Smarter Prices for Smarter Consumers in Ontario

Smart metering technologies are making it possible to provide residential utility customers with the sophisticated “smart pricing” options once available only to larger commercial and industrial customers. When integrated with appropriate data manipulation and billing systems, smart metering systems can enable a number of innovative pricing and service regimes that shift or reduce energy consumption.

In addition, by giving customers ready access to up-to-date information about their energy demand and usage through a more informative bill, an in-home display monitor or an enhanced website, utilities can supplement smart pricing options and promote further energy conservation.

SMART PRICES

Examples of smart pricing options include:

  • Time-of-use (TOU) is a tiered system where price varies consistently by day or time of day, typically with two or three price levels.
  • Critical peak pricing (CPP) imposes dramatically higher prices during specific days or hours in the year to reflect the actual or deemed price of electricity at that time.
  • Critical peak rebate (CPR) programs enable customers to receive rebates for using less power during specific periods.
  • Hourly pricing allows energy prices to change on an hourly basis in conformance with market prices.
  • Price adjustments reflect customer participation in load control, distributed generation or other programs.

SMART INFORMATION

Although time-sensitive pricing is designed primarily to reduce peak demand, these programs also typically result in a small reduction in overall energy consumption. This reduction is caused by factors independent of the primary objective of TOU pricing. These factors include the following:

  • Higher peak pricing causes consumers to eliminate, rather than merely delay, activities or habits that consume energy. Some of the load reductions that higher peak or critical peak prices produce are merely shifted to other time periods. For example, consumers do not stop doing laundry; they simply switch to doing it at non-peak times. In these cases the usage is “recovered.” Other load reductions, such as those resulting from consumers turning off lights or lowering heat, are not recovered, thus reducing the household’s total electricity consumption.
  • Dynamic pricing programs give participants a more detailed awareness of how they use electricity, which in turn results in lower consumption.
  • These programs usually increase the amount of usage information or feedback received by the customer, which also encourages lower consumption.

The key challenge for utilities and policy makers comes in deciding which pricing and communications structures will most actively engage their customers and drive the desired conservation behaviors. Studies show that good customer feedback on energy usage can reduce total consumption by 5 to 10 percent. Smart meters let customers readily access more up-to-date information about their hourly, daily and monthly energy usage via in-home displays, websites and even monthly bill inserts.

The smart metering program undertaken by the province of Ontario, Canada, presents one approach and serves as a useful example for utility companies contemplating similar deployments.

ONTARIO’S PROGRAM

In 2004, anticipating a serious energy generation shortfall in coming years, the government of Ontario announced plans to have smart electricity meters installed in 800,000 homes and small businesses by the end of 2007, and throughout Ontario by 2010. The initiative will affect approximately 4.5 million customers.

As the regulator of Ontario’s electricity industry, the Ontario Energy Board (OEB) was responsible for designing the smart prices that would go with these smart meters. The plan was to introduce flexible, time-of-use electricity pricing to encourage conservation and peak demand shifting. In June 2006, the OEB commissioned IBM to manage a pilot program that would help determine the best structure for prices and the best ways to communicate these prices.

By Aug. 1, 2006, 375 residential customers in the Ottawa area of Ontario had been recruited into a seven-month pilot program. Customers were promised $50 as an incentive for remaining on the pilot for the full period and $25 for completing the pilot survey.


Pilot participants continued to receive and pay their “normal” bimonthly utility bills. Separately, participants received monthly electricity usage statements that showed their electricity supply charges on their respective pilot price plan, as illustrated in Figure 1. Customers were not provided with any other new channels for information, such as a website or in-home display.

A control group that continued being billed at standard rates was also included in the study. Three pricing structures were tested in the pilot, with 125 customers in each group:

  • Time-of-use (TOU). Ontario’s TOU pricing includes off-peak, mid-peak and peak prices that changed by winter and summer season.
  • TOU with CPP. Customers were notified a day in advance that the price of the electricity commodity (not delivery) for three or four hours the next day would increase to 30 cents per kilowatt hour (kWh) – nearly six times the average TOU price. Seven critical peak events were declared during the pilot period – four in summer and three in winter. Figure 2 shows the different pricing levels.
  • TOU with CPR. During the same critical peak hours as CPP, participants were provided a rebate for reductions below their “baseline” usage. The base was calculated as the average usage for the same hours of the five previous nonevent, non-holiday weekdays, multiplied by 125 percent.

The results from the Ontario pilot clearly demonstrate that customers want to be engaged and involved in their energy service and use. Consider the following:

  • Within the first week, and before enrollment was suspended, more than 450 customers responded to the invitation letter and submitted requests to be part of the pilot – a remarkable 25 percent response rate. In subsequent focus groups, participants emphasized a desire to better monitor their own electricity usage and give the OEB feedback on the design of the pricing. These were in fact the primary reasons cited for enrolling in the pilot.
  • In comparison to the control group, total load shifting during the four summertime critical peak periods ranged from 5.7 percent for TOU-only participants to 25.4 percent for CPP participants.
  • By comparing the usage of the treatment and control groups before and during the pilot, a substantial average conservation effect of 6 percent was recorded across all customers.
  • Over the course of the entire pilot period, on average, participants shifted consumption and paid 3 percent, or $1.44, less on monthly bills with the TOU pilot prices, compared with what they would have paid using the regular electricity prices charged by their utility. Of all participants, 75 percent saved money on TOU prices. Figure 3 illustrates the distribution of savings.
  • When this shift in consumption was combined with the reduction in customers’ overall consumption, a total average monthly savings of more than $4 resulted. From this perspective, 93 percent of customers would pay less on the TOU prices over the course of the pilot program than they would have with the regular electricity prices charged by their utility.
  • Citing greater control of their energy costs and benefits to the environment, 7 percent of participants surveyed said they would recommend TOU pricing to their friends.

There were also some unexpected results. For instance, there was no pattern of customers shifting demand away from the dinnertime peak period in winter. In addition, TOU-only pricing alone did not result in a statistically significant shifting of power away from peak periods.

CONCLUSION

In summary, participants in the Ontario Energy Board’s pilot program approved of these smarter pricing structures, used less energy overall, shifted consumption from peak periods in the summertime and, as a result, most paid less on their utility bills.

Over the next decade, as the utility industry evolves to the intelligent utility network and smart metering technologies are deployed to all customers, utilities will have many opportunities to implement new electricity pricing structures. This transition will represent a considerable technical challenge, testing the limits of the latest communications, data management, engineering, metering and security technologies.

But the greater challenge may come from customers. Much of the benefit from smart metering is directly tied to real, measurable and predictable changes in how customers use energy and interact with their utility provider. Capturing this benefit requires successful manipulation of the complex interactions of economic incentives, consumer behavior and societal change. Studies such as the OEB Smart Pricing Pilot provide another step in penetrating this complexity, helping the utility industry better understand how customers react and interact with these new approaches.

Plugging in the Consumer

Thanks to new technologies and the spirit of independence and empowerment fostered by the digital age, consumers are taking on broader and more active roles in an increasing number of industries. Not only are consumers increasingly vocal and decisive about what they will or will not buy, they are in many cases becoming designers, producers, marketers and distributors of the products they once simply purchased.

As an example, consider the evolution of television and other video-based entertainment. Consumers in the early television era were passive participants, watching whatever programs the networks were broadcasting on one of the few available channels at any given time. Decisions regarding content sat firmly in the hands of broadcasters.

But in recent decades the media and entertainment business has changed dramatically. Cable and satellite made early inroads by providing viewers with hundreds of additional channel choices and niche programming. More recently, options such as digital video recorders, video on demand, video programming on mobile devices and online content libraries have emerged, giving consumers much greater control over what, where and when they watch. Moreover, pockets of media enthusiasts are taking on even more participatory roles, producing and marketing their own content.

Could something similar happen in the energy industry? One way to look at this question is to consider parallels between the way that media and entertainment have developed, and some of the realistic future business models for the energy industry. While the two industries are very different, there’s a strong possibility that consumer involvement in the energy business could evolve along similar lines, as illustrated in Figure 1.

Consumers have become more and more accustomed to choice, selectivity and multiple pricing schemes in services used every day. High tech products like mobile phones and Internet service usually spring to mind first, but personalization of services and products is occurring even in centuries-old institutions like medicine, education and food distribution. Fifty years ago, who would have envisioned customers accepting limitations on what doctors they could see in exchange for lower health care costs, pursuing degrees without attending classes or paying a premium for foods that met specific conditions on their production? Yet today health maintenance and preferred provider organizations, online degrees and organic foods are all commonplace concepts.

The more consumers enjoy the benefits of options and active decision making, the stronger the pressure will be on the energy industry to adapt. This means that utilities must revisit long-held beliefs about how best to serve customers and prepare to make fundamental changes in their strategies and operations in order to prosper in a more participatory market.

CONSUMER INVOLVEMENT

Many utility executives are skeptical about whether consumers really want to have different energy service options, and whether they will act on those desires. After all, electricity, natural gas and heating oil are essentially commodities. But so is broccoli, and millions of consumers are unwilling to settle for conventionally grown produce. Instead, they’re willing to pay more for food certified as grown without pesticides and artificial fertilizers, and under conditions that emphasize the use of renewable resources and the conservation of soil and water. [1] Given this perspective, can the energy industry afford not to prepare for rising consumer demand for multiple service programs and different pricing tiers?

To help address some of these questions, IBM conducted a survey of 1,900 energy consumers from six countries in North America, Western Europe and parts of the Asia-Pacific region. The survey focused on consumers’ current views and, perhaps more importantly, their expectations of the utilities that serve them. Their responses underscore four trends in energy consumer behavior, each indicating that customers value the same type of control they exercise in other parts of their lives: consumers are leveraging provider choice options, managing usage more actively, moving toward self-generation of power and making their opinions heard through multiple channels (not just public regulators).

Controlling Their Purchases

In some regions with competitive markets, consumers are already exercising their right to select energy providers. In the United Kingdom’s market of 48 million electricity consumers, for instance, more than 15 percent are switching per year.

In addition, the IBM survey demonstrates that a basic lack of awareness may still be holding consumers back. Across the worldwide respondent sample, one out of every five consumers did not know whether they could choose an alternative electricity provider.

Nevertheless, consumers were clear about wanting a choice. Among those who could not change providers or were not aware of their ability to choose, 84 percent wanted the option, as shown in Figure 2.

While price will always be a factor in consumer behavior, competition is also fostering a host of decision-making criteria that consumers might not have even considered before. According to the results of the IBM survey, consumers now consider a utility’s ethical reputation, alignment with community values and environmental actions as important as traditional “buyer values” like customer service and reliability.

Many consumers now have more choices about the type of energy they buy as well. More than 60 percent of the respondents to the IBM survey said they would be willing to pay a premium for green energy, and a significant minority (one in five consumers) indicated a willingness to pay at least 20 percent more for an environmentally friendly product.

Controlling the Switch

Only 30 percent of the consumers IBM surveyed expected their electricity use to increase over the next five years – yet 60 percent expected higher electricity bills. In times of rising energy costs, there is high motivation for conservation. But with many consumers also assuming a share of the responsibility for protecting the environment, finding new ways to better manage consumption has become a top-of-mind issue.

Although consumers have always been able to reduce usage through “brute force” measures – adjusting thermostats, switching off lights and the like – they are just now gaining the ability to truly manage consumption through greater awareness and better tools.

As smart meter deployment allows more consumers to obtain real-time usage data at the device and appliance level, households and small businesses will know which conservation actions really make an impact. This will enable better decisions and more permanent behavior changes.

Controlling Supply

When providers are unwilling or unable to satisfy their needs, consumers have an increasingly viable alternative: the technology to generate their own electricity.

As consumers weigh the self-generation option, cost is clearly a significant driver but not the only one, as illustrated in Figure 3.

If self-generation could reduce energy costs by 50 percent, well over half of the consumers we surveyed would be motivated to install, maintain and operate their own power generation systems. Yet among those same respondents, reliability and environmental impact seemed to matter more than a small (10 percent) cost reduction.

Interestingly, getting paid for surplus power received the most favorable reaction from survey respondents. Besides offering a financial payback that helps offset upfront investment and operational expense, we suspect this response also reflects an underlying desire to assert more control over a purchase for which conditions have historically been dictated to them.

Many of the industry executives we interviewed agree that widespread adoption of self-generation is not that far off. More than half believe that the value from a low-cost, low-emission generating technology could move a significant percentage of residential and small commercial customers to self-generation within the next decade.

It’s important to note that although the “competition” for traditional utility companies has traditionally been viewed as emerging alternative providers employing the existing distribution system, focusing only on this particular threat results in an incomplete picture. If technologies such as small-scale solar and combined heat and power generation were to rapidly drop in cost, customer migration to these options would serve as another competitive pressure for which utility executives would have to develop a defensive strategy.

Controlling Their Own Destinies

It’s easy to understand why consumers might become skeptical about the utility industry given power blackouts that affect millions of people, price hikes driven by factors that are little understood and the pursuit of mergers and acquisitions without benefits that are clear to customers. Events like these contribute to growing consumer concern – not only about utilities and their motives, but also about the regulatory process currently in place to protect the public. Consumers are increasingly unwilling to wait for regulators to act “in their best interests.” Instead, they’re going directly to lawmakers, the press and special-interest groups to try and enforce change.

