Customer Relationships and the Economy

A little over a year ago, the challenges facing the global energy and utilities market were driving a significant wedge between utilities and their customers. In Western European markets, price increases across gas, electricity and water, combined with increased corporate earnings, left many utilities in the uncomfortable position of being seen as profiteering from customers unable to change suppliers for significant benefit.

Headline-makers had a field day, with gross simplification of the many utilities’ business models. They made claims about “obscene profits,” while citing the “long-suffering” consumer position [1]. Now, more than a year later, gas and electricity prices are falling, but the severity and pace of the wider economic downturn has given no time for utilities to re-position themselves with customers. Brand and relationship-enhancing programs such as smart metering and energy efficiency are still largely in their infancy.

The evolving relationship with the customer base, where customer expectations are resulting in a more participatory, multi-channel engagement, comes at a time when the evolution of smart networks and metering solutions are on the cusp of driving down cost to serve and improving service levels and options. Significant benefits accrue from consumption measurement and management capabilities. Benefits also result from the opportunity to transform the consumer relationship by pushing into new areas such as home device management, more personalised tariffs and easier debt arrangements. The position for utilities, therefore, should be favourable – finally being seen as working on a more participatory relationship with their customers.

For consumers, the consequences of recession include an increased pressure on household spending. In competitive markets, there could be increased churn as the ever-changing “best-buys” attract customers. For utilities, increased churn rates are obviously bad news – the cost of new customer acquisition often wipes out profit associated with consumption by that customer for months, even years. Moreover, while utilities are working on marketing the best deals to acquire and retain customers – and on piloting smart technologies in the home – consumers’ familiarity with new technologies and their allegiance to some brands presents an opportunity for third parties to gain greater hold on the customer relationship.

Take the case of smart metering, for example, where many utilities are engaging upon pilot and larger rollouts. This is an area of innovation that should deliver benefits to both consumers and utilities. The assured business benefits to the utility companies come not only from applying the technology to lower operational costs, but also from enhancing their brand and customer service reputation. To the customer, smart technologies offer consumption details in an understandable form and give the promise of accurate commodity billing.

The risk is that the potentially lucrative relationship between customer and utility is currently damaged to a point where telecommunications providers, retailers or technology companies could step in with attractive, multi-service offerings. That could relegate the utility to simple supply activities, unable to gain a significant hold in home engagement. Certainly, utilities will still witness savings from automated meter reading and improved billing accuracy, but this commoditisation path for the utility company will limit profitable growth and push them further away from customers. Combine this with increased churn, and suddenly the benefits of smart technology deployment could be wiped out for the utility company.

This is not just an issue associated with smart technologies – the entire customer relationship journey with a utility is under threat from non-utility entrants (See Figure 1). Consider the area of consumer marketing and sign-up. Third parties that simply market other companies’ services have already taken a position in this part of the customer journey by providing Internet sites that allow tariff comparison and online switching of suppliers. The brand awareness of the comparison sites has already begun to gain the trust of the customer and the utility brand becomes more remote – the start of an uneasy decline. Additionally, in receiving fees for bringing customers to utilities, these companies thrive on churn – driving up utility cost and driving an even greater gap into the consumer-utility relationship.

Further credence to the challenges comes in the areas around presentation of information to customers. Any utility information channel will demand attention to “stickiness” when using technology such as the Internet for displaying utility bills and consumption data. This information has to be pushed to consumers in an attractive, understandable, and above all, personal format. Does the traditional utility information quality and flow have enough appeal for the average consumer to repeatedly view over time? It could be argued that third parties have the ability to blend in more diverse information to improve stickiness on, for example, handheld devices that give the consumer other benefits such as telephony, traffic and weather updates.

Customer Experience Risks

Traditionally, utilities are seen as relatively “recession proof,” operating on longer- term cycles than financial and retail markets. It is this long-term view that, coupled with an already disjointed customer relationship, poses a significant risk to utilities in the next two years. Customers will react in the competitive markets to the feeling of being “cornered” in an environment where few utilities truly differentiate themselves on customer service, product, tariff or brand. Research suggests that consumers are driving change in the relationship with their utilities, and it is this change that opens up opportunity for others (“Plugging in the Consumer”, IBM Institute for Business Value, 2007).

Reaction may not come soon; rarely do new entrants come into a recessionary market. But the potential for non-utilities to begin exploiting the gap between customer and utility should be cause for concern.

The parallel of these changes and risks was seen in the telco landline market over the last two decades. Several of the big, former-monopoly landline carriers are now perceived as commodity bandwidth providers, with declining core customer numbers and often-difficult regulatory challenges. Newer, more agile companies have stepped into the role of “owning” the consumer relationship and are tailoring the commodities into appealing packages. The underlying services may still come from the former-monopoly, but the customer relationship is now skewing toward the new entrant.

There are strategies that can be proactively deployed, individually or in combination, that improve the resilience of a utility through a recession, and that indeed redraw the client relationship to the point where profitability can increase without attracting the appearance of excess. These strategies resist the potential demise of the utilities to commodity providers, allowing for a value-add future based on their pervasive presence in the home.

The five steps outlined below revolve around the need to focus on the fundamentals, namely customer relationships and cash:

  1. Know Your Customer. Like most companies, utilities can benefit greatly by knowing more about customers. By engaging upon a strategy of ongoing information collection, customer segmentation and profitability analysis, plans can be put in place to detect and react to customer attrition risks. This includes early identification of changes to a customer’s circumstances, such as the ability to settle debt, allowing the utility to work proactively with the customer to address the issue. An active relationship style will show consumers that utilities care and understand, increasing brand loyalty, and hence, lowering the cost to serve.
  2. Free Up Locked Cash. Although recession-resistant in the short-term, identifying organic sources of improved cash flow can be an important source of funding for utilities that need to invest in improving customer relationships and capabilities. Industry benchmarks indicate that most utilities have opportunities to plug leaks in their working capital processes, with the potential of tapping into a significant and accessible source of free cash flow. For example, consider the traditionally neglected, under-invested area of consumer debt. With the economic downturn, debt levels are likely to rise, and, if unchecked, costs and cash flow will be adversely impacted.

    Focus areas for addressing the issue and freeing up locked cash include:

    • Using process management techniques such as activity-based management or Lean Six Sigma to identify opportunities for performance improvement across the billing, collections and credit-management processes;
    • Focusing on developing the skills and operational structures required to better integrate the meter to cash functions; and
    • Optimizing the use of utility-specific debt tools that work with the core systems.

Additionally, gaining insights through precision analytics to better manage debt functions – similar to best practices in banking and telecommunications – needs to be accelerated.

