Julia Hamm is a partner at The Ad Hoc Group and Chase Weir is CEO of truCurrent.
Commercial and industrial customers have historically been boring to utilities. As long as power was reliable and reasonably priced, utilities hardly ever heard from these customers. They were so boring that, according to a 2023 J.D. Power study, only 15% of C&I customers even had a utility account rep assigned to them. The feeling has been mutual. A representative from a major C&I customer with a large trucking fleet recently said “why would I want to talk to a utility? My job is to move boxes from warehouses to stores.”
A sleeping giant awakens
For a long time, a ‘set it and forget it’ relationship worked fine for both utilities and their C&I customers. Both parties had other priorities demanding their attention.
But in the recent past while utility executives’ attention has been on wildfires, affordability issues and an approaching AI-driven tsunami in data center electricity demand, a sleeping giant was awakening. Data centers have been dominating headlines with their rapid growth, but they still represent only 4% of C&I electricity consumption in the United States today. The sectors that represent the other 96% are poised for growth as well. CHIPS, IRA and IIJA are spurring a rapid boom in domestic manufacturing, which is expected to grow 15% in less than four years. Commercial facilities are beginning to electrify their fleets in earnest as regulation tightens, vehicle prices decline and incentives become more widespread. Industrial process electrification is just beginning its adoption arc and could dwarf all these other sources of load.
Furthermore, when these C&I customers electrify operations, they also are increasingly deploying distributed energy resources to manage their energy costs. Rooftop solar, on-site battery storage and active load management are oftentimes deployed with transportation and industrial process electrification, presenting a much larger and more complex load for utilities. In the blink of an eye, C&I customers have awakened to be the most demanding.
Utilities are at-risk of being blindsided by their capacity needs by not engaging these customers early and often to understand their electrification plans. When customers do engage with their utilities, it is typically late in the process. They are oftentimes surprised by long timelines for service upgrades and high associated expenses, and don’t have a dedicated point of contact within a utility to help them navigate a complex interconnection, rate and rebate landscape.
Unlocking the value of C&I customers as partners
But in the challenge, a bigger opportunity is hidden. We’ve already transitioned from utilities having “ratepayers” to “customers,” and the opportunity is now in front of us for the next move to “partners.” Typically, customers add value through load — their value to a utility is the revenue they pay. But C&I partners present an opportunity not only for revenue, but also cost reductions and investment deferral. Many customer-sited resources and technologies can be operated in a manner that substantially increases flexibility, reduces peak demand, and thus ultimately enables the energy transition to happen in a more affordable way for all customers. Engaging as partners with both C&I customers, and their partners who own and operate DERs on their behalf, can unlock substantial value to utilities. Industry-leading utilities are shifting to this new way of thinking about customers as partners, and there is much to be learned from them.
As just one example, in recognition of this changing dynamic, earlier this year, Exelon created a National Accounts team. This new team was formed to build strong, strategic partnerships with national key account customers across the Exelon footprint, and to support their strategic plans and initiatives.
Creating the ability to host effective conversations with key clients is the first step but it doesn’t end there. Both utilities and their C&I partners must together create the pathways to extract all the value from partnership. That means operating DERs in such a way that they advance both the utility and partner interests. Currently many utilities still see DERs — especially those on distribution circuits — as a potentially threatening source of load. Whereas customers see them exclusively as pathways to optimize energy costs and maintain business continuity in the face of power limitations from utilities in a highly electrified world.
At the recent RE+ trade show attended by more than 40,000 people, PG&E CEO Patti Poppe said during a session on virtual power plants, "I cannot be more optimistic because there's been a fundamental change, and that's because we now have load growth." She talked about “good load" and it is "a legitimate opportunity to fund the transition."
But even leading utilities like PG&E are currently primarily focused on residential VPP programs and haven’t yet unlocked the huge potential that could come from C&I customers.
Right now, utilities lack both the framework to analyze how DERs can contribute to the grid of tomorrow — clean, flexible, highly-utilized and cost-effective — and also lack the mechanism through which a share of that value can be passed on to DER owners and operators. If utilities can create that framework, they may be surprised with the participation that highly entrepreneurial and operationally agile C&I customers could bring.
Where we go from here
The timing for such a partnership is opportune. Electricity costs are rising, utility staff capacity is limited and utility capital is constrained. Yet utilities must invest to meet upcoming load growth. C&I partners — and the ecosystem that serves them — can provide the capital to build and operate grid edge solutions that increase network capacity while deferring the need for investment into distribution grids.
This is new territory for both utilities and their partners to navigate, and there will doubtless be bumps in the road. But the potential value to utilities, C&I partners and the average rate paying customer are too large to ignore.