For example, in January 2007, a 1997 Illinois deregulation bill expired, ending a 10-year rate freeze. As the shock of a sudden and dramatic rate increase set in, public pressure caused legislators to intervene – ultimately driving the state’s primary distribution utilities to provide a multi-year, billion-dollar rate relief package to help reduce the financial burden on ratepayers. [3]

Other Drivers and Enablers of Customers’ Desire for Control

Climate change is the one driver for which the goals and needs of both utilities and consumers converge. Consumers are clearly interested in the environmental practices of the companies with which they do business. Indeed, 70 percent of those surveyed reported that environmental considerations were already an important factor in choosing products other than energy, and that these concerns would ultimately also influence the energy products they purchased as well.

Of consumers who are aware of renewable power options available to them, almost 40 percent purchased some or all of their power under such a plan. Among the rest, more than 60 percent expressed interest in doing so. Utilities, for their part, are making major investments and operational changes to respond to climate change concerns and policies. In fact, the percentage of utilities spending at least 10 percent of their capital expenditures on environmental compliance over the next five years is expected to double.

To make the improvements needed to address the concerns discussed above, utilities will likely receive strong support for deployment of advanced energy technologies. Many of these have been available in some form for years, but their business cases have been rather lackluster. However, during the last three to five years, the technologies have continued to advance; their benefits have strengthened dramatically; and the costs of deployment have decreased. In the near term, smart meters, network automation and analytics, and distributed generation will likely drive the most industry change.

The emergence of these two trends, combined with growing consumer involvement, will have far-reaching consequences for the utility industry. Collectively, these drivers are overturning traditional assumptions about energy consumers and the fundamental value proposition of the industry itself. Companies will be forced to look at their residential and small commercial customer population in discrete segments, instead of as a largely uniform block of ratepayers. Ultimately, as the degree of control shifts from the utility to consumers, network and generation technologies will move away from the traditional centralized, one-way model to a more dynamic and distributed one. New industry structures will emerge, creating new opportunities and challenging existing models.

CONSUMERS: NO LONGER JUST PASSIVE RATEPAYERS

Our detailed analysis of the consumer survey responses showed that two primary characteristics define different types of consumer behavior. First, personal initiative, or the willingness to make decisions and take action based on specific goals – such as cost control, reliability, convenience and climate change impacts – will drive consumer behavior.

Second, disposable income – or the financial wherewithal to support energy-related goals in early adoption phases – will have a substantial impact on consumer actions, since only those with sufficient resources will be able to implement new technologies and buy more expensive products. Different combinations of these two characteristics lead to four distinct consumer profiles, as shown in Figure 4.

Each consumer segment has specific needs and wants, and utilities will need to adopt different strategies, and likely develop different offerings, for each. However, before utilities can begin tailoring their approaches to particular segments, most will need to invest in tools and capabilities that help them collect and analyze consumer data, particularly as huge quantities of real-time data and new information streams are generated by deployment of advanced sensing, metering and communications technologies.

THE IMPACT OF INCREASED CONSUMERS CONTROL

Recent trials have demonstrated that both customers and local utilities derive benefits from consumers taking a more active role in their energy decisions. For example, in a yearlong program in the Pacific Northwest giving consumers the ability to customize their energy use to save money or maximize comfort, participants saved approximately 10 percent on their electricity bills and reduced peak power use by 15 percent. Throughout the region, the information, communications and control technologies and algorithms provided by Pacific Northwest National Laboratory, IBM and Invensys Controls helped consumers in the study become an integral part of power grid operations on a daily basis – especially in times of extreme stress on the electrical distribution system. A combination of demand response and distributed generation reduced peak distribution loads by as much as 50 percent. (For more information about this program, see “Case Study: The GridWise Olympic Peninsula Project” elsewhere in this book.)

Another pilot, run by Canada’s Ontario Energy Board tested consumers’ inclination to shift and reduce demand when provided with smart meters and time-of-use pricing. On average, three-quarters of the participants shifted enough of their consumption away from peak times to save 3 percent per month on their energy bills. During four peak summer events, when penalties and rebates applied, shifts in consumption led to even greater savings – as much as 25 percent, depending on the specific plan the customer was using. As a result of their awareness of energy usage and behavioral changes, participants also reduced total consumption. This “conservation effect” amounted to a 6 percent reduction in overall usage. When combined with the effects of shifting, this allowed 90 percent of the participants to pay less than they would have paid on their prior plans – results that are particularly remarkable given that consumers were relying on monthly usage statements; if consumers had a near real-time view of their energy usage, these reductions might have been even more dramatic. (For more on this trial, see “Case Study: Smarter Prices for Smarter Consumers in Ontario” elsewhere in this book.)

INDUSTRY MODELS: TOWARD A PARTICIPATORY NETWORK

We believe that studies like those outlined above demonstrate the strong benefits of both technology evolution and shifts in the balance of control between utilities and consumers. The nature of the benefits will depend on the path chosen to move from current “passive” business models to more active ones. Specific types of technology and customer behavior evolution will give rise to four industry models, as shown in Figure 5.

Although each model is distinct and requires different capabilities, the industry as a whole – at least in the near term – will represent an amalgam of all four models. In fact, many utilities will find themselves operating in more than one model, particularly if a company operates in different geographies. In addition, moves across boundaries will tend to be evolutionary and depend on local conditions.

Where consumers aren’t as eager to assume control of decision-making – or regulators don’t allow them the freedom to do so – companies will be most likely move from traditional models through a state of operations transformation before fully enabling participatory networks. Where this path dominates, utilities will need to build business cases around cost savings and environmental benefits to deploy new technologies. In a high-cost, carbon-constrained environment, however, this should be an easier sell to regulators and investors than in the past.

In markets where consumer demand for control grows faster than new technologies can be deployed, particularly in heavily regulated rate-of-return environments, constrained choice will dominate in the near term. Utilities will be pressured to meet demand for control in creative – and sometimes untested – ways. And regulators may need to be more flexible in viewing these investments than they might be with traditional utility capital investments. For both parties, early assessment of needs and review of available options will be critical.

Whichever path is adopted, we anticipate a steady progression toward a participatory network – a technology ecosystem comprising a wide variety of intelligent network-connected devices, distributed generation and consumer energy management tools.

Although the precise time frame for reaching this end-state is unknown, our research suggests a few major milestones. Within five years, the percentage of the world’s electric utilities generating at least 10 percent of their power from renewable sources should double. In that same time frame, we believe that sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. Also, based on both consumer and utility responses, we expect utility demand management initiatives to expand dramatically and electric power generation by consumers to increase dramatically within a decade.

IMPLICATIONS: CUSTOMER FOCUS AS A COMPETITIVE ADVANTAGE

By leveraging the new technology ecosystem, utilities will be able to meet key objectives in coming years. Specifically, they’ll be able to:

  • Prepare for an environment in which customers are more active participants;
  • Capitalize on new sources of real-time consumer and operational information, and decide which role(s) to play in the industry’s evolving value chain; and
  • Better understand and serve an increasingly heterogeneous customer base.

The utility industry is fast approaching a tipping point beyond which consumers can (and increasingly will) demand equal footing with their providers. Those utilities that are prepared to share responsibility with their residential and small commercial customers, and help them meet their specific energy goals, can expect to enjoy significant competitive advantage.

Improving Call Center Performance Through Process Enhancements

The great American philosopher Yogi Berra once said, “If you don’t know where you’re going, chances are you will end up somewhere else.” Yet many utilities possess only a limited understanding of their call center operations, which can prevent them from reaching the ultimate goal: improving performance and customer satisfaction, and reducing costs.

Utilities face three key barriers in seeking to improve their call center operations:

  • Call centers routinely collect data on “average” performance, such as average handle time, average speed of answer and average hold time, without delving into the details behind the averages. The risk is that instances of poor and exemplary performance alike are not revealed by such averages.
  • Call centers typically perform quality reviews on less than one-half percent of calls received. Poor performance by individual employees – and perhaps the overall call center – can thus be masked by insufficient data.
  • Calls centers often fail to periodically review their processes. When they do, they frequently lack statistically valid data to perform the reviews. Without detailed knowledge of call center processes, utilities are unlikely to recognize and correct problems.

There are, however, proven methods for overcoming these problems. We advocate a three-step process designed to achieve more effective and efficient call center operations: collect sufficient data; analyze the data; and review and monitor progress on an ongoing basis.

STEP 1: COLLECT SUFFICIENT DATA

The ideal sampling size is 1,000 randomly selected calls. This size call sample typically provides results that are accurate +/- 3 percent, with a more than 90 percent degree of confidence. These are typical levels of accuracy and confidence that businesses require before they are likely to undertake action.

The types of data that should be collected from each call include:

  • Call type, such as new service, emergency, bill payment or high bill, and subcall type.
  • Number of systems and/or screens used – for example, how many screens did it take to complete a new service request?
  • Actions taken during the call, such as greeting the customer, gathering customer- identity data, understanding the problem or delivering the solution.
  • Actions taken after the call – for example, entering data into computer systems, or sending notes or Emails to the customer or contact center colleagues.

Having the right tool can greatly facilitate data collection. For example, the call center data collection tool pictured in Figure 1 captures this information quickly and easily, using three push-button timers that enable accurate data collection.

When a call is being reviewed, the analyst pushes the green buttons to indicate which of 12 different steps within a call sequence is occurring. The steps include greeting, hold and transfer, among others. Similarly, the yellow buttons enable the analyst to collect the time elapsed for each of 15 different screens that may be used and up to 15 actions taken after the call is finished.

This analysis resembles a traditional “time and motion” study, because in many ways it is just that. But the difference here is that we can use new automated tools, such as the voice and screen capture tools and data collector shown, as well as new approaches, to gain new insights.

The data capture tool also enables the analyst to collect up to 100 additional pieces of data, including the “secondary and tertiary call type.” (As an example, a credit call may be the primary call type, a budget billing the secondary call type and a customer in arrears the tertiary call type.) The tool also lets the analyst use drop-down boxes to quickly collect data on transfers, hold time, mistakes made and opportunities noted.

Moreover, this process can be executed quickly. In our experience, it takes four trained employees five days to gather data on 1,000 calls.

STEP 2: ANALYZE THE DATA

Having collected this large amount of data, how do you use the information to reduce costs and improve customer and employee satisfaction? Again, having the right tool enables analysts to easily generate statistics and graphs from the collected data. Figure 2 shows the type of report that can be generated based on the recommended data collection.

The analytic value of Figure 2 is that it addresses the fact that most call center reports focus on “averages” and thus fail to reveal other important details. Figure 2 shows the 1,000 calls by call-handle time. Note that the “average” call took 4.65 minutes; however, many calls took a minute or less, and a disturbingly large number of calls took well over 11 minutes.

Using the captured data, utilities can then analyze what causes problem calls. In this example, we analyzed 5 percent of the calls (49 in total) and identified several problems:

  • Customer service representatives (CSRs) were taking calls for which they were inadequately trained, causing high hold times and inordinately large screen usage numbers.
  • IT systems were slow on one particular call type.
  • There were no procedures in place to intercede when an employee took more than a specified number of minutes to complete a call.
  • Procedures were laborious, due to Public Utilities Commission (PUC) regulations or – more likely – internally mandated rules.

This kind of analysis, which we describe as a “longest call” review, typically helps identify problems that can be resolved at minimal cost. In fact, our experience in utility and other call centers confirms that this kind of analysis often allows companies to cut call-handle time by 10 to 15 seconds.

It’s important to understand what 10 to 15 fewer seconds of call-handle time means to the call center – and, most importantly, to customers. For a typical utility call center with 200 or more CSRs, the shorter handle time can result in a 5 percent cost reduction, or roughly $1 million annually. Companies that can comprehend the economic value and customer satisfaction associated with reducing average handle time, even by one second, are likely to be better focused on solving problems and prioritizing solutions.

Surprisingly, the longest 5 percent of calls typically represent nearly 15 percent of the total call center handle time, representing a mother lode of opportunity for improvement.

Another important benefit that can result from this detailed examination of call center sampling data involves looking at hold time. A sample hold time analysis graph is pictured in Figure 3.

Excessive hold times tend to be caused by bad call routing, lengthy notes on file, unclear processes and customer issues. Each of these problems has a solution, usually low-cost and easily implemented. Most importantly, the value of each action is quantified and understood, based on the data collected.

Other useful questions to ask include:

  • What are the details behind the high average after-call work (ACW) time? How does this affect your call center costs?
  • How would it help budget discussions with IT if you knew the impact of such things as inefficient call routing, poor integrated voice response (IVR) scripts or low screen pop percentages?
  • What analyses can you perform to understand how you should improve training courses and focus your quality review efforts?

The output of these analyses can prove invaluable in budget discussions and in prioritizing improvement efforts, and is also useful in communicating proposals to senior management, CSRs, quality review staff, customers and external organizations. The data can also be the starting point for a Six Sigma review.

Utilities can frequently achieve a 20 percent cost reduction by collecting the right data and analyzing it at a sufficiently granular level. Following is a breakdown of the potential savings:

  • Three percent savings can be achieved by reducing longest calls by 10 seconds.
  • Five percent savings can be gained by reducing ACW by 15 seconds.
  • Five percent savings can be realized by improving call routing – usually by aligning CSR skills required with CSR skills available – by 15 seconds.
  • Three percent savings can be achieved by improving process for two frequent processes by 10 seconds each.
  • Three percent savings can be realized by improving IVR and screen pop frequency and quality of information by 10 seconds.
  • One percent savings can be gained by improving IT response time on selected screens by three seconds.