  1. Focus on the Future. Cost cutting is inevitable by many companies in this economic environment. It is important to understand the medium-to-long-term impact of any cuts on the customer relationship to determine if they could hurt profitability by increasing churn and related cost-to-serve metrics. Thus, utilities must achieve a clear understanding of their baseline performance, and have a predictive decision-making capability that delivers accurate, real-time insights so they can be confident that any actions taken will yield the best results.
  2. Innovate. Utilities traditionally work on longer investment cycles than many other businesses. When compared to consumer-facing industries, that can result in consumer perception that they are lacking innovation. Many consumers readily accept new offerings from retailers, telcos and technology firms, and the promise of a smart home will clearly be of strong commercial interest to these individuals. That’s why utilities must act now to show how they are changing, innovating for the future and putting control into the hands of the consumer. Smart metering programs will help the utilities reposition themselves as innovators. The key will be to use technology in a manner that bonds the customer better with the utility.
  3. Agility is King. Longer investment cycles in the utility sector, combined with the massive scale of operations and investment, often restrict a utilities’ ability to be agile in their business models. The long-term future of many utilities will depend upon being able to react to new consumer, technology and regulatory demands within short timescales. Innovation is only innovative for a short time – businesses need to be ready to embrace and exploit innovation with new business models.

Take Action Now

Many will argue that the current utility programs of change, such as core system replacement, smart metering and improving customer offerings, will be enough to sustain and even enhance the customer relationship. The real benefit, however, will be from building upon the change, moving into new products, delivering personalized services and tariffs, and demonstrating an understanding of individual consumer needs.

Still, utilities may struggle to capture discretionary spending from customers ahead of telcos, retailers, financial firms and others. Simply put, action needs to be taken now to prevent the loss of long-term customer relationships. For utilities, doing more of the same in this dynamic and changing market may simply not be good enough!

References:

  1. Multiple references, especially in the British press, including this one from Energy Saving Trust: http://www.energysavingtrust.org.uk/Resources/Daily-news/Gas-and-Electricity/Probe-demanded-into-energy-rip-off/(energysavingtrust)/20792

Be a People Person

I have to admit it. Despite all the exciting new technologies out there, I am finding myself to be a people person when it comes to building smarter grids and more intelligent utilities. Granted, technology is rapidly developing and the utility industry is finding itself in the middle of more and more automation. However, people – from linemen to consumers – will remain critical components for delivering information-enabled energy.

In the many conversations I have with utilities and other industry thought leaders, we often start out talking about smart technology, but eventually our chats settle on people. People can ultimately make or break even the most promising technologies – from personnel and consumers adopting and using the technology to executives driving technology investments. So, in a world buzzing with new technologies, it is important to reacquaint ourselves with people. This article traces some of my conversations about what an intelligent utility is, how people fit in – both on the consumer and utility personnel side – and what the utility industry can do to better involve people. As is my usual style, I will serve up these critical subjects with a side of humor and perspectives outside the utility industry. So be prepared to learn more about yoga, Nashville, crystal balls and the telecom industry, too.

What Is An Intelligent Utility ?

Before understanding the importance of people, let’s take a moment to understand where people fit into smart grids and intelligent utilities. Utilities are no longer exempt from change. From economic stimulus plans to carbon controls, to the impending electric vehicle flood, we must face the fact that the utility industry will undergo significant changes in the coming years, months and even minutes. Now, it is not so much a question of what changes will happen, but how – and how well – will the utility industry adapt to these changes?

A frequent answer to this question has been a “smart grid,” but most smart grid discussions inevitably lead to these questions:

  • How do we get to a smart grid?
  • When do we know when we are there?
  • What is a smart grid anyway?

These are not easy questions. Many groups define the smart grid, but how can you tell when a utility has one? Better understanding this challenge requires an unusual, but useful comparison: Nashville and Nirodha – a state of mind in yoga. Let’s say you are traveling to Nashville. You would see landmarks that you could only find in Nashville, such as the Grand Ole Opry, B.B. King’s Blues Club and the Bell- South Tower. Smart grid landmarks, however, are harder to come by. Utilities can install smart meters and other smart sensors on their grid, but having these technologies does not necessarily mean they have arrived at a smart grid. To add to the confusion, other smart grid components, such as demand response, distribution automation and more advanced metering, have already been around for years.

Although such technologies can support a smarter grid, the smart grid is more than just acquiring certain technology landmarks. So, although it is a nice place, you shouldn’t just think Nashville when you think smart grid. Think Nirodha. For those of you who aren’t yoga enthusiasts, Nirodha is a state of mind in yoga in which you become more focused and aware of an object. In the case of a utility, the object is primarily the transmission and distribution network. As a utility becomes more aware and ultimately more knowledgeable about its network, it can make better decisions about its operation.

Furthermore, as a company builds more knowledge about its grid, it develops not only a smarter grid, but also a more intelligent utility. An intelligent utility overlays information on energy that goes beyond the transmission and distribution network all the way from generation to end users, maximizing its reliability, affordability and sustainability. Essentially, utilities are delivering information-enabled energy. And technology is just one piece for delivering this sort of energy. Here is a quick run-down of the key components in an intelligent utility:

  • Process & technology: Utility objectives and their impact on business process change and smart technology deployment;
  • Economic models: The challenges and opportunities of new paradigms. So this is not just the changes involved with upgrading a technology – like a customer information or geographic information system – but the changes from initiatives like electrifying transportation and microgrids that could radically alter utility companies and the roles of generators and consumers;
  • Finance: Investment trends associated with smart technologies;
  • Public policy: The impact of politics on energy – including efforts by regulators and legislators. These groups ultimately set up the framework that determines whether and how intelligent initiatives move forward; and
  • People: The knowledge, skills and abilities required for both the workforce and consumers in an information-enabled environment.

Involving Workforce

The rest of this article will take a little bit closer look at the last component – people. As we move toward information-enabled energy, the utility workforce will undergo some significant changes – from new job titles, to new knowledge, skills and abilities (KSAs), to new people joining utility companies from other industries.

Ryan Cook, vice president of the employment services division at Energy Central, has pointed out that “In today’s utilities, employee KSAs are based primarily on providing electrical power as a product. These KSAs support the rules-based, process-oriented, functionally structured, and cost-focused business needs of today’s utility. In the future, however, there will be a massive paradigm shift from providing just a product to providing customers with customizable services and solutions for their unique energy needs. The result will be a shift toward KSAs that support a more agile, innovative, collaborative, cross-functional, service-oriented utility of the future. Employees will need to deal with constantly evolving technology.”

So, digitizing the grid will change personnel needs. We know that much, but the big unknown is how exactly will those needs change? And where is a good crystal ball when you need one? Since my snow globe wasn’t working, I thought about other industries that have gone through a digital revolution, which brought me to the telecom and cable industry. I learned much from Alan Babcock, president of Broadband Training Associates. As this industry digitized its grid over the last 13 years and began to focus more on services as opposed to products, it saw significant workforce changes – touching everyone from field crews, to executives, to marketing folks – that could happen to the utility industry as well.

