This document discusses the evolution of utility business models and the electric industry as customer adoption of distributed energy resources grows. It outlines three stages of evolution for utilities and provides examples of the telecom industry transition and a hypothetical revenue transition for electric utilities. The document also presents options for future utility business models, including becoming providers of customer and distributed energy services, market enabling services, and transportation electrification. Finally, it argues that the industry will need to transition to thinking in terms of creating value through networks rather than traditional value chains.

1. Utility Business Evolution & Innovation
National Governors Association Center for Best Practices
Learning Lab on New Utility Business Models & Electricity Market Structures of the Future
Paul De Martini
Newport Consulting
July 28, 2015

2. 2
Electric Retail Evolution
Utility functions will evolve over time as customer adoption of DER grows
and the opportunity to enable the net value created in this transition
3 Stages of Evolution as DER Adoption Grows & Market Opportunities Expand

3. 3
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$50
$100
$150
$200
$250
eCommerce
Mobile
Broadband Video & Data
Wireline
Telecom Industry Transition Example
Revenue Transition
AT&T Break-up
1996 Telecom Act
Telecom revenue growth from new services leveraging modern broadband
fiber and mobile platforms and market partnerships
Personal Consumption/Person/Month
Sources: FCC, Industry Analysis and Technology Division Wireline Competition Bureau, Sept. 2010
US Census Bureau Retail eCommerce Revenue data used to estimate per adult monthly spend

4. 4
1970 1978 2000 2015 2025 2040
Cust DER Svcs
Market Enabling Svcs
Dist. Platform Svcs
Transp. Electrification
Trad. Distribution
Electric Utility Industry Hypothetical
PURPA
Question is how utilities may be allowed to participate in the new revenue
streams that are being created in a more distributed future
Conceptual Regulated Utility Industry Revenue Composition
Revenue Transition

5. 5
Certain customers are spending more on electricity services when considered
more fully - including enhanced reliability and home energy automation
Grid Energy 4%
T&D 15%
Solar PV 23%
Onsite Back-up
Generation 46%
EE Spending 7%
Home Automation
5%
Monthly Residential - Self Optimization
$200.00
T&D 55%
Grid Energy
36%
EE Spending
9%
Monthly Residential – Traditional Service
$75.00
Example Customer Energy Budget Allocation
5
Based on PA utility analysis and customer spend

6. 6
3° of Value from Information
Value derived within
energy value chain
across use, delivery and
production
Value derived from
insights on behavior of
things such as
equipment/appliances
Value derived from insights
on behavior of people related
to non-energy related
services/sales
Derivative information from customer & device behavioral analytics fusing
independent information sources is creating new revenue opportunities

7. 7
Future Utility Business Options (depending on regulation)
7

8. 8
Innovation through Value Networks
Successful businesses today create
value & revenue through their role and
relationships within value networks
Utility industry thinking (regulation and
business) will need to transition from
“value chain” to “value network”
• Value Chain orientation is zero sum as
roles and responsibilities change
• Value Network orientation seeks to
expand opportunities for all based on
cooperation and coopetition
This requires re-considering old
paradigms regarding competition and
innovation in electric industry about
utilities’ ability to participate
Discussion should no longer be about “Us vs Them”, but rather “Us with
Them” to create sustainable value for all customers
Electric Industry Value Network

9. info@newportcg.com