STEP 3: REVIEW AND MONITOR PROGRESS ON AN ONGOING BASIS

Although this white paper focuses on the data collection and analyses procedures used, the key difference in this approach is the optimization strategy behind it.

The two-step approach outlined above starts with utilities recognizing that improvement opportunities exist, understanding the value of detailed data in identifying these opportunities and enabling the data collected to be easily presented and reviewed. Taken as a whole, this process can produce prioritized, high-ROI recommendations.

To gain the full value of this approach, utilities should do the following:

  • Engage the quality review team, trainers, supervisors and CSRs in the review process;
  • Expand the focus of the quality review team from looking only at individual CSRs’ performance to looking at organizational processes as well;
  • Have trainers embed the new lessons learned in training classes;
  • Encourage supervisors to reinforce lessons learned in team meetings and one-on-one coaching; and
  • Require CSRs to identify issues that can be studied in future reviews and follow the lessons learned.

Leading organizations perform these reviews periodically, building on their understanding of their call centers’ current status and using that understanding to formulate actions for future improvement.

Once the first study is complete, utilities also have a benchmark to which results from future studies can be compared. The value of having these prior analyses should be obvious in each succeeding review, as hold times decline, average handle times decrease, calls are routed more frequently to the properly skilled person and IT investments made based on ROI analyses begin to yield benefits.

Beyond these savings, customer and employee satisfaction should increase. When a call is routed to the CSR with the requisite skills needed to handle it, both the customer and the CSR are happier. Customer and CSR frustration will also be reduced when there are clear procedures to escalate calls, and IT systems fail less frequently.

IMPLEMENTING A CALL CENTER REVIEW

Although there are some commonalities in improving utilities’ call center performance, there are always unique findings specific to a given call center that help define the nature and volume of opportunities, as well as help chart the path to improvement.

By realizing that benefit opportunities exist and applying the process steps described above, and by using appropriate tools to reduce costs and improve customer and CSR satisfaction, utilities have the opportunity to transform the effectiveness of their call centers.

Perhaps we should end with another quote from Yogi: “The future ain’t what it used to be.” In fact, for utilities that implement these steps, the future will likely be much better.

Developing a Customer Value Transformation Road Map

Historically, utility customers have had limited interactions with their electric or gas utilities, except to start or stop service, report outages, and pay bills or resolve billing questions. This situation is changing as the result of factors that include rising energy prices, increasing concerns about the environment and trends toward more customer interaction and control among other service providers – such as cell phone companies. Over the next five to 10 years, we expect utility customers to continue seeking improvements in three key areas:

  • Increased communication with their utility company, through a greater variety of media;
  • Improved understanding of and control over their own energy use; and
  • More accurate and timely information on outage events and service restoration.

Moreover, as the generations that have grown up with cell phones, the Internet, MP3 players and other digital devices move into adulthood, they will expect utilities to keep pace with their own technological sophistication. These new customers will assume that they can customize the nature of their communications with both friends and businesses. Utilities that can provide these capabilities will unlock new sources of revenue and be better able to retain customers when faced with competition.

The intelligent utility network (IUN) will be a key enabler of these new customer capabilities and services. But not all customers will want all of the new capabilities, so utilities need to understand and carefully analyze the value of each among various customer segments. This will require utilities to prepare sound business cases and prioritize their plans for meeting future customer needs.

One of the first initiatives that utilities launching an IUN program should undertake is the development of a “customer value transformation road map.” The road map approach allows utilities to establish the types of capabilities and services that customers will want, to identify and define the gaps in current processes and systems that must be overcome to meet these needs, and to develop plans to close those gaps.

TRANSFORMATION ROAD MAP DEVELOPMENT APPROACH

Our approach for developing the customer value transformation road map includes four tasks, as depicted in Figure 1.

Task 1: Customer Requirements

The primary challenge facing utilities in defining customer requirements is the need to anticipate their desires and preferences at least five to 10 years into the future. Developing this predictive vision can be difficult for managers because they’re often “locked into” their current views of customers, and their expectations are based largely on historical experience. To overcome this, utilities can learn from other industries that are already traveling this path.

The telecommunications providers, as one example, have made substantial progress in meeting evolving customer needs over the last decade. While more changes lie ahead for telecommunications, the industry has significantly enhanced the customer experience, created differentiated capabilities for various customer segments and succeeded in developing many of these capabilities into profit-generating services. This progress can serve as both an inspiration and a guide as utilities start down a similar path.

The first step in defining future customer requirements is to segment the customer base into the various customer groups that are likely to have different needs. Although these segments will likely vary for each utility, we believe that the following seven major customer segments serve as a useful starting point for this work:

  • Residential – tech savvy. These are customers who want many different electronic communication pathways but don’t necessarily want to develop a detailed understanding of the trends and patterns in their energy usage.
  • Residential – low tech. These customers prefer traditional, less high tech ways of communicating, but may want to perform analysis of their usage.
  • Residential – low income. These are customers who want to understand what’s driving their energy expenditures and how to reduce their bills; many of these customers are also tech savvy.
  • Special needs. These customers, often elderly, may live on fixed incomes and are accustomed to careful planning, and want no surprises in their interactions with providers of utility services. They frequently need help from others to manage their daily activities.
  • Small business. These commercial customers are typically very cost-conscious and highly adaptable and seek creative but relatively simple solutions to their energy management challenges.
  • Large commercial. These are customers who are cost-conscious and capable of investing substantial time and money in order to analyze and reduce their energy use in sophisticated ways.
  • Industrial. These very large customers are sophisticated, cost-conscious and increasingly focused on environmental issues.

The next step in defining future customer requirements is to understand the points in the utility value chain at which customers will interact with their utility. Based on recent trends for both utilities and other industries, the following “touch point” areas are a good starting point:

  • Reliability and restoration;
  • Billing;
  • Customer service;
  • Energy information and control; and
  • Environment.

Not all of these requirements will be important to all customer segments. It is essential to establish the most important requirements for each segment and each touch point. Figure 2 provides one example of a preliminary assessment of the relative importance of selected customer requirements for the reliability and restoration category, across the seven specified customer segments. Each customer need is assigned a high (H), medium (M) or low (L) rank.

Once this preliminary assessment is completed, utilities should consider conducting several workshops with participants from various functional departments. The goal of these workshops is to obtain feedback, to evaluate even more thoroughly the importance of each potential requirement and to begin to secure internal acceptance of the customer requirements that are determined to be worth pursuing. Departments that should participate in such workshops include those focused on regulatory requirements, billing, corporate communications, demand-side management, customer operations, complaint resolution and outage management.

One way of making the workshop process more “real” and therefore more effective is to develop customer use scenarios that incorporate each potential requirement. For example, the following billing scenarios could be used to illustrate potential customer requirements and to facilitate more effective evaluation of what will be needed for billing:

  • Billing Scenario 1. I want my gas and electric bills to be unified so that I don’t have to spend extra time making multiple payments. Also, I want the choice of paying my bill electronically, by mail or in person, based on what’s convenient for me, not what’s convenient for my utility.
  • Billing Scenario 2. My parents, who are now retired, receive fixed pension checks, and I want their utility to set up a payment plan for them that results in equal payments over the year, rather than high payments in the summer and low payments in the winter. My parents also want the ability to see a summarized version of their bill in large print, so that they can easily read and understand their energy use and costs.
  • Billing Scenario 3. My kids are on their computer nearly all of the time, and the remainder of the time they seem to be playing their video games. Also, they rarely turn off lights, and all of these things are increasing my energy bills. I want my utility to help me set up a balance limit so that if our energy usage reaches a set level, I’m automatically notified and I have the option of taking some corrective actions. I also expect my meter readings to be accurate rather than simply rough estimates, because I want to understand exactly how much energy I am consuming and what it’s costing me.

In addition to assessing the value of each requirement to customers, it is also important to rank these requirements based on other factors, such as their impacts on the utility. Financial costs and benefits, for example, clearly need to be estimated and considered when evaluating a requirement, regardless of how important the requirement will be to customers. To draw all of these assessments together, it is useful to assign weights to each assessment area – for example, a weight of 35 percent for customer importance, 30 percent for utility costs/benefits and 35 percent for the value that regulators will perceive. Once an appropriate weighting scheme is applied, the utility can rank the requirements and develop a list of those with the highest priority.

Task 2: Gaps

To assess gaps in current capabilities that could prevent a utility from meeting important and valuable customer requirements, the utility should next identify the business processes, organizations and technologies that will “deliver” those requirements. This requires a careful analysis of current and planned process, organizational and technology capabilities, which can be challenging because other initiatives will be affecting these areas even as customer requirements evolve. Moreover, many utilities do not have accurate, detailed documentation of current processes and systems. Therefore, a series of workshops and interviews with functional and technology leaders and staff is necessary. The results of these workshops should be supplemented by analysis of planned systems and process transformations, in order to assess current gaps and to determine whether those gaps will be closed – based on plans that are already in place. If such gaps remain, new projects and capital investments may be required to close
them and to meet expected customer requirements.

During the gap assessment process, it’s critical that the customer value team work closely with other IUN teams to ensure that the customer value gap analysis is coordinated with the broader gap analysis for the IUN program. Important areas to coordinate include automated meter information, demand-side management, outage management and asset management.

Task 3: Business Case Support

While conducting the first two tasks, the assessment team should be able to develop a deep understanding of the costs required to meet the important customer requirements as well as the financial benefits. Because it’s typical to develop consolidated business cases for the IUN, the customer value team should work with the overall IUN business case team to support business case development by bringing this information into the process.

Task 4: Transformation Road Map

This final task builds on an understanding of both the customer requirements and the gaps in current operations to create the customer value transformation road map. The initiatives in the road map will typically be defined across the following primary areas:

  • Process;
  • Technology;
  • Performance metrics;
  • Organization and training; and
  • Project management.

For each of these areas, the road map will establish the timing and sequence of initiatives to close the gaps, based on:

  • The utility’s strategic priorities and capacity for change;
  • Linkages to the utility’s overall IUN transformation plans; and
  • Technology dependencies and links to other work areas.
  • Figure 3 provides a summary of the initiatives from a typical customer value transformation road map. The detail behind this summary provides a path to transforming the customer-related operations to meet expected customer requirements over the next five to 10 years.

    CONCLUSION

    Our “customer value transformation road map” approach provides utilities with a structured process for identifying, assessing and prioritizing future customer requirements. Utilities that are successful in developing such a road map will be better prepared to build customer needs into their overall IUN transformation plans. These companies will in turn increase the likelihood that their IUN transformation will improve customer satisfaction, reduce customer care costs and lead to new sources of revenue.

Customer Management in Deregulating Markets

INTRODUCTION

As utility industries around the world go through deregulation and implement
competition, a number of lessons have emerged for those facing change. One of
these lessons involves the changing role of customer information and management
within a utility operation.

The introduction of competition changes the focus of a utility. Traditionally, utility
companies have held a “captive” customer base. They have not been burdened by
customer complexities associated with consumer choice.

Legacy customer information systems (CIS) readily handled the simple business
model of the fully regulated utility. Most utility executives saw its back-room
monolithic billing and its obtuse front end as a necessary evil required by the
business.

Today, utilities looking to become industry leaders in national and international
markets realize that their response to customers must change. To accomplish that
change, they need computer systems that map to changing business models and
must, in parallel, unbundle and reassimilate to respond to changing business rules
and data sets.

Utilities need, in other words, a new customer management model, built on a set
of flexible, robust, and highly integrated customer management components. They
need technology that can assure that they will be able to quickly meet and respond
to customer expectations, differentiate themselves through innovation and product
offerings, and provide a competitive edge through “first to market” strategies
unheard of in the traditional world of utility business.

GETTING AHEAD

There are three target areas that next generation customer management solutions
must address to achieve realized business benefit and provide competitive
advantage. While these target areas are not the only requirements for utilities
and services organizations looking to do battle in the world of competition, these
target areas will deliver hard value and place the savvy utilities ahead of the pack.

Be enabled for mergers and acquisitions.

With the introduction of deregulation, markets often see a flurry of new retail
entrants. Newly opened markets also force prices to true competitive levels. This
generally forces retail margins down. As a consequence, we see trends toward
takeovers and the selling of business segments. The end result is an environment
where the opportunity exists for aggressive and well-geared organizations to merge
and acquire other retail operations and, in so doing, benefit from economies of
scale.

Be responsive to new service models that focus on both customer
retention and customer acquisition.

The bottom line for utilities and service providers is that customer retention and
acquisition is key. By focusing on the customer, utilities and service providers can
obtain the knowledge necessary to be proactive in providing new products and
services, thus establishing a competitive advantage. The full extent of the use of
such knowledge is to be able to influence the interaction with the customer today
based on their activities of yesterday.

This movement toward customer care requires the mining and maintenance
of customer information in order to identify target markets and to develop an
understanding of customers’ buying preferences and drivers. Once new markets
are identified, a utility must be able to rapidly deliver new products and services,
with time-to-market a critical goal. Quick, effective, and accurate performance
measurements of these new products and services will allow the utility to adjust its
tactics and marketing strategies as required. It is then possible to implement either
acquisition or retention campaigns that generate sales leads and subsequently
convert those opportunities into contracts.

Be flexible to adapt to rapid changes in regulations and market
operations.