Out In the Field

Before digitizing the telecom and cable industry, many field crews were still pencil and paper, and some still are today. But digitization changes weren’t just about figuring out how to use a truck-mounted laptop. The workforce has a whole new job to do today. In particular, they now have to troubleshoot new problems on multiple services in the network and become experts at devices on an end user’s premise.

Before digitization, field crews dealt with one service – like video in the cable industry – but now they have to balance multiple services in the same network, including voice, data and video. The decisions you make for one service will ultimately impact the others. So, with multiple services, it changes how you do regular maintenance, how you troubleshoot networks, and how you take the network down to make repairs. On top of that, technicians may not be able to take down certain parts of the network because of service level agreements with customers.

Besides dealing with multiple services, field crews have to better understand the devices that extend into customer premises – including modems for Internet or set-top boxes for cable. It can be embarrassing for a telecom or cable company when the consumer knows more about consumer devices than the technician.

Back In the Office

Digitizing the network not only changed KSAs for field crews, but has changed things in the back office of telecom and cable companies as well. These changes occurred in the areas of marketing, customer service, planning and IT.

  • Marketing to customers: Digitization provides cable and telecom companies with increased visibility into the customer premises. This is not only helpful with determining whether customers have service, but also understanding their entertainment preferences. These companies now better understand what entertainment you watch and when you watch it. Ultimately, they have a lot of information at their disposal to be able to better market to you. Telecom companies, however, weren’t traditionally in the entertainment industry, so better marketing to consumers required a new group of employees from outside telecom.
  • Customer service: Customer service has changed in many ways with the digitization of the telecom and cable industry. With a smarter grid, the utility industry often focuses on benefits that it will bring to the customer representatives in terms of access to more information, but there are other benefits to consider as well. An interesting twist in the telecom and cable industry is that as the network gets more complex, a customer service agent’s job gets somewhat simpler. Essentially, customer service representatives have to recall fewer technical details about the network than they did before. It is not as important that they understand how the networks function because they have better visibility into the premise and have more intelligent systems to walk them through trouble-shooting problems.
  • Capital and strategic planning: Digitization has changed the planning time horizon and knowledge requirements for telecom and cable executives. They must factor in the dizzying technology advancements in the industry; think about the rapid movement from 2G to 3G to 4G networks and beyond. The five-year plan now has to be the three-year plan. From a planning standpoint, they also need to better understand the networks in order to figure out how to best utilize and benefit from services that are enabled by those networks.
  • Designing and maintaining IT systems: Aside from learning how to design and maintain new technologies and systems, the technology personnel in telecom and the cable industry have learned some important lessons as they digitize the networks. The first is to more carefully consider the usefulness of new technologies. If a new technology comes along, it doesn’t mean that it has to be used. If a new technology does make sense to use, technology personnel need to consider the human aspects involved with making that change, including change management and making sure the technology is ready when people actually begin using it.

Involving Customers

Not only will the intelligent utility impact its own personnel, but it will impact consumers as well. In particular, utilities will have to help consumers to understand the value of changes and get them to participate in intelligent initiatives.

As I am sure many of you have realized from conversations with friends and family, many people do not understand smart grid benefits or even how the grid really works. Although more people are starting to realize the value, a key challenge is how to get consumers to grasp these concepts and support a smarter grid and more intelligent utility. Utilities have to figure out how to make these things real for people – and are finding many ways to do that. As one utility executive pointed out, “A technology center served to convince our community stakeholders and our PUC that this appears to be a worthwhile journey. The awareness to the consumer was a tremendous value. They were able to start thinking of the value of what we’re trying to build rather than what we’re trying to build.”

Many intelligent initiatives, from demand response to real-time pricing, focus on the end user and require some level of consumer effort. Consumer participation is key for success, but utilities are finding it challenging to get participation. Solutions range from more automation in controlling household appliances and HVAC systems to competition between neighbors regarding energy consumption, but there is still much work to be done in this area, depending on consumer demographics.

Be A People Person

It is easy to get caught up in the technology hype, but as the examples above demonstrate, it is important to keep people in the equation when looking at smart initiatives. People play a key role in determining their success or failure. By preparing for the people factor and considering them in smart initiatives, utilities can better ensure the adoption and success of new technologies and processes.

The Customer-Focused Utility

THE CHANGING DYNAMICS OF CUSTOMER RELATIONSHIPS

The utilities industry is in transition. External factors – including shifts in governmental policies, a globally felt sense of urgency about conserving energy, advances in power generation techniques and new technologies – are driving massive changes throughout the industry. Utilities are also under internal pressure to prevent profit margins from eroding. But most significantly, utilities must evolve to compete in a marketplace where consumers increasingly expect high-quality customer service and believe that no company deserves their unconditional loyalty if it cannot perform to expectations. These pressures are putting many utility providers into seriously competitive, market-driven situations where the customer experience becomes a primary differentiator.

In the past, utility companies had very limited interactions with customers. Apart from opening new accounts and billing for services, the relationship was remote, with customers giving no more thought to their power provider than they would to finding a post office. Consumers were indifferent to greenhouse gas (GHG) emissions and essentially took a passive view of all utility functions, only contacting the utility if their lights temporarily went out.

In contrast, the utility of the future can expect a much more intense level of customer involvement. If utilities embrace programs to change customers’ behaviors – for example, by implementing time-of-use rates – customers will need more information on a timelier basis in order to make educated decisions. In addition, customers will expect higher levels of service to keep up with changes in the rest of the commercial world. As consumers get used to checking their bank account and credit card balances via mobile devices, they’ll soon expect the same from all similar services, including their utility company. As younger consumers (Generation Y and now Generation Z) begin their relationships with utilities, they bring expectations of a digital, mobile and collaborative customer service experience. Taking a broader perspective, most age segments – even baby boomers – will begin demanding these new multichannel experiences at times that are convenient for them.

The most significant industry shifts will alter the level of interaction between the utility grid and the home. In the past, this was a one-way street; in the future, however, more households will be adopting “participatory generation” due to their increased use of renewable energy. This will require a more sophisticated home/ grid relationship, in order to track the give and take of power between consumers as both users and generators. This shift will likely change the margin equation for most utility companies.

Customer Demands Drive Technology Change; Technology Change Drives Customer Demand

Utilities are addressing these and other challenges by implementing new business models that are supported by new technologies. The most visible – and arguably the most important – of the new technologies are advanced metering infrastructure (AMI) and the technical components of the smart grid, which integrates AMI with distribution automation and other technologies to connect a utility’s equipment, devices, systems, customers, partners and employees. The integration of these technologies with customer information systems (CIS) and other customer relationship management (CRM) tools will increase consumer control of energy expenditures. Most companies in the industry will need to shift away from the “ratepayer” approach they currently use to serve residential and small business customers, and adapt to changing consumer behavior and emerging business models enabled by new network and generation technologies.

