Environmental Defense Fund's Innovations Review 2009: Utility Companies: Make more by selling less
Kansas utility Midwest Energy is breaking the mold: making more money by selling less energy (without regulatory incentives).
This is the second in a weekly series highlighting 15 green business innovations from Environmental Defense Fund's Innovations Review 2009.
Business strategy for a utility company often centers on the legislative landscape of its regional market. Conventional wisdom says that robust energy efficiency programs only exist in states that are "de-coupled" that is, state law has separated utility company profits from how much energy is sold (such as in California).
Kansas-based Midwest Energy has proved that efficiency can be profitable regardless of locale or legislation. In short, no other utility company in the country has figured out how to make more money by selling less power without government incentives.
Here's how this program, How$martSM, Â works. After conducting a free energy audit at a home or business, Midwest Energy pays the upfront cost of efficiency upgrades such as insulation, air sealing and new heating and cooling systems.
Once pre-screened contractors complete the work, customers begin to repay the utility through a monthly charge on their energy bill. Though technically a low-interest loan, the terms are structured so that monthly payments are less than monthly energy savings. Â Customers actually see a net reduction on their bills thanks to increased efficiency.
In another key innovation, the How$martSM investment is tied to each property's meter. Â Thus if a customer moves, the new occupant takes over repayment and the lower energy bills removing the traditional burdens of risk and commitment that often stand in the way of efficiency investments.
Meanwhile, Midwest has shattered another impediment to efficiency upgrades: the thorny landlord-tenant relationship. Instead of tenants footing the monthly energy bill for a poorly insulated apartment, the How$martSM program provides shared benefits: Â Tenants enjoy a smaller bill while the landlords see immediate improvement to their property.
An Electrifying Business Model
The program appears to be working, albeit on a small scale. So far, about 140 projects (homes, apartments and small businesses) have been completed, and another 275 are on the way. Customers are averaging a 25% reduction in electricity and gas usage per home.
It's also good business strategy. According to Midwest's Director of Regulatory and Energy Services Michael Volker, the company has created a new source of revenue through its financing plan, while cultivating a positive new relationship with its customers.
Furthermore, because these efficiency measures relieve peak-demand pressure, Midwest may avoid having to build an additional power plant down the road.
So our only question is, if How$martSM Â makes so much sense, why isn't every utility company offering it?