Most legacy customer management systems are not customer focused Fully
regulated utilities had little need for customer-focused approaches. Customer and
premise information, and sales and marketing functions in a utility were not viewed
as strategic. As deregulation, privatization and competition challenge the traditional
values of a utility, the focus of the industry is changing.

BUSINESS MODELS IN DEREGULATING MARKETS

There are six line-of-business models emerging in the energy sector.

These models share common business requirements:

  • Bill calculation
  • Accounting
  • Order processing
  • Business partner communications and management
  • Bill printing
  • Remittance processing
  • Credit and collections management

To some extent, core CIS functionality can address each of these areas. But
core functionality alone is not enough. Each type of deregulated business will
inevitably seek new functionality that should be added to the core via upgrades
and new components. Because the business models will not—nor should they—be
synchronized, upgrades will need to take place at the component level. In that way,
each business can keep pace with industry best practices without causing the other
components to operate erroneously.

THE PROBLEMS OF LEGACY CIS

To enable success in competitive markets, utilities must establish a framework that
supports new business models. Utilities of the future will invest in componentbased
solutions created around a technical infrastructure that supports growth
and change.

Once a company vows to redirect its business course, legacy CIS technology and
applications become a barrier to progress. A closer examination of the usually
20-plus year-old CIS yields obvious clues as to the nature of the problem.

The Legacy Customer Information System

The legacy CIS is a jumble of overlapping and intricately integrated functionality
and supporting technology architecture strongly resistant to modification and
enhancement. Often the CIS includes sub-optimal functional components that
would be best developed as external applications such as trouble management, asset
management, usage acquisition and data management.

A NEW KIND OF CIS

The new, adaptable CIS uses a best-of-breed core set of components incorporated
by a technical architecture that allows communication among the logical
components in a many-to-many relationship. Embedded in the logical component
core set is the essential functionality required to handle customer management.

The Productized Customer Information System

BUSINESS BENEFITS OF A PRODUCTIZED CIS

Tangible benefits to the business in the critical areas of cost reduction and time
efficiencies result from a productized CIS with an effective technical framework.
The goal of the technical architecture is to address several critical issues:

Flexibility and configurability: Flexibility is the key to effectively supporting
customer requirements in the evolving regulatory environment. Solutions must
be architectured to rapidly respond to market changes and unpredictable business
situations. This generally translates into table driven application design, which
allows the user to configure their business to suit their markets. Solutions must
successfully support new businesses and respond with agility to regulatory change.

They must be able to define new products dynamically and concurrently perform
a different mix of functions based on: location; type of customer; service provider;
and billing for bundled services.

Openness and portability: There is no one “killer” application that can singularly
support a utility operation in a deregulating market. Consequently all modules
within a total solution must be able to co-exist together. Customer management
applications must not dictate business process but rather, enable them. It is through
Integration Architecture that this can occur.

Applications must support a wide variety of standards with any process or object
easily accessed by other internal or external systems. Businesses will not be required
to re-engineer processes but can tailor the product to suit their current systems.
Implementation of customer management solutions must occur with minimal
disruption to staff, workflow and business systems.

In support of such a goal there are two tool-sets available to assist in seamless
integration with external applications. The first is a tool-set that enables real time
interaction between other applications. The emerging standard upon which these
tools are based is XML. This allows a company to integrate call centre solutions, ecommerce
B2C solutions, WAP solutions or any similar solution where information
interchange is required between applications.

The other enabling tool-set is a set of interface design standards that streamline to
processes involved in B2B processing such as direct access service requests, meter
reading uploads and downloads, interchange of details with remittance and
collection agencies, and so on.

Scalability and efficiency: With merger and acquisition activity a key business
condition, it is critical to current business and future growth plans for a system to
be able to perform and expand. Business and related systems investment must be
protected through the ability to scale. Speed and performance improvements can be
realized through a variety of considerations:

  • All background processes should be multi-threaded, allowing greater
    processing efficiency.
  • The infrastructure tools and application languages should be based on
    industry-accepted standards for large scale systems.
  • Utilities should require exceptionally clean data models that facilitatie ease of
    access, understanding, and navigation. Such data models also facilitate
    systems performance by allowing rapid and straightforward data extracts to
    data marts.
  • The normalization of databases, resulting in effective memory management
    and improved indexing efficiency.

Upgradability: All applications must be designed for upgradability so that any
configuration that is established to operate in a utility’s market is preserved even
when new features are made available.

Upgradability leads to the minimization of ongoing operational costs because
upgrades do not require the reapplication of customizations, and conversion
projects will not orphan integration points. The ability to upgrade allows the
business to keep pace with market trends, protect its investment in customization
and minimize ongoing application maintenance costs.

DEMANDING TIMES

Competition changes the landscape for utility companies around the globe. The
way business is done changes rapidly and survival depends on the ability to
innovate around emerging business models. Utilities that have been through the
early stages of deregulation have learned that the traditional, legacy CIS is
antiquated and must be replaced by a new breed of customer management
solutions.

Productized CIS solutions will continue to evolve into component-driven modules
that support utility and service provider business strategies and will provide the
immediate ability to adapt as business models change. Critical to the success of
these business strategies is a strong and adaptable technical architecture.
Customer management systems hold the promise of the flexibility, agility, and
adaptability demanded of the emerging customer-centric energy competitors.
Though legacy CIS is dead, a new breed of productized CIS solutions ensures that
competitive utilities and service companies can thrive in emerging markets.

Customer Service in the Brave New World of Today’s Utilities

A NEW GENERATION OF CUSTOMER

Today’s utility customers are energy dependant, information driven, technologically advanced, willing to change and environmentally friendly. Their grandparents prompted utilities to develop and offer levelized billing, and their parents created the need for online bill presentment and credit card payment. This new generation of customer is about to usher in a brave new world of utility customer service in which the real-time utility will conduct business 24 hours a day, seven days a week, 365 days a year, and Internet-savvy consumers will have all the capabilities of the current customer service representative. They’ll be able to receive pricing signals and control their utility usage via Internet portals, as well as shop among utilities for the best price and switch providers.

Expectations of system reliability are high today. Ten years ago, when the customer called to let you know their power was out, the call took 20 seconds; today, they expect you to already know that their power is out and be able to provide additional information about the nature and duration of that outage. What’s wrong? Are crews on the way? What’s the ETR? Can you text me when it’s back on? The call that includes these questions (and more) takes three times as long as that phone call 10 years ago. Thankfully, utility technology is coming of age just in time to meet the needs of evolving utility customers.

Many utilities already use automated circuit switchers to monitor lines for potential fault conditions and to react in real time to isolate faults and restore power. Automated metering systems send out “last gasp” outage notifications to outage management systems to predict the location of a problem for quicker restoration of service. Two-way communications systems send signals to smart appliances, system monitoring devices and customer messaging orbs to affect customer usage patterns. Fiber-to-the-home (FTTH) and wireless systems communicate meter usage in near real time to enable monitoring for abnormal consumption patterns. If customers have all of this data at their fingertips, what more will they expect from their utility service professionals? Advanced metering infrastructure (AMI) and two-way communications between customer and utility provider are essential to the future of these innovations. Figure 1 indicates the penetration of advanced metering by region.

A TOUCH OF ORWELL

This brave new world is not without risk. Tremendous amounts of data will be acquired and maintained. Monthly usage habits of consumers can provide incredible insight into customers’ lives – imagine the knowledge that real-time data can provide. As marketers begin to understand the powerful communications channels utilities possess, partnerships will emerge to maximize their value. Privacy laws and regulations defining proper use and misuse of data similar to Customer Private Network Information (CPNI) legislation will emerge just as they did in the telecommunications industry. Thus, it would be wise for the utility industry to take steps to limit use prior to legislative mandates being enacted that would create barriers to practical use.

EMERGING BUSINESSES CREATING VALUE FOR CUSTOMERS

Many of the technologies discussed in this paper already exist; the future will simply make their application more common – the interesting part will come in seeing how these products and services are bundled and who will provide them. Over the next 10 years, many new services (and a few new spins on old ones) will be offered to the consumer via this new infrastructure. The array of service offerings will be as broad as the capabilities that are created through the utilities infrastructure design. Utilities offering only one-way communication from the meter will be limited, while utilities with two-way communication riding their own fiber-optic systems will find a vast number of opportunities. Some of these services will fall within the core competency of the utility and be a natural fit in creating new revenue streams; others will require new partnerships to enable their existence. Some will span residential, commercial and industrial market segments, while others will be tailored to the residential customer only.

Energy management and consulting services will flourish during the initial period, especially in areas where time-of-use rates are incorporated in all market segments. Cable, Internet, telephone and security services will consolidate in areas where fiber-to-the-home is part of the infrastructure. Utilities’ ability to provide these services may be greatly effected by their legal and regulatory structures. Where limitations are imposed related to scope and type of services, partnerships will be formed to enable cost-effective service. Figure 2 shows what utilities reported to be the most common AMI system usages in a recent Federal Energy Regulatory Commission (FERC) survey.

As shown in Figure 2, load control, demand response monitoring and notification of price changes are already a part of the system capabilities. As an awareness of energy efficiency develops, a new focus on conservation will give rise to a newfound interest in smart appliances. Their operational characteristics will be more sophisticated than the predecessors of the “cycle and save” era, and they will meet customers’ demand for energy savings and environmental friendliness. This will not be limited to water heaters and heating, venting and air-conditioning (HVAC) units. The new initiatives will encompass refrigerators, freezers, washers, dryers and other second-order appliances, driving conservation derived from time-of-day use to a new level. And these initiatives will not be limited to electricity.

IMPACTS OF TECHNOLOGICAL CHANGE ON OTHER UTILITIES

Very few utility services will be exempt from the impact of changes in the electric industry. Natural gas and water usage, too, will be impacted as the nation focuses its attention on the efficient use of resources. Natural gas time-of-use rates will rise along with interruptible rates for residential consumers. This may take 10 to 15 years to occur, and a declining usage trend will need to be reversed; however, the same infrastructure restraints and concerns that plague the electric industry will be recognized in the natural gas industry as well. Thus, we can expect energy providers to adopt these rates in the future to stay competitive. If the electric systems are able to shift peak usage and levelize loads, the need for natural gas-fired generation will diminish. Natural gas-fired generation plants for system peaking would become unnecessary, and the decrease in demand would assist in stabilizing natural gas pricing.

Water availability issues are no longer limited to the Western United States, with areas such as Atlanta now beginning to experience water shortages as well. As a result, reverse-step rates that encourage water usage are being replaced with fixed and progressive step-rate structures to encourage water conservation. Automated metering can assist in eliminating waste, identifying excessive use during curtailment periods and creating a more efficient water distribution system. As energy time-of-use rates are implemented, water and wastewater treatment plants may find efficiencies in offering time-of-use rates as well in order to shape the usage characteristics of their customers without adding increased facilities. Even if this does not occur, time-of-use shifting of electrical load will have an impact on water usage patterns and effectively change water and wastewater operational characteristics.

In a world of increasing environmental vulnerability, the ability to monitor backflow in water metering will be essential in our efforts to be environmentally safe and monitor domestic threats to the water supply. Although technology’s ability to identify such threats will not prevent their occurrence, it will help utilities evaluate events and respond in order to isolate and diminish possible future threats.

IMPLICATIONS FOR UTILITIES

The above-described technological innovations don’t come without an impact to the service side of utilities. It will be difficult at best for utilities to modify legacy systems to take advantage of the benefits found in new technologies. More robust computer systems implemented in preparation for Y2K will be capable of some modifications; however, new software offerings are being designed today to address the vast opportunities that will soon exist. Processes for data management, storage and retrieval and use will need to be developed. And a new breed of customer service representative will begin to evolve. New technologies, near realtime information available to the consumer, unique customer and appliance configurations, and partnerships and services that go beyond the core competencies of the current workforce will create a short-term gap in trained customer service professionals. Billing departments will expand as rates become more complex. And the increased flexibility of customer information systems will require extensive checks and verifications to ensure accuracy.

Figure 3 (created by Robert Pratt of Pacific Northwest National Laboratory) provides a picture of the new landscape being created by the technologies utilities are implementing and the implications they have for customers.

Utilities with completely integrated systems will be the biggest winners in the future. Network management; geographic information systems; customer information systems; work order systems; supervisory control and data acquisition (SCADA) systems; and financial systems that communicate openly will be positioned to recognize the early wins that will spark the next decade of innovation. Cost-to-serve models continue to resonate as a popular topic among utility providers, and the impact of new technology will assist in making this integral to financial success.

The processes underlying current policies and procedures were designed for the way utilities traditionally operated – which is precisely why today’s utilities must take a systematic approach to re-evaluating their business processes if they’re to take advantage of new technology. They’ll even need to consider the cost of providing a detailed bill and mail delivery. The existence of real-time readings may bring dramatic changes in payment processing. Prepay accounts may eliminate the need to require deposits or assume risk for uncollectible accounts. Daily, weekly and semi-monthly payments may bring added cost (as may allowing customers to choose their due dates in the traditional arrears billing model); thus, utilities must consider the implications of these actions on cash fl ow and risk before implementing them. Advance notice of service interruption due to planned maintenance or construction can be communicated electronically over two-way automated meter reading (AMR) systems to orbs, communication panels, computers or other means. These same capabilities will dramatically change credit and collections efforts over the next 10 years. Electronic notification of past due accounts, shut-off and reconnection can all be done remotely at little cost to the utility.

