Big Energy Is Learning to Simply LOVE the Little Guy: Gadfly



Big Energy Is Learning to Simply LOVE the Little Guy: Gadfly
Customers might only just be finding their place in the modern world's indispensable industry.

(Bloomberg Gadfly) -- Andrew Vesey, CEO of Australian utility AGL Resources Ltd., made an interesting comment at a recent Bloomberg New Energy Finance summit in New York:

The customers are finally becoming part of the energy value chain.

There are signs of this cropping up all over. Royal Dutch Shell Plc has just launched a service, TapUp, that lets you order a refill for your car at home rather than drive to a gas station. Rival BP Plc earlier this month hosted an investor day dedicated entirely to the downstream part of its business -- that is, things like chemicals and retail that are closer to the customer -- for the first time in six years.

Meanwhile, Enel SpA, the Italian utility, just announced a $282 million deal to buy EnerNOC Inc., a Boston-based company that helps large energy users manage their demand. This follows similar acquisitions by other utilities such as Southern Co. and Edison International in the past couple of years and the launch of non-energy related customer-service businesses such as Centrica Plc's "Local Heroes" handyman platform.

The most interesting aspect of Vesey's comment, though, is that customers might only just be finding their place in the modern world's indispensable industry now, in 2017. Imagine the same being said for the technology or health-care sectors.

But energy is different. Or, rather, it was.

Oil majors and utilities have long been obsessed with supply. Customers, after all, are slaves to the gas pump and the light switch. This isn't to say they were ignored altogether. But one look at the financials of, say, one big integrated oil company quickly identifies the center of gravity in the business:

Oil majors spent much of the past couple of decades selling refineries and retail sites (helping to strengthen the independent refining and marketing industry in the process) and redeployed the funds into upstream resources, no matter how exotic (read: high-cost.)

On the power side, while utilities clearly have a direct, hardwired link to the customer, frequently it isn't your standard relationship. In the U.S., regulated monopolies limit customer choice except in certain states (such as Texas); the key thing is avoiding blackouts and price spikes rather than winning hearts and minds. In a survey conducted in 2014 by the SmartGrid Consumer Collective -- an industry and consumer association -- while four out of five respondents said they were satisfied with their utility, only 58 percent said they believed their utility acted in consumers' best interest.

As far back as 1960, Theodore Levitt's seminal paper Marketing Myopia took aim at the oil industry's complacency:

Not since John D. Rockefeller sent free kerosene lamps to China has the oil industry done anything really outstanding to create a demand for its product.

He was similarly scathing of electric utilities "enthroned on a pedestal of invincible growth".

Even without such baggage, it is hard to turn a commodity like energy into a consumer product at the best of times. And yet Big Energy must try, because that old assumption of ever-increasing demand and lack of competition that Levitt warned against is being called into question.

U.S. oil and electricity demand has clearly flattened over the past decade (although gas has made big strides, largely at coal's expense):


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