As we head into the holiday shopping season, consumers should consider adding one more item to their lists: an alternative electricity supplier.

The process of switching energy providers long has been considered difficult or unclear and many customers haven’t understood the value proposition. But new digital technology is rapidly changing this equation, as sleek customer-facing tools make electricity shopping a breeze.

Retail electricity customers—homes and businesses—can choose their provider in more than a dozen states and the District of Columbia. These areas have adopted a policy known as “retail choice,” part of a broader effort to restructure the electricity industry over the past two decades. Renewed interest in the topic—largely stemming from gripes over the monopoly utility model—has prompted states like Nevada to consider adopting or expanding choice.

To date, the biggest customers happen to be the biggest fans of retail choice. Within retail choice states, roughly half of commercial and industrial demand has switched to competitive suppliers, with small companies less likely to do so. Consumers representing about one-tenth of residential demand have done the same.

This comes as little surprise, as the financial benefits of switching suppliers are proportional to a customer’s size. In 2014, the average industrial customer’s monthly electricity bill was more than $7,000, compared with $114 for a residential customer. If switching providers saves each customer 10 percent, then the industrial customer saves $700 and the residential customer just $14 per month. The former is enough to motivate sizable businesses to research and pursue alternative suppliers. But to save the equivalent of a pizza cost every month, the process for residential customers would have be fairly hassle-free.

No surprise, some customers don’t find it worth the hassle. Economists call the time and effort of switching providers “transaction costs.” These include gathering information, evaluating providers and offers and making necessary arrangements with a new company (e.g., paperwork and communications). Fortunately, the digital revolution is helping to remove these costs from the equation.

The introduction of customer choice initially led to some customer confusion and distrust over the process to switch providers. Many small, less-sophisticated customers were initially duped by misleading and fraudulent advertising, undermining the credibility of providers’ offers. Small customers may also lack the information or financial savvy needed to make a fully informed decision. As evidence, low-income customers are more likely to pick alternative suppliers who charge more than the incumbent utility. Some small-business owners have struggled to understand retail electricity options and employ brokers to assist them, raising their cost to switch providers.

After early struggles with small customers, states recognized the educational hurdle of transitioning to a choice paradigm. They launched public education campaigns. State public utilities commissions—such as the Illinois Commerce Commission—developed online tools to help consumers compare price and service options across qualifying suppliers.

Some states took it a step further. In Texas, for example, customers can use a tool that narrows the list of suppliers based on a customer’s input preferences. Improved customer confidence and understanding helped contribute to a dramatic uptick in residential customer choice accounts, which more than doubled between 2009 and 2013 alone.

The greatest prospects for customer engagement emanate from the private sector, which has incentive to legitimize the industry’s reputation and boasts nimbler means to engage customers. This motive has begun to mesh with the latest automated customer-facing technology, and the results could be transformative. When you sprinkle in shifts in consumer preferences, you have a recipe for customer engagement that resembles those that already have swept telecommunications and transportation.

The “Uber-ization” of the electric industry has created digital markets that stimulate demand for customer sovereignty and product customization. Customers in digitized markets have proven adept with new technologies that provide flexibility, improve quality, lower transactions costs and accommodate choice among a diverse customer base. For example, electric digitization can enable low-income customers more flexible payment options, fixed-income customers may choose more rate stability than working customers, techies may pursue automated usage control (e.g., via smart appliances) and green-minded customers may want to purchase green energy and customize their electric usage to minimize environmental impact.

The traditional monopoly utility model—marked by rigid rates and service terms—has become archaic. Customer engagement innovation is leaps and bounds ahead in retail choice jurisdictions, where entrepreneurs are continuously driving product innovations.

Zentility is one such tech pioneer that’s transforming the customer experience. Their service monitors competitive electricity providers around the clock and automatically switches the customer to the best deal available. The traditional broker approach is often too manually intensive to provide such continuing market evaluation affordably, which is where automation changes the game. In creating a fully-automated energy decision engine, Zentility boasts minimal overhead costs (no need for a large staff or corporate office). This allows the service to charge fees that are 50 to 90 percent lower than traditional brokers or existing aggregator platforms. Increasing numbers of small- and medium-sized businesses see this and have jumped onboard.

To sweeten the deal, Zentility monitors and manages a customer’s electricity consumption. Zentility makes usage recommendations after analyzing a customer’s past and current consumption patterns. Eventually, this learning function could enable the platform to provide advice on building improvement investments, like energy-efficiency upgrades or solar-panel installations.

Perhaps most importantly, an app-based platform is exhaustive but not exhausting. In fact, it’s a remedy for customer headaches associated with doing-it-yourself or coordinating through brokers. It asks basic questions to optimize the provider choice based on the customer’s preferences, such as the length of contract, budget goals (e.g., bill stability requirements) and any green-energy preference.

The app-based model provides superior service at a fraction of the cost. Competitive markets breed such entrepreneurial breakthroughs. Yet technology entrepreneurs will only engage consumers if policymakers enable choice; companies like Zentility are shut out under the monopoly utility model.

Digital engagement elevates the value of electricity choice. This propels the case for competitive electricity reforms in states where consumers remain handcuffed to a monopoly utility. A retail choice resurgence should be on policymakers’ holiday lists.


Image by Inara Prusakova