IMPLICATIONS FOR CONSUMERS

Customers and commercial marketing efforts will be the driving forces for much of the innovation we’ll witness in coming years. No longer are customers simply comparing utilities against each other; today, they’re comparing utility customer service with their best and worst customer experiences regardless of industry. This means that customers are comparing a utility’s website capabilities with Amazon. com and its service response with the Ritz Carlton, Holiday Inn or Marriott they might frequent. Service reliability is measured against FedEx. Customer service expectations are raised with every initiative of competitive enterprise – a fact utilities will have to come to terms with if they’re to succeed.

All customers are not created equal. Technologically advanced customers will find the future exciting, while customers who view their utility as just another service provider will find it complicated and at times overwhelming. Utilities must communicate with customers at all levels to adequately prepare them for a future that’s already arrived.

Best Practices to Help Billers Drive Customer Adoption of Paperless E-Bills

Executive Summary

With rising costs that threaten to erode profit
margins, billing organizations are constantly
looking for ways to decrease expenditures
without sacrificing customer satisfaction.
Companies that incur significant expenses
associated with the delivery of recurring bills
are fully aware of the cost savings to be had
by offering e-bills (electronic representations of
bills) in lieu of the traditional paper bills. This
white paper is intended to be thought-provoking
and offer ideas and considerations for driving
paperless adoption. It will discuss best practices,
what to look for in an electronic billing and
payment (EBP) provider, and suggestions
for creating a business case for e-bills.

Every interaction with your customers is an
opportunity to strengthen relationships and
maximize business profitability. Billing and
payment touch points are ideal interactions
because they command consumers’
attention every month. The key is to meet
consumers where they choose to view and
pay your bill and strategically guide them
to low-cost channels, beginning with online
payments and ultimately paperless billing.

Many billing organizations have aggressive
paper suppression goals as part of an overall
cost-savings initiative. A well thought-out
strategy with a strong understanding of
consumer preferences is necessary to maximize
consumer adoption of paperless billing. This
white paper will help billing organizations
reach their paperless goals by highlighting best
practices such as implementing the best EBP
user interface and customer experience, utilizing
a multi-channel approach, deploying effective
marketing tactics and other innovative tactics.

Best Practice #1: Choose the Right
EBP Solution

It is important to understand customer preferences in
order to meet their payment needs while also guiding
them from online payment to paperless billing. You want
a user-friendly EBP solution that allows you to optimize
every customer interaction and supports your paperless
billing initiative.

Here are several best practices for creating an effective
EBP experience at your site:

Enrollment – It should be very easy for consumers to
find where to enroll on your site and the process should
be painless. Don’t make it an obstacle. The information
needed to enroll should be readily available to the
consumer and should be limited to only that which is
needed to meet your company’s security standards for
validating a consumer’s identity. Minimizing the number of
required fields decreases the opportunity for data entry
errors that lead to frustration and abandonment from
your site. It’s also important to make e-bill enrollment
available through offline channels as well. Have your
customer service reps offer to enroll customers while
on the phone. If you have a location that customers
visit in person, enable enrollment in these locations as
well. Better yet, consider moving the enrollment process
to the time of activation with your company so all new
customers will be paperless.

User Interface – Customer experience at your site is
paramount. Your EBP application should be customizable
to match the look, feel and branding of your website to
avoid confusing users with a disjointed process. The user
interface (UI), if designed correctly, can play a leading role
in creating a positive customer experience and driving
e-bill adoption. The most important best practice to
help drive paperless adoption is to continually educate
consumers on what an e-bill is and the many personal
and environmental benefits. The UI should be designed
in such a way that e-bill messaging is prominent and
eye-catching. In addition to repeatedly defining an e-bill
and explaining its benefits throughout your site, include
a thumbnail picture of your e-bill to help users make a
direct association between the paper bill and the e-bill.

There are other ways your user interface can help drive
paperless billing at your website, so make sure your EBP
solution is capable of the following:

  • Allows and encourages customers to turn paper bills
    off and on at their discretion from your website. With a
    highly visible paper bill status indicator on your website,
    consumers get the comfort, choice and control they are
    looking for. This will eliminate calls to your call center
    requesting to turn paper bills off and on.
  • Offers various ways to answer questions about bill
    payment and presentment with easy-to-find help text.
    Make sure the help text appears on the EBP pages so
    the user doesn’t have to leave the page or interrupt a
    task to search for help.

EBP Functionality – A rich customer experience can
have a significant impact on driving more consumers
online. You can facilitate customers’ use of your online
channel and ultimately paperless billing by implementing
a user-tested application that meets their needs. Based
on consumer feedback, you should consider the following
best practices:

  • Offer real-time information so users can view their bill
    summary immediately after enrollment
  • Develop functionality that seamlessly integrates into
    your current website so customers don’t have to log in
    separately to view and pay bills
  • Display bill presentment and payment within the
    website without pop-up windows
  • Provide customers the flexibility to choose their
    preferred payment method (scheduled, one-time,
    recurring, Auto Pay) and their preferred funding source
    (checking account, credit card, debit card)
  • Present e-bill as a mirror image of the paper bill to
    ensure a smooth transition to your electronic version
  • Enable billing-related notifications via multiple
    channels like e-mail or text messages
  • Store a sufficient amount of bill history with quick and
    easy retrieval capabilities

Best Practice #2: Consider a Multi-Channel
Approach To Distribute Your e-Bills

New technologies have changed the way consumers
choose to pay bills. While more than 51 percent of U.S.
online bill payers use biller direct sites, 25 percent prefer
the convenience of single bill pay sites1 and that segment
is expected to continue growing. Forrester predicts that
bank EBP growth rates will be close to twice that of
biller sites through 20112 and TowerGroup estimates a
bank EBP compounded annual growth rate of 24 percent
through 2012.3 Therefore, in order to meet all your
consumers at their preferred payment channels, you
need to make your e-bills available at bank and financial
websites in addition to your biller direct site.

Only 17 percent of U.S. billing organizations have
not identified the bank channel as important to their
online billing strategy, while the other 83 percent have
already begun utilizing the consolidated channel and
plan to continue doing so in the future.4 The days of
viewing bank websites as your competition are long
gone. Complementing your biller direct site with e-bill
presentment in the bank channel is the way to meet
all your online consumers at their payment point
of preference.

You will not lose cross-sell and up-sell opportunities
at your site because approximately two thirds of e-bill
recipients visit their biller’s website for self-service or
last-minute payment activities.1 Instead, you gain the
opportunity to increase your paperless adoption rates.

The same study states that consumers who pay bills at
bank sites have a higher propensity to go paperless. The
data shows that in 2007, the percentage of consumers
who opted for paperless bills at their bank site is double
that of consumers choosing paperless at biller direct
sites. When a large national insurance company began
delivering its bills electronically to banks and financial
institutions in January of 2008, they grew enrollments
by 85,000 enrollments in the first three months alone.
This is an example of the success to be achieved by
distributing e-bills to banks and financial institutions.

With every paper bill turned off, you save on all the
expenses of mailing bills: paper, printing, mailing
envelopes, return envelopes, handling and postage, but
the savings don’t stop there. Many of the large banks and
financial institutions aggressively promote the availability
of billers’ e-bills. You can benefit from all the e-bill
marketing messages directed to your customers at no
cost to you.

In addition to cost savings, distributing your e-bills to
bank and financial institution websites will improve
customer satisfaction and retention. According to
CheckFree Consumer Insights data, 27 percent of
consumers who receive a biller’s e-bills at their home
banking site are more satisfied with that biller and 33
percent are more loyal.1 Unfortunately, the converse may
also be true. Consumers who are already paying bills
at their home banking site will be dissatisfied with your
company if your e-bill is not available where they prefer to
view and pay bills.

Distribution of your bills electronically to banks and
financial institutions is the perfect complement to your
own biller direct site. It is an essential part of any EBP
strategy because it is the only way to give consumers
the option of paperless billing from their home banking
site. By delivering your e-bills to the bank channel, you
can satisfy consumers’ needs at their payment point of
preference while making headway on your paper adoption
goals. It is a win-win for you and your customers.

Best Practice #3: Marketing and
Promoting e-Bills

Once you have an easy, user-friendly e-bill program, the
next step is to create a marketing campaign to drive
awareness and guide customers from their current
paper-based bill pay routine to online billing. Craft a clear,
concise, actionable message and continually promote it
through multiple consumer touch points. The message
should include an explanation of what an e-bill is and
the many advantages over the traditional paper bill.
Emphasize specific consumer benefits (reduces risk of
identity fraud, reduces clutter, simplifies bill management,
saves time) and the environmental impact (reduces paper,
saves trees and conserves energy).

Many companies have seen great success by educating
consumers on the positive environmental impact of
paperless billing as a way to drive e-bill adoption.
According to a survey by CheckFree Consumer Insights,
48 percent of consumers cited, “It’s better for the
environment,” as the top reason for choosing
paperless billing. Consider a similar approach and
direct proceeds to a local charitable organization to
give customers an opportunity to make a difference
within their own community.

Another marketing approach
that has proven successful
is offering sweepstakes
incentives to enroll in e-bills.
Con Edison of New York has
used this approach by offering
prizes such as MacBook®
computers and ENERGY STAR
room air conditioners. Its most
recent sweepstakes offered
the chance to win an Apple®
iPhone™. The results were
great; e-bill adoption increased
48 percent over the same
period the prior year.

Whether your message focuses on the environment,
convenience or both, use it to promote your e-bill service
at every possible consumer touch point in an ongoing
campaign. The following are steps you can take quickly
and inexpensively:

  • Print a targeted message on consumer bills and
    return envelopes
  • Announce your campaign through a companysponsored
    press release
  • Display dynamic e-bill messaging prominently
    throughout your website
  • Include a thumbnail image of your e-bill to provide
    a visual reference for consumers
  • Incorporate an e-bill message in your on-hold recording
  • Have your customer service representatives promote
    e-bills over the phone and in person
  • Present the electronic bill as a mirror image of the
    paper bill to ensure a smooth transition to your
    electronic version
  • Dedicate a section to e-bills in your
    customer newsletter
  • Create a specific e-bill communication delivered
    via e-mail
  • Supplement your own consumer education efforts with
    tools such as PayItGreen.org and eBILLPLACE.com

Make every effort to find an internal executive champion
for your marketing ideas and remember that the most
successful campaigns are those that are comprehensive,
ubiquitous and ongoing.

Best Practice #4: Utilize Innovative Tactics

In spite of all your communication efforts, some
consumers may still not be comfortable with the idea
of giving up their paper bill because it serves as a
physical reminder of a due payment or for recordkeeping
purposes. There are many who still don’t understand
what an e-bill is or how it works. To combat the education
and awareness barriers, take the opportunity to think
and act outside the box. Here are three examples of
successful innovative tactics:

1. Give Consumers Control of E-Bills at Bank Websites
In 2008, 45 percent of e-bill viewers said that the ability
to turn on their paper bill at anytime would make them
more willing to suppress their paper versions.1 The idea
of going paperless becomes more attractive when the
consumer is given choice and control. Earlier in this
paper, it was recommended to choose an EBP solution
that enables customers to turn their paper bills on and
off from your biller direct site. Now, consider going one
step further and create the same sense of control for your
customers at consolidated sites by enabling an e-bill trial
period. (This is only possible if you are already delivering
your e-bills to bank and financial institution websites.)
A trial period gives consumers two options: 1) Sign up
for paperless e-bills or 2) Enter an e-bill trial period to
become familiar with e-bills while the paper bill remains.
Verizon Communications implemented this tactic and saw
a 10 percent increase in e-bill activations, and almost 50
percent of customers presented with the trial period opted
to suppress their paper bill either immediately or at some
point during the 90-day trial period.

2. Utilize Your Front Line to Help Drive E-Bill Adoption
Generally, a biller’s goal is to drive customers online for
billing and payment activities rather than having them call
customer service representatives (CSRs). However each
phone call is extremely important because it is often the
only human contact customers have with your company.
Try a novel approach and include CSRs in your plan to
drive e-bill adoption. Start by determining what motivates
them – whether it’s an in-office party, a catered lunch or
the chance to win a prize. Then communicate to your
front line employees that you need their help educating
consumers on the benefits of e-bills to drive paperless
adoption. Set an e-bill activation goal and commit to a
reward if the goal is reached.

Indianapolis Power & Light (IPL) created an e-bill adoption
campaign for its customer service team and had positive
results. An aggressive yet attainable e-bill activation
goal was set and an in-office party was promised as the
reward if the goal was met. The CSRs were given e-bill
talking points and online enrollment instructions, and they
were encouraged to promote e-bills as much as possible.
They were not given a script. Instead, they were given
the authority to use their own judgment when speaking
with callers. After six weeks, IPL surpassed the goal
and increased e-bill activations by 35 percent during the
campaign. “Don’t underestimate your front line team,”
said Bill Bisson, Customer Service Manager at IPL when
asked about his innovative approach to promoting e-bills.

The success of IPL’s campaign was driven by the fact that
all employees, up through the top executives, understand
the value of e-bills. IPL’s Executive Management Team
was instrumental in driving awareness and support from
the entire organization by reinforcing the importance of
the e-bill adoption initiative. Bill Bisson says the success
of his CSR campaign demonstrates that, “It’s important
to have support from the top down.”