Impacts on the Customer Experience

There are multiple paths to smart grid deployment, all of which utility firms have employed to leverage new sources of data on power demand. If we consider a gradual transformation from today’s centralized, one-way view to a network that is both distributed and dynamic, we can begin to project how technological shifts will impact the utility-consumer relationship, as illustrated in Figure 1.

The future industry value chain for grid-connected customers will have the same physical elements and flow as the current one but be able to provide many more information-oriented elements. Consequently, the shift to a customer-focused view will have serious implications for data management. These include a proliferation of data as well as new mandates for securely tracking, updating, accessing, analyzing and ensuring quality.

In addition, utilities must develop customer experience capabilities in parallel with extending their energy information management capabilities. Taking the smart grid path requires customers to be more involved, as decision-making responsibility shifts more toward the consumer, as depicted in Figure 2.

It’s also important to consider some of the new interactions that consumers will have with their utility company. Some of these will be viewed as “features” of the new technology, whereas others may significantly change how consumers view their relationship with their energy provider. Still others will have a profound impact on how data is captured and deployed within the organization. These interactions may include:

  • Highly detailed, timely and accurate individuated customer information;
  • Interaction between the utility and smart devices – including the meter – in the home (possibly based on customers’ preferences);
  • Seamless, bidirectional, individual communication permitting an extended dialogue across multiple channels such as short message service, integrated voice response, portals and customer care;
  • Rapid (real-time) analysis of prior usage, current usage and prediction of future usage under multiple usage and tariff models;
  • Information presented in a customer-friendly manner;
  • Analytical tools that enable customers to model their consumption behavior and understand the impact of changes on energy cost and carbon footprint;
  • Ability to access and integrate a wide range of external information sources, and present pertinent selections to a customer;
  • Integration of information flow from field operations to the customer call center infrastructure; and
  • Highly skilled, knowledgeable contact center agents who can not only provide accurate information but can advise and recommend products, services, rate plans or changes in consumption profiles.

Do We Need to Begin Thinking About Customers Differently?

Two primary factors will determine the nature of the interface between utilities and consumers in the future. The first is the degree to which consumers will take the initiative in making decisions about the energy supply and their own energy consumption. Second, the amount and percentage of consumers’ disposable income that they allocate to energy will directly influence their consumption and conservation choices, as shown in Figure 3.

How Do Utilities Influence Customers’ Behavior?

One of the major benefits of involving energy customers in generation and consumption decisions is that it can serve to decrease base load. Traditionally, utilities have taken two basic approaches to accomplishing this: coercion and enticement. Coercion is a penalty-based approach for inducing a desired behavior. For example, utilities may charge higher rates for peak period usage, forcing customers to change the hours when they consume power or pay more for peak period usage. The risks of this approach include increased customer dissatisfaction and negative public and regulatory opinion.

Enticement, on the other hand, is an incentive-based approach for driving a desired behavior. For example, utilities could offer cost savings to customers who shift power consumption to off-peak times. The risks associated with this approach include low customer involvement, because incentives may not be enough to overcome the inconvenience to customers.

Both of these approaches have produced results in the past, but neither will necessarily work in the new, more interactive environment. A number of other strategies may prove more effective in the future. For example, customer goal achievement may be one way to generate positive behavior. This model offers benefits to customers by making it easier for them to achieve their own energy consumption or conservation goals. It also gives customers the feeling that they have choices – which promotes a more positive relationship between the customer and the utility. Ease of use represents another factor that influences customer behavior. Companies can accomplish this by creating programs and interfaces that make it simple for the customer to analyze information and make decisions.

There is no “silver bullet” approach to successfully influencing all customers in all utility environments. Often, each customer segment must be treated differently, and each utility company will need to develop a unique customer experience strategy and plan that fits the needs of its unique business situation. The variables will include macro factors such as geography, customer econo-graphics and energy usage patterns; however, they’ll also involve more nuanced attributes such as customer service experiences, customer advocacy attitudes and their individual emotional dispositions.

CONCLUSION

Most utilities considering implementing advanced metering or broader smart grid efforts focus almost exclusively on deploying new technologies. However, they also need to consider customer behavior. Utilities must adopt a new approach that expands the scope of their strategic road map by integrating the “voice of the customer” into the technology planning and deployment process.

By carefully examining a utility customer’s expectations and anticipating the customer impacts brought on by innovative technologies, smart utility companies can get ahead of the customer experience curve, drive more value to the bottom line and ultimately become truly customer focused.

Advanced Metering Infrastructure: The Case for Transformation

Although the most basic operational benefits of an advanced metering infrastructure (AMI) initiative can be achieved by simply implementing standard technological features and revamping existing processes, this approach fails to leverage the full potential of AMI to redefine the customer experience and transform the utility operating model. In addition to the obvious operational benefits – including a significant reduction in field personnel and a decrease in peak load on the system – AMI solutions have the potential to achieve broader strategic, environmental and regulatory benefits by redefining the utility-customer relationship. To capture these broader benefits, however, utilities must view AMI as a transformation initiative, not simply a technology implementation project. Utilities must couple their AMI implementations with a broader operational overhaul and take a structured approach to applying the operating capabilities required to take advantage of AMI’s vast opportunities. One key step in this structured approach to transformation is enterprise-wide business process design.

WHY “AS IS” PROCESSES WON’T WORK FOR AMI

Due to the antiquated and fragmented nature of utility processes and systems, adapting “as is” processes alone will not be sufficient to realize the full range of AMI benefits. Multiple decades of industry consolidation have resulted in utilities with diverse business processes reflecting multiple legacy company operating practices. Associated with these diverse business processes is a redundant set of largely homegrown applications resulting in operational inefficiencies that may impact customer service and reliability, and prevent utilities from adapting to new strategic initiatives (such as AMI) as they emerge.

For example, in the as-is environment, utilities are often slow to react to changes in customer preferences and require multiple functional areas to respond to a simple customer request. A request by a customer to enroll in a new program, for example, will involve at least three organizations within the utility: the call center initially handles the customer request; the field services group manages changing or reprogramming the customer’s meter to support the new program; and the billing group processes the request to ensure that the customer is correctly enrolled in the program and is billed accordingly. In most cases, a simple request like this can result in long delays to the customer due to disjointed processes with multiple hand-off points.

WHY USE AMI AS THE CATALYST FOR OPERATIONAL TRANSFORMATION?

The revolutionary nature of AMI technology and its potential for application to multiple areas of the utility makes an AMI implementation the perfect opportunity to adapt the utility operating structure. To use AMI as a platform for operational transformation, utilities must shift their thought paradigm from functionally based to enterprise-wide, process-centric environments. This approach will ensure that utilities take full advantage of AMI’s technological capabilities without being constrained by existing processes and organizational structures.

