How utilities can help improve affordability within the communities they serve
Most utilities are limited to a specific geography, effectively tying the success of the business to that of the community. Therefore, addressing income insecurity and poverty within the community is not just a matter of corporate social responsibility, but of survival, and should be treated accordingly.
The reality for most utilities is that up to 30% of their customer base qualifies as low-income, and as such, struggles to afford their products. The problem becomes even more pronounced when you consider the rising cost of energy, and the costs associated with transitioning to more energy-efficient and sustainable means of producing, delivering, and utilizing it.
The COVID-19 pandemic brought a tidal wave of new challenges to American life. According to a recent ICF study, over a quarter of Americans were facing significant financial hardships with paying their rent, mortgage, or utility bills during the pandemic. And these challenges will continue to grow.
Clean energy solutions that can reduce electricity costs are readily available—such as solar panel rooftop installations, electric vehicles, and energy efficient appliances—but their early adopters tend to be more affluent. Furthermore, lower-income families and individuals are much more likely to rent rather than own their homes, and lack the permission as well as the capital to pursue renewable energy home upgrades.
As more affluent families transition toward renewables, the financial burden of maintaining gas systems will likely be passed onto remaining customers, a cost increase that will make it more difficult for low-income households to afford to heat their homes.
The utility’s role in addressing economic instability
Poverty is, of course, a major, complex, multifaceted societal issue, which is perhaps why utility providers have historically viewed it through a philanthropic lens. It is, however, squarely within their best interest to be a bigger part of the solution moving forward. Fortunately, they are in a uniquely advantageous position to make a real difference.
The forces that typically come to the aid of struggling communities include the non-profit sector, governments, small businesses, and, in some cases major global corporations. However, utility providers possess many of these organizations’ key qualities: they are deeply invested in the communities they serve, not unlike a small business or non-profit, only with the resources and influence of a larger corporate entity.
Any solution aimed at community building must include input from the community itself. This is where utilities need to think and act more like a non-profit or politician than a business.
That is because business leaders are accustomed to approaching stakeholders with solutions rather than problems. When it comes to community outreach, however, it’s better to arrive with open ears, an open mind, and an understanding that you don’t have all the answers.
It is incumbent on utilities to reach out to trusted leaders who represent underserved customers and have an honest conversation about their needs through community-centered meetings, uncovering how the utility can best serve them.
Reinvesting in the community
The utility sector is also undergoing a transition towards environmental sustainability, requiring investment that will produce job opportunities and economic activity in the short and long term. The development of community-based energy systems, for example, can provide lower-cost and more sustainable electricity while generating employment opportunities locally.
In fact, rapid decarbonization through electrification could create upwards of 25 million jobs over the next decade, including five million permanent jobs, according to Rewiring America’s latest job report. Utility providers can help improve the economic health of their community by prioritizing local labor, and increasing their use of diverse and local firms throughout their supply chains.
Pricing and billing solutions
Utility costs often present a unique challenge for those with financial constraints because of the way they are billed. Unlike most products and services, customers have to wait 30 days after they’ve consumed the product to discover how much it costs, which poses a real problem for those with inconsistent incomes.
Some partial solutions, such as pre-pay arrangements or subscriptions for essential services, have elicited negative reactions from consumer advocates in the past. Furthermore, permanent disconnection moratoria and expanded financial assistance are viewed as Band-Aid solutions, and often fail to address structural issues.
More effective short-term solutions will require more creative payment options, such as micropayments, providing some much-needed flexibility to those with fluctuating incomes while helping them avoid large monthly bills. Fixed-price energy service packages can also help customers anticipate and prepare for monthly costs, especially when paired with energy efficiency and demand management services, or devices to manage consumption risk.
Of course, there is no one-size-fits all solution, which is why community engagement is a vital first step. Income inequality is a deeply rooted societal problem that can’t be solved by utility providers alone. They are, however, uniquely positioned to be a key partner in addressing community health, and have a clear incentive for doing so. After all, their business depends on it.
To hear more from Val on this topic and other utility-of-the-future considerations, read his latest paper: Building the 22nd century utility.