3. Consider Defaulting the Bill Setting to “Paperless”
During Enrollment

According to Forrester, there is a segment of consumers
who have not adopted e-bills yet because they “just
haven’t gotten around to it yet.”5 While this is a more
aggressive tactic, consider this change to the account
set-up process: When a consumer is asked to choose
paper bills or e-bills, default the selection to e-bills. This
does not restrict someone from selecting paper bills,
but those who are more open to e-bills may be likely to
accept the default. A large utility company in the Midwest reaped a 20 percent increase in the number of people
going paperless with this approach.

Choose the Right EBP Provider to
Meet Your Needs

When choosing an EBP provider, it is important to work
with a company that will be a business partner rather
than just a vendor. Besides finding a trusted, established
organization with a proven track record and a strong
history of reliability, here is a list of what to look for when
you begin your evaluation:

  • Goal Alignment Yields Success: Choose a provider
    whose top priorities are aligned with yours –
    overcoming barriers to e-bills and driving
    paperless adoption.
  • Research is the Key: Make sure your EBP provider
    conducts and/or commissions ongoing research and
    usability testing to understand consumer behavior to
    make product and user interface improvements.
  • Innovation, Innovation, Innovation: You want a
    vendor who invests in the future of EBP, stays in the
    forefront of technology and can be quick to market
    with proven innovative solutions designed to drive
    paperless adoption.
  • One Size Does Not Fit All: You want a partner who
    will listen to you and provide a tailored solution to
    help you achieve your EBP goals while keeping the
    company’s goals in mind. The paper suppression
    strategy should be different for companies charged
    with cost reduction versus those focused on improving
    customer satisfaction or somewhere in between.
  • Largest, Widest Reach: Choose an EBP provider who
    has solutions for multiple channels so you can
    work with one company for all your EBP needs – a
    superior EBP solution at your biller direct site, the
    capability to deliver your e-bills to as many banks as
    possible, as well as the ability to support walk-in and
    phone payments.
  • It’s All About You: Work with a vendor who realizes
    that you have goals other than paper suppression and
    has solutions that can help. For example, if you have
    the desire to cross-sell and up-sell to consumers on
    your website, choose a vendor who can utilize billing
    information to create targeted, customized messaging
    within your EBP application.
  • Account Management: Having a dedicated account
    management team providing operational support will
    ensure a quality experience for your customers. They
    will also keep you informed on industry trends and
    new products.
  • Marketing Know-How: You want an EBP partner
    who offers marketing support and collaboration in
    developing campaigns designed to drive adoption.
    From experience, they should be able to tell you the
    best way to motivate your customers, what messages
    resonate best with different segments, and what
    incentives, if any, would be effective in changing
    consumer behaviors.

Tips for Building a Business Case for EBP

Once you have decided on the right EBP solution and
provider for your business, the next step is to create a
compelling business case to justify your recommendation
and gain executive support. Achieving approval and
funding for cost-saving initiatives can be more
challenging than for revenue-generating projects, so here
are some best practices to consider when developing
your business case:

Include All Impacted Departments – According to
TowerGroup, 100 percent of billers surveyed included a
cost/benefit analysis from multiple departments.4 The
benefits of including other departments in this process
are two fold: not only will you receive additional data to
support your business case, but you will gain internal
cross-functional support early on. Both will help you
when looking for executive approval of your project. This
exercise will also help minimize implementation delays by
keeping all impacted parties informed.

Develop a Comprehensive ROI Model – Make sure
to capture all the possible savings from e-bills and
paperless billing. Start with the due diligence of
determining the costs associated with your current print
and mail process to help accurately calculate the saving
per activated e-bill. Next, forecast the e-bill adoption rate
for your biller direct site. This can be challenging, so the
best approach is to use industry averages. Your EBP
provider should be able to supply these percentages.

If you plan to distribute your e-bills to banks and financial
institutions, you need to forecast the e-bill adoption rate
for this channel and include the savings into the ROI
model. Your EBP provider should be able to help you
predict the number of e-bill activations you can expect by
determining the number of payments you currently receive
from banks and applying an industry adoption average.
Don’t forget to include the savings from fewer claims as a
result of more accurate account information from e-bills.

Other items to be included in your ROI calculation are:

  • Increasing Postage Rates – Now that the USPS has the
    ability to raise postage rates every year, include
    an increase of at least one cent to your cost per bill
    each year.
  • Marketing Expenses – Include some reduced marketing
    expenses if your EBP provider offers marketing
    consultation and creative assets for your use.
  • Privacy and Security Expenses – With an outsourced
    EBP solution, you can reduce expenses associated
    with regulatory compliance.

Incorporate Soft Returns – While soft returns may not fit
into the ROI model because they are difficult to quantify,
they should not be omitted from the business case.

  • Research shows that consumers are more satisfied
    and loyal when they receive e-bills, regardless of
    the channel.1&7
  • You can be a leader in “green” environmental activities.
    Forty-three percent of consumers are more likely to do
    business with an environmentally friendly company.8
  • As you drive more consumers to your site for bill viewing,
    you will increase online marketing opportunities.
  • Research shows that 58 percent of customer calls
    are billing and payment related. With new self-service
    features from an EBP solution, you can anticipate a
    decrease in billing related calls. This can allow for
    repurposing of FTEs.9

Provide Examples – Support your business case with real
life examples from other billers in your industry who have
implemented an EBP strategy and describe their success.
This will validate the numbers in your business case.
Hopefully, your EBP provider can share case studies to
exemplify the potential results.

What to Avoid – The savings per e-bill will be the bulk
of your cost savings so it is important to be as accurate
and realistic as possible. Be conservative and don’t over
estimate adoption rates. Work with your provider to get an
accurate project plan to tell you the number of IT resources
and hours this project will require. You might be surprised
at how minimal the requirements are. And lastly, don’t
forget to include initial and on-going training costs for your
front-line employees. Your customer service representatives
can prove to be very valuable in helping to promote e-bills
to your consumers if they are properly educated.

Conclusion

Is paper suppression a priority within your organization?
Has your company already implemented some or all of
the best practices mentioned in this paper? If not, begin
thinking about what you can do in the short term with
minimal expense (bill messaging, on-hold messaging,
newsletter messaging, etc.). Then determine the company’s
budget and IT resources available to pursue some of the
higher-impact recommendations. If you are ready to begin
researching options that are best for your organization,
you can find more information at www.checkfree.com/billersolutions. Or, if you are interested in learning how
other billing organizations in your industry have grown
their e-bill adoption rates, you can find case studies at www.checkfree.com/resourceroom.

Footnotes

  1. CheckFree Consumer Insights, Consumer Billing and
    Payment Trends, February 2008
  2. Forrester, EBPP Forecast: 2006 To 2011, May 2007
  3. TowerGroup, Expedited Online Bill Payments: A New
    Revenue Stream for Financial Institutions, 2008
  4. TowerGroup, 2008 Biller Survey on EBPP, November 2008
  5. Forrester, Online Bill Pay 2007: Understanding The
    Mindset Of Holdouts, Fence-Sitters, And Quitters,
    December 2007
  6. Aite, Biller Direct Technology: A Vendor Overview,
    August 2008
  7. CheckFree Consumer Insights, Biller Direct Survey
    Findings, June 2008
  8. Javelin Strategy and Research, The Four E’s of Green
    Banking, June 2008
  9. PayStream Advisors, Consumer-To-Business Payments,
    Webinar, August 2006

Achieving Decentralized Coordination In the Electric Power Industry

For the past century, the dominant business and regulatory paradigms in the electric power industry have been centralized economic and physical control. The ideas presented here and in my forthcoming book, Deregulation, Innovation, and Market Liberalization: Electricity Restructuring in a Constantly Evolving Environment (Routledge, 2008), comprise a different paradigm – decentralized economic and physical coordination – which will be achieved through contracts, transactions, price signals and integrated intertemporal wholesale and retail markets. Digital communication technologies – which are becoming ever more pervasive and affordable – are what make this decentralized coordination possible. In contrast to the "distributed control" concept often invoked by power systems engineers (in which distributed technology is used to enhance centralized control of a system), "decentralized coordination" represents a paradigm in which distributed agents themselves control part of the system, and in aggregate, their actions produce order: emergent order. [1]

Dynamic retail pricing, retail product differentiation and complementary end-use technologies provide the foundation for achieving decentralized coordination in the electric power industry. They bring timely information to consumers and enable them to participate in retail market processes; they also enable retailers to discover and satisfy the heterogeneous preferences of consumers, all of whom have private knowledge that’s unavailable to firms and regulators in the absence of such market processes. Institutions that facilitate this discovery through dynamic pricing and technology are crucial for achieving decentralized coordination. Thus, retail restructuring that allows dynamic pricing and product differentiation, doesn’t stifle the adoption of digital technology and reduces retail entry barriers is necessary if this value-creating decentralized coordination is to happen.

This paper presents a case study – the "GridWise Olympic Peninsula Testbed Demonstration Project" – that illustrates how digital end-use technology and dynamic pricing combine to provide value to residential customers while increasing network reliability and reducing required infrastructure investments through decentralized coordination. The availability (and increasing cost-effectiveness) of digital technologies enabling consumers to monitor and control their energy use and to see transparent price signals has made existing retail rate regulation obsolete. Instead, the policy recommendation that this analysis implies is that regulators should reduce entry barriers in retail markets and allow for dynamic pricing and product differentiation, which are the keys to achieving decentralized coordination.

THE KEYS: DYNAMIC PRICING, DIGITAL TECHNOLOGY

Dynamic pricing provides price signals that reflect variations in the actual costs and benefits of providing electricity at different times of the day. Some of the more sophisticated forms of dynamic pricing harness the dramatic improvements in information technology of the past 20 years to communicate these price signals to consumers. These same technological developments also give consumers a tool for managing their energy use, in either manual or automated form. Currently, with almost all U.S. consumers (even industrial and commercial ones) paying average prices, there’s little incentive for consumers to manage their consumption and shift it away from peak hours. This inelastic demand leads to more capital investment in power plants and transmission and distribution facilities than would occur if consumers could make choices based on their preferences and in the face of dynamic pricing.

Retail price regulation stifles the economic processes that lead to both static and dynamic efficiency. Keeping retail prices fixed truncates the information flow between wholesale and retail markets, and leads to inefficiency, price spikes and price volatility. Fixed retail rates for electric power service mean that the prices individual consumers pay bear little or no relation to the marginal cost of providing power in any given hour. Moreover, because retail prices don’t fluctuate, consumers are given no incentive to change their consumption as the marginal cost of producing electricity changes. This severing of incentives leads to inefficient energy consumption in the short run and also causes inappropriate investment in generation, transmission and distribution capacity in the long run. It has also stifled the implementation of technologies that enable customers to make active consumption decisions, even though communication technologies have become ubiquitous, affordable and user-friendly.

Dynamic pricing can include time-of-use (TOU) rates, which are different prices in blocks over a day (based on expected wholesale prices), or real-time pricing (RTP) in which actual market prices are transmitted to consumers, generally in increments of an hour or less. A TOU rate typically applies predetermined prices to specific time periods by day and by season. RTP differs from TOU mainly because RTP exposes consumers to unexpected variations (positive and negative) due to demand conditions, weather and other factors. In a sense, fixed retail rates and RTP are the end points of a continuum of how much price variability the consumer sees, and different types of TOU systems are points on that continuum. Thus, RTP is but one example of dynamic pricing. Both RTP and TOU provide better price signals to customers than current regulated average prices do. They also enable companies to sell, and customers to purchase, electric power service as a differentiated product.

TECHNOLOGY’S ROLE IN RETAIL CHOICE

Digital technologies are becoming increasingly available to reduce the cost of sending prices to people and their devices. The 2007 Galvin Electricity Initiative report "The Path to Perfect Power: New Technologies Advance Consumer Control" catalogs a variety of end-user technologies (from price-responsive appliances to wireless home automation systems) that can communicate electricity price signals to consumers, retain data on their consumption and be programmed to respond automatically to trigger prices that the consumer chooses based on his or her preferences. [2] Moreover, the two-way communication advanced metering infrastructure (AMI) that enables a retailer and consumer to have that data transparency is also proliferating (albeit slowly) and declining in price.

Dynamic pricing and the digital technology that enables communication of price information are symbiotic. Dynamic pricing in the absence of enabling technology is meaningless. Likewise, technology without economic signals to respond to is extremely limited in its ability to coordinate buyers and sellers in a way that optimizes network quality and resource use. [3] The combination of dynamic pricing and enabling technology changes the value proposition for the consumer from "I flip the switch, and the light comes on" to a more diverse and consumer-focused set of value-added services.

These diverse value-added services empower consumers and enable them to control their electricity choices with more granularity and precision than the environment in which they think solely of the total amount of electricity they consume. Digital metering and end-user devices also decrease transaction costs between buyers and sellers, lowering barriers to exchange and to the formation of particular markets and products.

Whether they take the form of building control systems that enable the consumer to see the amount of power used by each function performed in a building or appliances that can be programmed to behave differently based on changes in the retail price of electricity, these products and services provide customers with an opportunity to make better choices with more precision than ever before. In aggregate, these choices lead to better capacity utilization and better fuel resource utilization, and provide incentives for innovation to meet customers’ needs and capture their imaginations. In this sense, technological innovation and dynamic retail electricity pricing are at the heart of decentralized coordination in the electric power network.