If the utility is to offer new programs and services as well as respond to shifting external demands, it must anticipate and respond quickly to changes in behaviors. Rapid information dissemination and quick response to changes in business, environmental and economic situations are essential for utilities that wish to encourage customers to think of energy in a new way and proactively manage their usage through participation in time-of-use and real-time demand response programs. This transition requires that system and organizational hand-offs be integrated to create a seamless and flexible work flow. Without this integration, utilities cannot proactively and quickly adapt processes to satisfy ever-increasing customer expectations. In essence, AMI fails if “smart meters” and “smart systems” are implemented without “smart processes” to support them.

DESIGNING SMART PROCESSES

Designing smart future state business processes to support transformational initiatives such as AMI involves more than just rearranging existing works flows. Instead, a utility must adopt a comprehensive approach to business process design – one that engages stakeholders throughout the organization and that enables them to design processes from the ground up. The utility must also design flexible processes that can adapt to changing customer, technology, business and regulatory expectations while avoiding the pitfalls of the current organization and process structure. As part of a utility’s business process design effort, it must also redefine jobs more broadly, increase training to support those jobs, enable decision making by front-line personnel and redirect rewards systems to focus on processes as well as outcomes. Utilities must also reshape organizational cultures to emphasize teamwork, personnel accountability and the customer’s importance; to redefine roles and responsibilities so that managers oversee processes instead of activities and develop people rather then supervise them; and to realign information system so that they help cross-functional processes work smoothly rather than simply support individual functional areas.

BUSINESS PROCESS DESIGN FRAMEWORK

IBM’s enterprise-wide business process design framework provides a structured approach to the development of the future state processes that support operational transformations and the complexities of AMI initiatives. This framework empowers utilities to apply business process design as the cornerstone of a broader effort to transition to a customer-centric organization capable of engaging external stakeholders. In addition, this framework also supports corporate decision making and continuous improvement by emphasizing real-time metrics and measurement of operational procedures. The framework is made up of the following five phases (Figure 1):

Phase 1 – As-is functional assessment. During this phase, utilities assess their current state processes and supporting organizations and systems. The goal of this phase is to identify gaps, overlaps and conflicts with existing processes and to identify opportunities to leverage the AMI technology. This assessment requires utility stakeholders to dissect existing process throughout the organization and identify instances where the utility is unable to fully meet customer, environmental and regulatory demands. The final step in this phase is to define a set of “future state” goals to guide process development. These goals must address all of the relevant opportunities to both improve existing processes and perform new functions and services.

Phase 2 – Future state process analysis. During this phase, utilities design end-to-end processes that meet the future state goals defined in Phase 1. To complete this effort, utilities must synthesize components from multiple functional areas and think outside the current organizational hierarchy. This phase requires engagement from participants throughout the utility organization, and participants should be encouraged to envision all relevant opportunities for using AMI to improve the utility’s relationship with customers, regulators and the environment. At the conclusion of this phase, all processes should be assessed in terms of their ability to alleviate the current state issues and to meet the future state goals defined in Phase 1.

Phase 3 – Impact identification. During this phase, utilities identify the organizational structure and corporate initiatives necessary to “operationalize” the future state processes. Key questions answered during this phase include how will utilities transition from current to future state? How will each functional area absorb the necessary changes? And what are the new organizations, roles and skills needed? This phase requires the utility to think outside of the current organizational structure to identify the optimal way to support the processes designed in Phase 2. During the impact identification phase of business, it’s crucial that process be positioned as the dominant organizational axis. Because process-organized utilities are not bound to a conventional hierarchy or fixed organizational structure, they can be customer-centric, make flexible use of their resources and respond rapidly to new business situations.

Phase 4 – Socialization. During this phase, utilities focus on obtaining ownership and buy-in from the impacted organizations and broader group of internal and external stakeholders. This phase often involves piloting the new processes and technology in a test environment and reaching out to a small set of customers to solicit feedback. This phase is also marked by the transition of the products from the first three phases of the business process design effort to the teams affected by the new processes – namely the impacted business areas as well as the organizational change management and information technology teams.

Phase 5 – Implementation and measurement. During the final phase of the business process design framework, the utility transitions from planning and design to implementation. The first step of this phase is to define the metrics and key performance indicators (KPIs) that will be used to measure the success of the new processes – necessary if organizations and managers are to be held responsible for the new processes, and for guiding continuous refinement and improvement. After these metrics have been established, the new organizational structure is put in place and the new processes are introduced to this structure.

BENEFITS AND CHALLENGES OF BUSINESS PROCESS DESIGN

The business process design framework outlined above facilitates the permeation of the utility goals and objectives throughout the entire organization. This effort does not succeed, though, without significant participation from internal stakeholders and strong sponsorship from key executives.

The benefits of this approach include the following:

  • It facilitates ownership. Because the management team is engaged at the beginning of the AMI transformation, managers are encouraged to own future state processes from initial design through implementation.
  • It identifies key issues. A comprehensive business design effort allows for earlier visibility into key integration issues and provides ample time to resolve them prior to rolling out the technologies to the field.
  • It promotes additional capabilities. The business process framework enables the utility to develop innovative ways to apply the AMI technology and ensures that future state processes are aligned to business outcomes.
  • It puts the focus on customers. A thorough business process effort ensures that the necessary processes and functional groups are put in place to empower and inform the utility customer.

The challenges of this approach include the following:

  • It entails a complex transition. The utility must manage the complexities and ambiguities of shifting from functional-based operations to process-based management and decision making.
  • It can lead to high expectations. The utility must also manage stakeholder expectations and be clear that change will be slow and painful. Revolutionary change is made through evolutionary steps – meaning that utilities cannot expect to take very large steps at any point in the process.
  • There may be technological limitations. Throughout the business process design effort, utilities will identify new ways to improve customer satisfaction through the use of AMI technology. The standard technology, however, may not always support these visions; thus, utilities must be prepared to work with vendors to support the new processes.

Although execution of future state business process design undoubtedly requires a high degree of effort, a successful operational transformation is necessary to truly leverage the features of AMI technology. If utilities expect to achieve broad-reaching benefits, they must put in place the operational and organization structures to support the transformational initiatives. Utilities cannot afford to think of AMI as a standard technology implementation or to jump immediately to the definition of system and technology requirements. This approach will inevitably limit the impact of AMI solutions and leave utilities implementing cutting-edge technology with fragmented processes and inflexible, functionally based organizational structures.

The Utility of the Future

The utility industry is in transition. Changing customer needs and expectations are redefining how utilities understand, plan and execute superior customer experiences. In addition, new technologies are enabling new ways to interact with customers.

What will the utility of the future look like? How will customers view their increasing dependency on energy in light of rising energy bills and a sense of urgency to conserve? Do utilities need to start thinking about customers differently? Given the shift in consumer attitudes, along with the rapid advancement of new technologies, what will the industry look like in three, five or even 10 years? While we don’t have a crystal ball to provide all of the answers, IBM has invested in research teams and conducted global surveys to shed light on what the future may hold.

