Like organizations in virtually every industry today, utilities are addressing a number of critical challenges and trends in the market, from infrastructure demands, to calls to improve the customer experience, to talent demands, and much more.
How will the future for utilities evolve? In this informative podcast, Peter Tumminello and Claire Gotham offer a number of interesting insights into these issues. Pete is recently retired group president of commercial businesses for Southern Company Gas, and currently serves as a board member for midstream natural gas company. Claire is a managing director for Protiviti and a leader in the firm’s Utilities Industry practice.
Like organizations in virtually any industry today, utilities are addressing a number of critical challenges and trends in the market, from infrastructure demands to calls to improve the customer experience to demands for talent and much more. How will the future for utilities evolve? This is Kevin Donahue, a senior director with Protiviti, welcoming you to a new edition of Powerful Insights.
I recently had a great conversation with Peter Tumminello and Claire Gotham, both of whom offered a number of interesting insights into these issues. Pete is recently a retired group president of commercial businesses for Southern Company Gas and currently serves as a board member for a midstream natural gas company. Claire is a managing director for Protiviti and the leader in our firm’s utilities industry practice.
Claire, thanks for joining me. It’s great to speak with you today.
Kevin, I think everything starts with investments in safety, especially for gas utilities. Everything that they want to start with is replacing infrastructure, pipeline, compressor and other infrastructure that’s aged and making it as much up to date as possible through pipeline-replacement programs. What happens in these programs that are helping with safety, they have a dual benefit of reducing methane emissions and helping gas utilities move closer to their net-zero goal.
I believe the investments have to begin with safety. That’s what the state public utility commissions certainly are looking at and measuring utilities on. As you go from there and you look at customer-facing investments, there’s a lot of investment in the customer experience, be it in the call-center technologies or in the technologies to sending out technicians to somebody’s home.
Utilities historically have not been known for being the most customer-centric. Matter of fact, they called them ratepayers for many years, which is a horrific way to refer to your customers. Now, what they’re doing is calling them customers for the most part and providing them, on their handheld phones, real-time information of when a technician is coming to their home, what the picture of that technician looks like, and real-time infrastructure updates on technology is very important on the customer experience. As you keep going down the path of the aging workforce, investment in training — we have a tremendous aging population of workers in both gas and electric utilities, so an awful lot of training and recruiting, partnership with technical schools, to be prepared for an exodus of an awful lot of employees in that space.
One of the newer areas is data analytics. This is going to be difficult for utilities, but a lot of data analytics around AI, artificial intelligence, and other technologies are being deployed. Now, what’s happening is, utilities are having to compete with almost every other industry for AI staff, and that has been difficult because of the salaries and what’s required to get best-in-class skills there. They’re having to compete with Google, Microsoft and every other industry that is looking to do more AI.
Then, you go on R&D. There’s a lot of investment in R&D, especially in my prior company, Southern Company — a tremendous amount of investment in renewable natural gas, hydrogen, carbon capture and sequestration. The future of the company is depending on R&D.
To wrap a bow around all of that, these things require the state public utility commissions to approve these programs, so most of these investments won’t occur until they’ve actually gone through a rate case and been approved. Once they’re approved, then it can be all of the above — get deployed, assuming they get approved by the state regulatory commissions.
I think that there are some distinct approaches that I am seeing utilities take, and again, we have to keep this in the framework of the regulatory world within which utilities live. If we’re talking about retail customers and things like distributed energy resources that are EV charging stations or smart thermometers or smart appliances, they’re rolling out programs where they are seeing people’s appetites for that. They’re educating people about the benefits of these products and really trying to engage them around how it will benefit their lifestyle and their home and their envelope or their bill, essentially. Less envelope shock, as we mentioned earlier. I think that they’re doing a good job in that area, and that is going to continue as those items grow. They grow in popularity. They grow in number. I know myself, in my house, I have several of those items.
On the commercial/industrial side, when we talk about distributed energy resources, I think the approach is a little bit different because that’s where you really have large dollars at stake. You do have to go to the regulatory commission and, as Pete described, get permission for these programs, whether it’s a pilot or an actual program, and so I’m seeing clients try and put together those packages. Everything from customer surveys demonstrates customer desire of these different items — wind, solar, things like this — at their level to market-landscape reviews and white papers and forecasts for how these things will integrate into the current grid. I think it’s a little bit like mapping out your route. We know we want to get to a certain place, whether that’s 2035 or 2050, but it’s filling in the stops and those ways we get there, the different routes we can use.
If I could add there, I would say if you look at the commercial/industrial space, the data centers are going to be the North Star for the future, or they could be in terms of what they’re requiring around green energy, energy efficiency, and 100% resilience and reliability. The ask by the data centers is extremely high. They’re looking for new data centers to be completely green and to be completely resilient and at low cost, and those three don’t stack up very well together. When you look at distributed-energy resources, I would say let’s look towards the data centers — Microsoft, Google, others who are putting in these new data centers — and what they’re requiring, and their requirements are extreme. They’re extremely high, and if the industry can meet those requirements, then I think the other part of the economy will want to follow suit fairly quickly.
On the EV side, utilities have to be flexible, whether or not they’re going to own the EV stations or just provide the power. I think they — at least the utilities I’m familiar with — are a little bit agnostic. Whether they own the station or not, they’d like to see the juice flow to those stations. One vehicle can be an equivalent of a heat pump in a home, a tremendous increase in load, and that’s what the utilities would love to see, because they’ve been facing lower usage — or at least flat usage — over the last 10-plus years. That’s been a challenge for electric utilities, so this is one of the top markets for them, and I think they’re just trying to figure out whether do they own the stations or they just provide the possible service to get the power to those stations?
That’s the side of the business that I led for many, many years, and it included a trading business, a midstream pipeline/midstream storage business, retail energy, behind-the-meter energy services. I would say very simply, most utilities want those investments to have stable, predictable, reliable, repeatable earnings, and if a nonutility business can fit that description, that is what the investors in utilities want. If they don’t fit that description, you’re seeing exits. You’ve seen utilities sell some of their natural gas storage assets. You’ve seen them sell some of their trading businesses. You’ve seen them sell some of their behind-the-meter businesses if they’re not meeting that earnings profile.
However, you’ve got the other side of it where their DER — distributed-generation businesses — they really are more patient with. They’re wanting to give those businesses time to grow. Most utilities know this is going to be needed by their customer base. They also know that competitors are coming in, trying to take customers potentially off grid, and that could hurt a utility on the electric side, maybe the gas side too. Being in the DER business, even though they may not be that stable, reliable earning stream now, there’s still some patience in that type of business to be in a little bit longer term.