EVIDENCE

Led by the Pacific Northwest National Laboratory (PNNL), the Olympic Peninsula GridWise Testbed Project served as a demonstration project to test a residential network with highly distributed intelligence and market-based dynamic pricing. [4] Washington’s Olympic Peninsula is an area of great scenic beauty, with population centers concentrated on the northern edge. The peninsula’s electricity distribution network is connected to the rest of the network through a single distribution substation. While the peninsula is experiencing economic growth and associated growth in electricity demand, the natural beauty of the area and other environmental concerns served as an impetus for area residents to explore options beyond simply building generation capacity on the peninsula or adding transmission capacity.

Thus, this project tested how the combination of enabling technologies and market-based dynamic pricing affected utilization of existing capacity, deferral of capital investment and the ability of distributed demand-side and supply-side resources to create system reliability. Two questions were of primary interest:

1) What dynamic pricing contracts do consumers find attractive, and how does enabling technology affect that choice?

2) To what extent will consumers choose to automate energy use decisions?

The project – which ran from April 2006 through March 2007 – included 130 broadband-enabled households with electric heating. Each household received a programmable communicating thermostat (PCT) with a visual user interface that allowed the consumer to program the thermostat for the home – specifically to respond to price signals, if desired. Households also received water heaters equipped with a GridFriendly appliance (GFA) controller chip developed at PNNL that enables the water heater to receive price signals and be programmed to respond automatically to those price signals. Consumers could control the sensitivity of the water heater through the PCT settings.

These households also participated in a market field experiment involving dynamic pricing. While they continued to purchase energy from their local utility at a fixed, discounted price, they also received a cash account with a predetermined balance, which was replenished quarterly. The energy use decisions they made would determine their overall bill, which was deducted from their cash account, and they were able to keep any difference as profit. The worst a household could do was a zero balance, so they were no worse off than if they had not participated in the experiment. At any time customers could log in to a secure website to see their current balances and determine the effectiveness of their energy use strategies.

On signing up for the project, the households received extensive information and education about the technologies available to them and the kinds of energy use strategies facilitated by these technologies. They were then asked to choose a retail pricing contract from three options: a fixed price contract (with an embedded price risk premium), a TOU contract with a variable critical peak price (CPP) component that could be called in periods of tight capacity or an RTP contract that would reflect a wholesale market-clearing price in five-minute intervals. The RTP was determined using a uniform price double auction in which buyers (households and commercial) submit bids and sellers submit offers simultaneously. This project represented the first instance in which a double auction retail market design was tested in electric power.

The households ranked the contracts and were then divided fairly evenly among the three types, along with a control group that received the enabling technologies and had their energy use monitored but did not participate in the dynamic pricing market experiment. All households received either their first or second choice; interestingly, more than two-thirds of the households ranked RTP as their first choice. This result counters the received wisdom that residential customers want only reliable service at low, stable prices.

According to the 2007 report on the project by D.J. Hammerstrom (and others), on average participants saved 10 percent on their electricity bills. [5] That report also includes the following findings about the project:

Result 1. For the RTP group, peak consumption decreased by 15 to 17 percent relative to what the peak would have been in the absence of the dynamic pricing – even though their overall energy consumption increased by approximately 4 percent. This flattening of the load duration curve indicates shifting some peak demand to nonpeak hours. Such shifting increases the system’s load factor, improving capacity utilization and reducing the need to invest in additional capacity, for a given level of demand. A 15 to 17 percent reduction is substantial and is similar in magnitude to the reductions seen in other dynamic pricing pilots.

After controlling for price response, weather effects and weekend days, the RTP group’s overall energy consumption was 4 percent higher than that of the fixed price group. This result, in combination with the load duration effect noted above, indicates that the overall effect of RTP dynamic pricing is to smooth consumption over time, not decrease it.

Result 2. The TOU group achieved both a large price elasticity of demand (-0.17), based on hourly data, and an overall energy reduction of approximately 20 percent relative to the fixed price group.

After controlling for price response, weather effects and weekend days, the TOU group’s overall energy consumption was 20 percent lower than that of the fixed price group. This result indicates that the TOU (with occasional critical peaks) pricing induced overall conservation – a result consistent with the results of the California SPP project. The estimated price elasticity of demand in the TOU group was -0.17, which is high relative to that observed in other projects. This elasticity suggests that the pricing coupled with the enabling end-use technology amplifies the price responsiveness of even small residential consumers.

Despite these results, dynamic pricing and enabling technologies are proliferating slowly in the electricity industry. Proliferation requires a combination of formal and informal institutional change to overcome a variety of barriers. And while formal institutional change (primarily in the form of federal legislation) is reducing some of these barriers, it remains an incremental process. The traditional rate structure, fixed by state regulation and slow to change, presents a substantial barrier. Predetermined load profiles inhibit market-based pricing by ignoring individual customer variation and the information that customers can communicate through choices in response to price signals. Furthermore, the persistence of standard offer service at a discounted rate (that is, a rate that does not reflect the financial cost of insurance against price risk) stifles any incentive customers might have to pursue other pricing options.

The most significant – yet also most intangible and difficult-to-overcome – obstacle to dynamic pricing and enabling technologies is inertia. All of the primary stakeholders in the industry – utilities, regulators and customers – harbor status quo bias. Incumbent utilities face incentives to maintain the regulated status quo as much as possible (given the economic, technological and demographic changes surrounding them) – and thus far, they’ve been successful in using the political process to achieve this objective.

Customer inertia also runs deep because consumers have not had to think about their consumption of electricity or the price they pay for it – a bias consumer advocates generally reinforce by arguing that low, stable prices for highly reliable power are an entitlement. Regulators and customers value the stability and predictability that have arisen from this vertically integrated, historically supply-oriented and reliability-focused environment; however, what is unseen and unaccounted for is the opportunity cost of such predictability – the foregone value creation in innovative services, empowerment of customers to manage their own energy use and use of double-sided markets to enhance market efficiency and network reliability. Compare this unseen potential with the value creation in telecommunications, where even young adults can understand and adapt to cell phone-pricing plans and benefit from the stream of innovations in the industry.

CONCLUSION

The potential for a highly distributed, decentralized network of devices automated to respond to price signals creates new policy and research questions. Do individuals automate sending prices to devices? If so, do they adjust settings, and how? Does the combination of price effects and innovation increase total surplus, including consumer surplus? In aggregate, do these distributed actions create emergent order in the form of system reliability?

Answering these questions requires thinking about the diffuse and private nature of the knowledge embedded in the network, and the extent to which such a network becomes a complex adaptive system. Technology helps determine whether decentralized coordination and emergent order are possible; the dramatic transformation of digital technology in the past few decades has decreased transaction costs and increased the extent of feasible decentralized coordination in this industry. Institutions – which structure and shape the contexts in which such processes occur – provide a means for creating this coordination. And finally, regulatory institutions affect whether or not this coordination can occur.

For this reason, effective regulation should focus not on allocation but rather on decentralized coordination and how to bring it about. This in turn means a focus on market processes, which are adaptive institutions that evolve along with technological change. Regulatory institutions should also be adaptive, and policymakers should view regulatory policy as work in progress so that the institutions can adapt to unknown and changing conditions and enable decentralized coordination.

ENDNOTES

1. Order can take many forms in a complex system like electricity – for example, keeping the lights on (short-term reliability), achieving economic efficiency, optimizing transmission congestion, longer-term resource adequacy and so on.

2. Roger W. Gale, Jean-Louis Poirier, Lynne Kiesling and David Bodde, "The Path to Perfect Power: New Technologies Advance Consumer Control," Galvin Electricity Initiative report (2007). www.galvinpower.org/resources/galvin.php?id=88

3. The exception to this claim is the TOU contract, where the rate structure is known in advance. However, even on such a simple dynamic pricing contract, devices that allow customers to see their consumption and expenditure in real time instead of waiting for their bill can change behavior.

4. D.J. Hammerstrom et. al, "Pacific Northwest GridWise Testbed Demonstration Projects, volume I: The Olympic Peninsula Project" (2007). http://gridwise.pnl.gov/docs/op_project_final_report_pnnl17167.pdf

5. Ibid.

The GridWise Olympic Peninsula Project

The Olympic Peninsula Project consisted of a field demonstration and test of advanced price signal-based control of distributed energy resources (DERs). Sponsored by the U.S. Department of Energy (DOE) and led by the Pacific Northwest National Laboratory, the project was part of the Pacific Northwest Grid- Wise Testbed Demonstration.

Other participating organizations included the Bonneville Power Administration, Public Utility District (PUD) #1 of Clallam County, the City of Port Angeles, Portland General Electric, IBM’s T.J. Watson Research Center, Whirlpool and Invensys Controls. The main objective of the project was to convert normally passive loads and idle distributed generation into actively participating resources optimally coordinated in near real time to reduce stress on the local distribution system.

Planning began in late 2004, and the bulk of the development work took place in 2005. By late 2005, equipment installations had begun, and by spring 2006, the experiment was fully operational, remaining so for one full year.

The motivating theme of the project was based on the GridWise concept that inserting intelligence into electric grid components at every point in the supply chain – from generation through end-use – will significantly improve both the electrical and economic efficiency of the power system. In this case, information technology and communications were used to create a real-time energy market system that could control demand response automation and distributed generation dispatch. Optimal use of the DER assets was achieved through the market, which was designed to manage the flow of power through a constrained distribution feeder circuit.

The project also illustrated the value of interoperability in several ways, as defined by the DOE’s GridWise Architecture Council (GWAC). First, a highly heterogeneous set of energy assets, associated automation controls and business processes was composed into a single solution integrating a purely economic or business function (the market-clearing system) with purely physical or operational functions (thermostatic control of space heating and water heating). This demonstrated interoperability at the technical and informational levels of the GWAC Interoperability Framework (www.gridwiseac.org/about/publications.aspx), providing an ideal example of a cyber-physical-business system. In addition, it represents an important class of solutions that will emerge as part of the transition to smart grids.

Second, the objectives of the various asset owners participating in the market were continuously balanced to maintain the optimal solution at any point in time. This included the residential demand response customers; the commercial and municipal entities with both demand response and distributed generation; and the utilities, which demonstrated interoperability at the organizational level of the framework.

PROJECT RESOURCES

The following energy assets were configured to respond to market price signals:

  • Residential demand response for electric space and water heating in 112 single-family homes using gateways connected by DSL or cable modem to provide two-way communication. The residential demand response system allowed the current market price of electricity to be presented to customers. Consumers could also configure their demand response automation preferences. The residential consumers were evenly divided among three contract types (fixed, time of use and real time) and a fourth control group. All electricity consumption was metered, but only the loads in price-responsive homes were controlled by the project (approximately 75 KW).
  • Two distributed generation units (175 KW and 600 KW) at a commercial site served the facility’s load when the feeder supply was not sufficient. These units were not connected in parallel to the grid, so they were bid into the market as a demand response asset equal to the total load of the facility (approximately 170 KW). When the bid was satisfied, the facility disconnected from the grid and shifted its load to the distributed generation units.
  • One distributed microturbine (30 KW) that was connected in parallel to the grid. This unit was bid into the market as a generation asset based on the actual fixed and variable expenses of running the unit.
  • Five 40-horsepower (HP) water pumps distributed between two municipal water-pumping stations (approximately 150 KW of total nameplate load). The demand response load from these pumps was incrementally bid into the market based on the water level in the pumped storage reservoir, effectively converting the top few feet of the reservoir capacity into a demand response asset on the electrical grid.

Monitoring was performed for all of these resources, and in cases of price-responsive contracts, automated control of demand response was also provided. All consumers who employed automated control were able to temporarily disable or override project control of their loads or generation units. In the residential realtime price demand response homes, consumers were given a simple configuration choice for their space heating and water heating that involved selecting an ideal set point and a degree of trade-off between comfort and price responsiveness.

For real-time price contracts, the space heater demand response involved automated bidding into the market by the space heating system. Since the programmable thermostats deployed in the project didn’t support real-time market bidding, IBM Research implemented virtual thermostats in software using an event-based distributed programming prototype called Internet- Scale Control Systems (iCS). The iCS prototype is designed to support distributed control applications that span virtually any underlying device or business process through the definition of software sensor, actuator and control objects connected by an asynchronous event programming model that can be deployed on a wide range of underlying communication and runtime environments. For this project, virtual thermostats were defined that conceptually wrapped the real thermostats and incorporated all of their functionality while at the same time providing the additional functionality needed to implement the real-time bidding. These virtual thermostats received the actual temperature of the house as well as information about the real-time market average price and price distribution and the consumer’s preferences for set point and comfort/economy trade-off setting. This allowed the virtual thermostats to calculate the appropriate bid every five minutes based on the changing temperature and market price of energy.

The real-time market in the project was implemented as a shadow market – that is, rather than change the actual utility billing structure, the project implemented a parallel billing system and a real-time market. Consumers still received their normal utility bill each month, but in addition they received an online bill from the shadow market. This additional bill was paid from a debit account that used funds seeded by the project based on historical energy consumption information for the consumer.

The objective was to provide an economic incentive to consumers to be more price responsive. This was accomplished by allowing the consumers to keep the remaining balance in the debit account at the end of each quarter. Those consumers who were most responsive were estimated to receive about $150 at the end of the quarter.