MAJOR CHANGES UNDERWAY

Through interviews with more than 1,000 business and public sector leaders worldwide, the IBM Global CEO Study 200 provides new and compelling perspectives on the strategic issues that are facing organizations of all sizes. Our study finds that 3 percent of CEOs see substantial change coming in the next three years. For utilities, the most dramatic change will be a greater level of customer involvement. Across all industries, CEOs will be increasing their investment in today’s more informed and collaboration-focused customers. As younger consumers begin their relationships with utilities, they bring with them expectations of a digital, mobile and collaborative customer service experience. Most age segments – even boomers – will begin demanding these new multichannel experiences at times that are convenient for them. The utility of the future will have a deep collaborative relationship with the customer and offer innovations that make both its customers and its business more successful.

THE UTILITY BUSINESS MODEL OF THE FUTURE

In the past, utility companies had very limited interaction with customers beyond opening new accounts and billing for services. Consumers took a passive view of all utility activity, only raising their voices when their lights went out. The future shows a much more intense level of customer involvement. Successful companies will continuously differentiate themselves by delivering value with revenue-generating services. The utility of the future will understand the types of capabilities and services that customers will want and can identify and carefully define the gaps in current processes and systems that must be filled to meet these needs.

THE CUSTOMER-FOCUSED UTILITY

Getting perspectives from CEOs and other executives represents only one step toward understanding the utility of the future. IBM also wanted to know what utility customers were thinking. IBM surveyed 1,900 consumers from six countries and included residential households along with small commercial customers. Based on the insights from this survey, 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 that will be generating at least 10 percent of their power from renewable sources will double. In that same time frame, we believe sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. We also expect utility demand management initiatives to expand dramatically and electric power generation by consumers to make tremendous inroads within 10 years.

The utility industry is fast approaching a tipping point beyond which consumers can, and increasingly will, demand equal footing with their providers. As consumer passivity gives way to active participation, utilities will have significant opportunities to differentiate themselves and help redefine the industry. Those utilities that are fully prepared to share responsibility with their customers and help them meet their specific energy goals will have a significant competitive advantage and lead the way toward the utility of the future.

INNOVATING FOR THE FUTURE

The utility industry’s future lies in a more participatory structure, where consumers can choose to be actively engaged, and information is abundant and free-fl owing. To thrive in this environment, utilities must be prepared to harness real-time usage information, use it to gain insights into a much more complex consumer base and match products and services to each customer group. Advances in sensor, switching and communications technologies are enabling the next-generation utility. The resulting Intelligent Utility Network will provide a new world of grid monitoring and control and increased options for utility customers.

IBM has proven results in delivering Intelligent Utility Network infrastructures that provide superior reliability and end-to-end network data in near real time. We bring to the table the integration skills, leading-edge technology and partner ecosystem required to support every stage of an Intelligent Utility Network initiative.

As a result of extensive engagements around the world, we have gained deep experience and understand the business processes and technical architecture required for an effective Intelligent Utility Network implementation. We bring together the relevant tools, methodologies, resources and people experienced in the Energy and Utilities industry.

WHY IBM?

IBM delivers innovation that matters for our clients. As a global enterprise, we value innovation that matters for our company and for the world. IBM’s corporate citizenship reflects both our brand and our values by addressing some of society’s most complex problems with game-changing business and technology innovation.

WHY WE ARE UNIQUELY QUALIFIED

The following represent just some of the reasons IBM is uniquely qualified to serve the utility industry:

We Know the Energy and Utilities Business

We help clients define their core competitive advantages. And we do this better than anyone else because we bring deep industry and functional expertise, global experience, high-powered research and a unique understanding of how utilities succeed when they fully leverage technology to their advantage. We bring the following unmatched assets:

  • 70,000 business and industry consultants;
  • On-demand innovation services;
  • Component business modeling;
  • Business Transformation Outsourcing
  • Center for Business Optimization; and
  • Institute for Business Value.

We Know Integration and Transformation

IBM can help energy and utility clients realize the full value of innovation by integrating technology into the fabric of their business, creating the competitive advantage that’s right for them. We offer:

  • Business Performance Transformation Services;
  • Engineering and Technology Services;
  • Application Innovation Services;
  • Custom Logic Capability; and
  • Leadership in Open Standards.

We Know Technology

We are the technology leader. Even more importantly, we know how to deploy all of our technology products and services to deliver the flexible IT infrastructure required to transform businesses and take advantage of every dimension of innovation. We can deploy:

  • 170,000 technology experts;
  • On-demand portfolio/capabilities;
  • Service-oriented architectures and Web services;
  • Modular, scalable and secure computing environments based on open standards;
  • Linux solutions;
  • Middle-ware industry solutions; and
  • Infrastructure management

IBM and the environment

IBM is committed to environmental leadership in all of its business activities, from its operations to the design of its products and use of its technology.

Smart Metering Options for Electric and Gas Utilities

Should utilities replace current consumption meters with “smart metering” systems that provide more information to both utilities and customers? Increasingly, the answer is yes. Today, utilities and customers are beginning to see the advantages of metering systems that provide:

  • Two-way communication between the utility and the meter; and
  • Measurement that goes beyond a single consolidated quarterly or monthly consumption total to include time-of-use and interval measurement.

For many, “smart metering” is synonymous with an advanced metering infrastructure (AMI) that collects, processes and distributes metered data effectively across the entire utility as well as to the customer base (Figure 1).

SMART METERING REVOLUTIONIZES UTILITY REVENUE AND SERVICE POTENTIAL

When strategically evaluated and deployed, smart metering can deliver a wide variety of benefits to utilities.

Financial Benefits

  • Significantly speeds cash flow and associated earnings on revenue. Smart metering permits utilities to read meters and send the data directly to the billing application. Bills go out immediately, cutting days off the meter-to-cash cycle.
  • Improves return on investment via faster processing of final bills. Customers can request disconnects as the moving van pulls away. Smart metering polls the meter and gives the customer the amount of the final bill. Online or credit card payments effectively transform final bill collection cycles from a matter of weeks to a matter of seconds.
  • Reduces bad debt. Smart metering helps prevent bad debt by facilitating the use of prepayment meters. It also reduces the size of overdue bills by enabling remote disconnects, which do not depend on crew availability.

