Business Models for Utilities of the Future: Emerging Trends in the Southeast

Growing concerns about clean air and climate change have brought attention to the business models used by electric utilities to promote the deployment of distributed renewables and energy efficiency. To advance the debate on best business practices, this paper analyzes approaches to allocating the costs and benefits of ratepayer-funded energy-efficiency programs, focusing in particular on utilities in the Southeast. Using public data on a southeastern utility, we estimate the impacts of three important features of business models: the recovery of program costs, the treatment of lost contributions to fixed costs, and the provision of utility incentives. Our research indicates that energy-efficiency programs (with or without these business case features) would have only modest impacts on average electricity bills and rates, while significantly reducing electricity costs to participants. Depending on the choice of business model, non-participant utility bills may also decline. Utility earnings are reduced by energy-efficiency programs, but various combinations of business model features largely restore these earnings. The range of options for distributing the costs and benefits of energy-efficiency programs underscores the importance of selecting the right business model. The growing scope and scale of energy-efficiency programs makes this choice increasingly important.