The market in the project cleared every five minutes, having received demand response bids, distributed generation bids and a base supply bid based on the supply capacity and wholesale price of energy in the Mid-Columbia system operated by Bonneville Power Administration. (This was accomplished through a Dow Jones feed of the Mid-Columbia price and other information sources for capacity.) The market operation required project assets to submit bids every five minutes into the market, and then respond to the cleared price at the end of the five-minute market cycle. In the case of residential space heating in real-time price contract homes, the virtual thermostats adjusted the temperature set point every five minutes; however, in most cases the adjustment was negligible (for example, one-tenth of a degree) if the price was stable.

KEY FINDINGS

Distribution constraint management. As one of the primary objectives of the experiment, distribution constraint management was successfully accomplished. The distribution feeder-imported capacity was managed through demand response automation to a cap of 750 KW for all but one five-minute market cycle during the project year. In addition, distributed generation was dispatched as needed during the project, up to a peak of about 350 KW.

During one period of about 40 hours that took place from Oct. 30, 2006, to Nov. 1, 2006, the system successfully constrained the feeder import capacity at its limit and dispatched distributed generation several times, as shown in Figure 1. In this figure, actual demand under real-time price control is shown in red, while the blue line depicts what demand would have been without real-time price control. It should be noted that the red demand line steps up and down above the feeder capacity line several times during the event – this is the result of distributed generation units being dispatched and removed as their bid prices are met or not.

Market-based control demonstrated. The project controlled both heating and cooling loads, which showed a surprisingly significant shift in energy consumption. Space conditioning loads in real-time price contract homes demonstrated a significant shift to early morning hours – a shift that occurred during both constrained and unconstrained feeder conditions but was more pronounced during constrained periods. This is similar to what one would expect in preheating or precooling systems, but neither the real nor the virtual thermostats in the project had any explicit prediction capability. The analysis showed that the diurnal shape of the price curve itself caused the effect.

Peak load reduced. The project’s realtime price control system both deferred and shifted peak load very effectively. Unlike the time-of-use system, the realtime price control system operated at a fine level of precision, responding only when constraints were present and resulting in a precise and proportionally appropriate level of response. The time-of-use system, on the other hand, was much coarser in its response and responded regardless of conditions on the grid, since it was only responding to preconfiured time schedules or manually initiated critical peak price signals.

Internet-based control demonstrated. Bids and control of the distributed energy resources in the project were implemented over Internet connections. As an example, the residential thermostats modified their operation through a combination of local and central control communicated as asynchronous events over the Internet. Even in situations of intermittent communication failure, resources typically performed well in default mode until communications could be re-established. This example of the resilience of a well-designed, loosely coupled distributed control application schema is an important aspect of what the project demonstrated.

Distributed generation served as a valuable resource. The project was highly effective in using the distributed generation units, dispatching them many times over the duration of the experiment. Since the diesel generators were restricted by environmental licensing regulations to operate no more than 100 hours per year, the bid calculation factored in a sliding scale price premium such that bids would become higher as the cumulative runtime for the generators increased toward 100 hours.

CONCLUSION

The Olympic Peninsula Project was unique in many ways. It clearly demonstrated the value of the GridWise concepts of leveraging information technology and incorporating market constructs to manage distributed energy resources. Local marginal price signals as implemented through the market clearing process, and the overall event-based software integration framework successfully managed the bidding and dispatch of loads and balanced the issues of wholesale costs, distribution congestion and customer needs in a very natural fashion.

The final report (as well as background material) on the project is available at www.gridwise.pnl.gov. The report expands on the remarks in this article and provides detailed coverage of a number of important assertions supported by the project, including:

  • Market-based control was shown to be a viable and effective tool for managing price-based responses from single-family premises.
  • Peak load reduction was successfully accomplished.
  • Automation was extremely important in obtaining consistent responses from both supply and demand resources.
  • The project demonstrated that demand response programs could be designed by establishing debit account incentives without changing the actual energy prices offered by energy providers.

Although technological challenges were identified and noted, the project found no fundamental obstacles to implementing similar systems at a much larger scale. Thus, it’s hoped that an opportunity to do so will present itself at some point in the near future.

Business Intelligence: The ”Better Light Bulb” for Improved Decision Making

Although some utilities have improved organizational agility by providing high-level executives with real-time visibility into operations, if they’re to be truly effective, these businesses must do more than simply implement CEO-level dashboards. They must provide this kind of visibility to every employee who needs it. To achieve this, utilities need to be able to collect data from many disparate sources and present it in a way that allows people company-wide to access the right information at the right time in the form of easy-to-use and actionable business intelligence (BI).

The following statement from the Gartner EXP CIO report “Creating Enterprise Leverage: The 2007 CIO Agenda,” led by Mark McDonald and Tina Nunno (February 2007).

Success in 2007 requires making the enterprise different to attract and retain customers. In response, many CIOs are looking for new sources of enterprise leverage, including technical excellence, agility, information and innovation.

This statement holds true. But converting data into useful information for employees in different levels and roles creates a new challenge. Technological advances that produce exponentially increasing volumes of data, coupled with historical data silos, have made it extremely difficult for utilities professionals to access, process and analyze data in a way that allows them to make effective decisions. What’s needed: BI technology tools that are not only available to the C-level executive or the accounting department, but to everyone – civil and electrical engineers, technicians, planners, customer service representatives, safety officers and others.

BI solutions also need to handle data in a way that mirrors the way people work. Such solutions should be capable of supporting the full spectrum of use – from individuals’ personal content to information created by team members for use by the team and formal IT-created structured and controlled content for use enterprise-wide.

The good news is that BI has become more accessible, easier to use and more affordable so that people throughout the enterprise – not just accountants or senior executives – can gain insight into the business and make better informed decisions.

RIGHT-TIME PERFORMANCE MANAGEMENT

“The Gartner Magic Quadrant for Business Intelligence Platforms, 2008,” by James Richardson, Kurt Schlegel, Bill Hostmann and Neil McMurchy (February 2008), has this to say about the value of BI:

CIOs are coming under increasing pressure to invest in technologies that drive business transformation and strategic change. BI can deliver on this promise if deployed successfully, because it could improve decision making and operational efficiency, which in turn drive the top line and the bottom line.

Greg Todd, Accenture Information Management Services global lead for resources at Accenture, advises that monthly, or even weekly, reports just aren’t enough for utilities to remain agile. Says Todd, “The utilities industry is dynamic. Everything from plant status and market demand to generation capacity and asset condition needs near real-time performance management to provide the insight for people enterprise-wide to make the right decisions in a timely fashion – not days or weeks after the event.”

By having access to near real-time performance monitoring across the enterprise, utilities executives, managers, engineers and front-line operations personnel can rapidly analyze information and make decisions to improve performance. This in turn allows them more agility to respond to today’s regulatory, competitive and economic imperatives.

For example, Edipower, one of Italy’s leading energy providers, has implemented an infrastructure that will grow as its business grows and support the BI technology it needs to guarantee power plant availability as market conditions and regulations dictate. According to Massimo Pernigotti, CIO of Edison, consolidating the family of companies’ technology platforms and centralizing its data network allowed the utility to fully integrate its financial and production data analyses. Says Pernigotti, “Using the new application, staff can prepare scorecards and business intelligence summaries that plant managers can then access from portable devices, ensuring near real-time performance management.”

To achieve this level of performance management, utilities professionals need easy access to both structured and unstructured data from multiple sources, as illustrated in Figure 1. This data can be “owned” by many different departments and span multiple locations. It can come from operational control systems, meter data systems, customer information systems, financial systems and human resources and enterprise resource planning (ERP) systems, to name a few sources. New and more widely available BI tools allow engineers and others to quickly view near real-time information and use it to create key performance indicators (KPIs) that can be used to monitor and manage the operational health of an organization.

KPIs commonly include things like effective forced outage factors (EFOFs), average customer downtime, average customer call resolution time, fuel cost per megawatt hour (MWh), heat rates, capacity utilization, profit margin, total sales and many other critical indicators. Traditionally, this data would be reported in dozens of documents that took days or weeks to compile while problems continued to progress. Using BI, however, these KPIs can be calculated in minutes.

With context-sensitive BI, safety professionals have the visibility to monitor safety incidents and environmental impacts. In addition, engineers can analyze an asset’s performance and energy consumption – and solve problems before they become critical.

One of the largest U.S.-based electric power companies recently completed a corporate acquisition and divestiture. As part of its reorganization, the company sought a way to reduce capital expenditures for producing power as well as an effective way to capture and transfer knowledge in light of an aging workforce. By adopting a new BI platform and monitoring a comprehensive set of custom KPIs in near real time, the company was able to give employees access to its generation performance metrics, which in turn led to improved generation demand-and-surplus forecasts. As a result, the company was able to better utilize its existing power plants and reduce capital expenditures for building new ones.

BI tools are also merging with collaboration tools to provide right-time information about business performance that employees at every organizational level can access and which can be shared across corporate boundaries and continents. This will truly change the way people work. Indeed, the right solution combines BI and collaboration, which not only improves business insight, but also enables staff to work together in real time to make sound decisions more quickly and easily and to proactively solve problems.

With these collaboration capabilities increasingly built into today’s BI solutions, firms can create virtual teams that interact using audio and video over large geographical distances. When coupled with real-time monitoring and alerting, this virtual collaboration enables employees – and companies – to make more informed decisions and subsequently become more agile.

Andre Blumberg, group information technology manager for Hong Kong’s CLP Group, believes that user friendliness and user empowerment are key success factors for BI adoption. Says Blumberg, “Enabling users to create reports and perform slice-and-dice analysis in a familiar Windows user interface is important to successfully leveraging BI capabilities.”

As more utilities implement KPI dashboards and scorecards as performance management tools, they open the door for next-generation technologies that feature dynamic mashups and equipment animations, and create a 24×7 collaborative environment to help managers, engineers and operations personnel detect and analyze problems faster and more effectively in a familiar and secure environment. The environment will be common across roles and cost much less than other solutions with similar capabilities. All this allows utilities operations personnel to “see the needle in the haystack” and make quicker and better decisions that drive operational efficiency and improve the bottom line. Collaboration enables personnel to engage in key issues in a timely fashion via this new desktop environment. In addition, utilities can gain preemptive knowledge of operational problems and act before the problems become critical.

BETTER DECISIONS IMPROVE BUSINESS INSIGHT

Everyone in the organization can benefit from understanding what drives a utility, the key metrics for success and how the company is performing against those metrics (see Figure 2). By definition, BI encompasses everyone, so logically everyone should be able to use it.

According to Rick Nicholson, vice president of research for Energy Insights, an IDC company, the nature of BI recently changed dramatically. For many years, BI was a reporting solution and capability used primarily by a small number of business analysts. “Today, BI solutions have become more accessible, easier to use and more affordable, and they’re being deployed to managers, supervisors, line-of-business staff and external stakeholders,” says Nicholson. “We expect the use of business intelligence in the utility industry to continue to increase due to factors such as new report and compliance requirements, changes in trading markets, new customer programs such as energy efficiency and demand response, and intelligent grid initiatives.”

Accenture’s Todd believes that traditional BI focuses on analyzing the past, whereas real-time BI today can provide an immediate chance to affect the future. Says Todd, “Smart users of BI today take the growing volume of corporate operational data and the constant fl ow of raw information and turn it into usable and business-relevant insight – in near real time – and even seek to manage future events using analytics.” (See Figure 2.)

Most importantly, today’s BI gives utility information workers a way of understanding what’s going on in the business that’s both practical and actionable. Dr. J. Patrick Kennedy, the founder and CEO of performance management vendor OSIsoft, says that the transaction-level detail provided from enterprise software often offers a good long-term history, but it does not answer many of the important operations questions. Further, this type of software typically represents a “pull” rather than a “push” technology.

Says Kennedy, “People think in terms of context, trends, interactions, risk and reward – to answer these questions effectively requires actionable information to help them make the right decisions. Integrating systems enables these decisions by providing users with a dynamic BI application within a familiar platform.”

WHAT GOOD BI SYSTEMS LOOK LIKE

Here are some critical characteristics to look for in an enterprise-class BI solution:

  • The BI solution should integrate with the existing IT infrastructure and not require major infrastructure changes or replacement of legacy software applications.
  • The technology should mirror day-today business processes already in place (rather than expect users to adapt to it).
  • The application should be easy to use without extensive IT support.
  • The BI solution should connect seamlessly to multiple data sources rather than require workers to toggle in and out of a broad range of proprietary applications.
  • An effective BI solution will provide the ability to forecast, plan, budget and create scorecards and consolidated financial reports in a single, integrated product.
  • The BI solution should support navigation directly from each KPI to the underlying data supporting that KPI.
  • Analysis and reporting capabilities should be flexible and allow for everything from collecting complex data from unique sources to heavy-duty analytics and enterprise-wide production reporting.
  • The BI solution should support security by role, location and more. If access to certain data needs to be restricted, access management should be automated.

The true measure of BI success is that users actually use it. For this to happen, BI must be easy to learn and use. It should provide the right information in the right amount of detail to the right people. And it must present this information in easily customized scorecards, dashboards and wikis, and be available to anyone. If utilities can achieve this, they’ll be able to make better decisions much more quickly.

SEEING THE LIGHT

BI is about empowering people to make decisions based on relevant and current information so that they can focus on the right problems and pay attention to the right customers. By using BI to monitor performance and analyze both financial and operational data, organizations can perform real-time collaboration and make truly transformational decisions. Given the dynamic nature of the utilities industry, BI is a critical tool for making organizations more flexible and agile – and for enabling them to easily anticipate and manage change.