Operational Cost Reductions

  • Slashes the cost to connect and disconnect customers. Smart metering can virtually eliminate the costs of field crews and vehicles previously required to change service from the old to the new residents of a metered property.
  • Lowers insurance and legal costs. Field crew insurance costs are high – and they’re even higher for employees subject to stress and injury while disconnecting customers with past-due bills. Remote disconnects through smart metering lower these costs. They also reduce medical leave, disability pay and compensation claims. Remote disconnects also significantly cut the number of days that employees and lawyers spend on perpetrator prosecutions and attempts to recoup damages.
  • Cuts the costs of managing vegetation. Smart metering can pinpoint blinkouts, reducing the cost of unnecessary tree trimming.
  • Reduces grid-related capital expenses. With smart metering, network managers can analyze and improve block-by-block power flows. Distribution planners can better size transformers. Engineers can identify and resolve bottlenecks and other inefficiencies. The benefits include increased throughput and reductions in grid overbuilding.
  • Shaves supply costs. Supply managers use interval data to fine-tune supply portfolios. Because smart metering enables more efficient procurement and delivery, supply costs decline.
  • Cuts fuel costs. Many utility service calls are “false alarms.” Checking meter status before dispatching crews prevents many unnecessary truck rolls. Reduces theft. Smart metering can identify illegal attempts to reconnect meters, or to use energy and water in supposedly vacant premises. It can also detect theft by comparing flows through a valve or transformer with billed consumption.

Compliance Monitoring

  • Ensures contract compliance. Gas utilities can use one-hour interval meters to monitor compliance from interruptible, or “non-core,” customers and to levy fines against contract violators.
  • Ensures regulatory compliance. Utilities can monitor the compliance of customers with significant outdoor lighting by comparing similar intervals before and during a restricted time period. For example, a jurisdiction near a wildlife area might order customers to turn off outdoor lighting so as to promote breeding and species survival.
  • Reduces outage duration by identifying outages more quickly and pinpointing outage and nested outage locations. Smart metering also permits utilities to ensure outage resolution at every meter location.
  • Sizes outages more accurately. Utilities can ensure that they dispatch crews with the skills needed – and adequate numbers of personnel – to handle a specific job.
  • Provides updates on outage location and expected duration. Smart metering helps call centers inform customers about the timing of service restoration. It also facilitates display of outage maps for customer and public service use.
  • Detect voltage fluctuations. Smart metering can gather and report voltage data. Customer satisfaction rises with rapid resolution of voltage issues.

New Services

For utilities that offer services besides commodity delivery, smart metering provides an entry to such new business opportunities as:

  • Monitoring properties. Landlords reduce costs of vacant properties when utilities notify them of unexpected energy or water consumption. Utilities can perform similar services for owners of vacation properties or the adult children of aging parents.
  • Monitoring equipment. Power-use patterns can reveal a need for equipment maintenance. Smart metering enables utilities to alert owners or managers to a need for maintenance or replacement.
  • Facilitating home and small-business networks. Smart metering can provide a gateway to equipment networks that automate control or permit owners to access equipment remotely. Smart metering also facilitates net metering, offering some utilities a path toward involvement in small-scale solar or wind generation.

Environmental Improvements

Many of the smart metering benefits listed above include obvious environmental benefits. When smart metering lowers a utility’s fuel consumption or slows grid expansion, cleaner air and a better preserved landscape result. Smart metering also facilitates conservation through:

  • Leak detection. When interval reads identify premises where water or gas consumption never drops to zero, leaks are an obvious suspect.
  • Demand response and critical peak pricing. Demand response encourages more complete use of existing base power. Employed in conjunction with critical peak pricing, it also reduces peak usage, lowering needs for new generators and transmission corridors.
  • Load control. With the consent of the owner, smart metering permits utilities or other third parties to reduce energy use inside a home or office under defined circumstances.

CHALLENGES IN SMART METERING

Utilities preparing to deploy smart metering systems need to consider these important factors:

System Intelligence. There’s a continuing debate in the utility industry as to whether smart metering intelligence should be distributed or centralized. Initial discussions of advanced metering tended to assume intelligence embedded in meters. Distributed intelligence seemed part of a trend, comparable to “smart cards,” “smart locks” and scores of other everyday devices with embedded computing power.

Today, industry consensus favors centralized intelligence. Why? Because while data processing for purposes of interval billing can take place in either distributed or central locations, other applications for interval data and related communications systems cannot. In fact, utilities that opt for processing data at the meter frequently make it impossible to realize a number of the benefits listed above.

Data Volume. Smart metering inevitably increases the amount of meter data that utilities must handle. In the residential arena, for instance, using hour-long measurement intervals rather than monthly consumption totals replaces 12 annual reads per customer with 8,760 reads – a 730-fold increase.

In most utilities today, billing departments “own” metering data. Interval meter reads, however, are useful to many departments. These readings can provide information on load size and shape – data that can then be analyzed to help reduce generation and supply portfolio costs. Interval reads are even more valuable when combined with metering features like two-way communication between meter and utility, voltage monitoring and “last gasp” messages that signal outages.

This new data provides departments outside billing with an information treasure trove. But when billing departments control the data, others frequently must wait for access lest they risk slowing down billing to a point that damages revenue flow.

Meter Data Management. An alternative way to handle data volume and multiple data requests is to offload it into a stand-alone meter data management (MDM) application.

MDM applications gather and store meter data. They can also perform the preliminary processing required for different departments and programs. Most important, MDM gives all units equal access to commonly held meter data resources (Figure 2).

MDM provides an easy pathway between data and the multiple applications and departments that need it. Utilities can more easily consolidate and integrate data from multiple meter types, and reduce the cost of building and maintaining application interfaces. Finally, MDM provides a place to store and use data, whose flow into the system cannot be regulated – for example, in situations such as the flood of almost simultaneous messages from tens of thousands of meters sending a “last gasp” during a major outage.

WEIGHING THE COSTS AND BENEFITS OF SMART METERING

Smart metering on a mass scale is relatively new. No utility can answer all questions in advance. There are ways, however, to mitigate the risks:

Consider all potential benefits. Smart metering may be a difficult cost to justify if it rests solely on customer acceptance of demand response. Smart metering is easier to cost-justify when its deployment includes, for instance, the value of the many benefits listed above.

Evaluate pilots. Technology publications are full of stories about successful pilots followed by unsuccessful products. That’s because pilots frequently protect participants from harsh financial consequences. And it’s difficult for utility personnel to avoid spending time and attention on participants in ways that encourage them to buy into the program. Real-life program rollouts lack these elements.

Complicating the problem are likely differences between long-term and short-term behavior. The history of gasoline conservation programs suggests that while consumers initially embrace incentives to car pool or use public transportation, few make such changes on a permanent basis.

Examining the experiences of utilities in the smart metering forefront – in Italy, for example, or in California and Idaho – may provide more information than a pilot.

Develop a complete business case. Determining the cost-benefit ratio of smart metering is challenging. Some costs – for example, meter prices and installation charges – may be relatively easy to determine. Others require careful calculations. As an example, when interval meters replace time-of-use meters, how does the higher cost of interval meters weigh against the fact that they don’t require time-of-use manual reprogramming?

