to match periods of high renewable energy production and low cost.
- Sunnova providing “customers with the best possible prices” by using a DER management software to dispatch fleets of solar and batteries as a VPP in the Electric Reliability Council of Texas market.
- Customers being able to donate to a charity via their monthly electric and natural gas bill, with NRG Energy’s Choose to Give program.
- A retailer buying people drinks at a local bar if they turned their air conditioner up to 80 degrees, even if they weren’t a customer of that retailer.
- Leveraging smart meters to rapidly iterate new rate structures that reflect myriad customer preferences, without regulatory lag.
- Competition to solve grid problems, like managed EV charging, with Kaluza’s partnership with U.K. retailer OVO growing from 200 to 16,000 drivers in one year.
2.0 retailers can do things that utilities don’t … yet. Another outdated paradigm to abandon is that of retailers vs. utilities, sworn enemies. Actually, these are complementary components of our energy system, with 2.0 retailers incubating the technology and services that utilities will one day use.
Perhaps no fact proves this better than Octopus Energy becoming an energy retailer solely to test its customer-centric Kraken software platform. After being unable to convince traditional, risk-averse energy companies to adopt its software, Octopus decided “to do it ourselves” and “built an energy company as the demo client, the trial for the software platform Kraken.” Now, the U.K.’s “digital disruptor” retailers “provide better customer experiences, but also enable retailers to achieve a lower cost-to-serve and thus better tariff pricing.”
While Retail Choice 1.0 was about cost, Retail Choice 2.0 is about innovation and early adoption: building the future more quickly than the pace of regulatory change, failing fast with private capital to learn lessons that benefit consumers in both restructured and vertically integrated territories. Vertically integrated states can use products and software tools offered by competitive retailers, so those states don’t gamble with ratepayer funds. Retailers essentially de-risk program design and product development for another region’s captive ratepayers.
Retail Choice 2.0 holds enormous potential, but it must contend with the ghosts of Retail Choice 1.0. Some of these practices included predatory solicitation of low-income and elderly customers, false or unrealized promises of retail savings, price hikes, switching customers’ suppliers without their consent and numerous other deceptive trade practices. Such transgressions have fueled actions to eliminate retail choice, at least for residential customers.
Cognizant, though, of this history, now is the absolute worst time to regress. Retail Choice 2.0 is capable of unlocking more value than ever, through smart meters, telecommunications infrastructure, artificial intelligence, electrified homes and even social media, enabling both real-time feedback and customer education. Digital natives are becoming electricity consumers, and electricity consumers have an ever-greater variety of motivations — not just cost.
In this world, there is no doubt that retailers will innovate more quickly than 99% of utilities. Successful retail choice has precedent. Texas has made it work. Similarly, while in the U.K. years ago consumer choice looked like an ostensibly failed experiment, now two-thirds of customers are satisfied with their supplier, with technology-forward retailers enjoying even higher customer satisfaction ratings.
Other places have made Retail Choice 2.0 work. Let’s iterate rather than quit.