As in any business case, some costs must be estimated:

  • Will customer sign-up equal the number needed to break even?
  • How long will the new meters last?
  • Do current meter readers need to be retrained, and if so, what will that cost?
  • Will smart metering help retain customers that might otherwise be lost?
  • Can new services such as equipment efficiency analyses be offered, and if so, how much should the utility charge for them?

Since some utilities are already rolling out smart metering programs, it’s becoming easier to obtain real-life numbers (rather than estimates) to plug into your business case.

CONSIDER ALTERNATIVES

Technology is “smart” only when it reduces the cost of obtaining specified objectives. Utilities may find it valuable to try lower-cost routes to some results, including:

  • Customer charges to prevent unnecessary truck rolls. Such fees are common among telephone service providers and have worked well for some gas utilities responding to repeated false alarms from householder-installed carbon monoxide detectors.
  • Time-of-use billing with time/rate relationships that remain constant for a year or more. This gives consumers opportunities to make time-shifting a habit.
  • Customer education to encourage consumers to use the time-shifting features on their appliances as a contribution to the environment. Most consumers have no idea that electricity goes to waste at night. Keeping emissions out of the air and transmission towers out of the landscape could be far more compelling to many consumers than a relatively small saving resulting from an on- and off-peak pricing differential.
  • Month-to-month rate variability. One study found that approximately a third of the efficiency gains from real-time interval pricing could be captured by simply varying the flat retail rates monthly – and at no additional cost for metering. [1] While a third of the efficiency gains might not be enough to attain long-term goals, they might be enough to fill in a shorter-term deficit, permitting technology costs and regulatory climates to stabilize before decisions must be made.
  • Multitier pricing based on consumption. Today, two-tier pricing – that is, a lower rate for the first few-hundred kilowatt-hours per month and a higher rate for additional hours – is common. However, three or four tiers might better capture the attention of those whose consumption is particularly high – owners of large homes and pool heaters, for instance – without burdening those at the lower end of the economic ladder. Tiers plus exception handling for hardships like high-consuming medical equipment would almost certainly be less difficult and expensive than universal interval metering.

A thorough evaluation of the benefits and challenges of advanced metering systems, along with an understanding of alternative means to achieving those benefits, is essential to utilities considering deployment of advanced metering systems.

Note: The preceding was excerpted from the Oracle white paper “Smart Metering for Electric and Gas Utilities.” To receive the complete paper, Email oracleutilities_ww@oracle.com.

ENDNOTE

  1. Holland and Mansur, “The Distributional and Environmental Effects of Time-varying Prices in Competitive Electricity Markets.” Results published in “If RTP Is So Great, Why Don’t We See More of It?” Center for the Study of Energy Markets Research Review, University of California Energy Institute, Spring 2006. Available at www.ucei.berkeley.edu/

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.

SmartGridNet Architecture for Utilities

With the accelerating movement toward distributed generation and the rapid shift in energy consumption patterns, today’s power utilities are facing growing requirements for improved management, capacity planning, control, security and administration of their infrastructure and services.

UTILITY NETWORK BUSINESS DRIVERS

These requirements are driving a need for greater automation and control throughout the power infrastructure, from generation through the customer site. In addition, utilities are interested in providing end-customers with new applications, such as advanced metering infrastructure (AMI), online usage reports and outage status. In addition to meeting these requirements, utilities are under pressure to reduce costs and automate operations, as well as protect their infrastructures from service disruption in compliance with homeland security requirements.

To succeed, utilities must seamlessly support these demands with an embedded infrastructure of traditional devices and technologies. This will allow them to provide a smooth evolution to next-generation capabilities, manage life cycle issues for aging equipment and devices, maintain service continuity, minimize capital investment, and ensure scalability and future-proofing for new applications, such as smart metering.

By adopting an evolutionary approach to an intelligent communications network (SmartGridNet), utilities can maximize their ability to leverage the existing asset base and minimize capital and operations expenses.

THE NEED FOR AN INTELLIGENT UTILITY NETWORK

As a first step toward implementing a SmartGridNet, utilities must implement intelligent electronic devices (IEDs) throughout the infrastructure – from generation and transmission through distribution directly to customer premises – if they are to effectively monitor and manage facilities, load and usage. A sophisticated operational communications network then interconnects such devices through control centers, providing support for supervisory control and data acquisition (SCADA), teleprotection, remote meter reading, and operational voice and video. This network also enables new applications such as field personnel management and dispatch, safety and localization. In addition, the utility’s corporate communications network increases employee productivity and improves customer service by providing multimedia; voice, video, and data communications; worker mobility; and contact center capabilities.

These two network types – operational and corporate – and the applications they support may leverage common network facilities; however, they have very different requirements for availability, service assurance, bandwidth, security and performance.

SMARTGRIDNET REQUIREMENTS

Network technology is critical to the evolution of the next-generation utility. The SmartGridNet must support the following key requirements:

  • Virtualization. Enables operation of multiple virtual networks over common infrastructure and facilities while maintaining mutual isolation and distinct levels of service.
  • Quality of service (QoS). Allows priority treatment of critical traffic on a “per-network, per-service, per-user basis.”
  • High availability. Ensures constant availability of critical communications, transparent restoration and “always on” service – even when the public switched telephony network (PSTN) or local power supply suffers outages.
  • Multipoint-to-multipoint communications. Provides integrated control and data collection across multiple sensors and regulators via synchronized, redundant control centers for disaster recovery.
  • Two-way communications. Supports increasingly sophisticated interactions between control centers and end-customers or field forces to enable new capabilities, such as customer sellback, return or credit allocation for locally stored power; improved field service dispatch; information sharing; and reporting.
  • Mobile services. Improves employee efficiency, both within company facilities and in the field.
  • Security. Protects the infrastructure from malicious and inadvertent compromise from both internal and external sources, ensures service reliability and continuity, and complies with critical security regulations such as North American Electric Reliability Corp. (NERC).
  • Legacy service integration. Accommodates the continued presence of legacy remote terminal units (RTUs), meters, sensors and regulators, supporting circuit, X.25, frame relay (FR), and asynchronous transfer mode (ATM) interfaces and communications.
  • Future-proofing. Capability and scalability to meet not just today’s applications, but tomorrow’s, as driven by regulatory requirements (such as smart metering) and new revenue opportunities, such as utility delivery of business and residential telecommunications (U-Telco) services.

SMARTGRIDNET EVOLUTION

A number of network technologies – both wire-line and wireless – work together to achieve these requirements in a SmartGridNet. Utilities must leverage a range of network integration disciplines to engineer a smooth transformation of their existing infrastructure to a SmartGridNet.

The remainder of this paper describes an evolutionary scenario, in which:

  • Next-generation synchronous optical network (SONET)-based multiservice provisioning platforms (MSPPs), with native QoS-enabled Ethernet capabilities are seamlessly introduced at the transport layer to switch traffic from both embedded sensors and next-generation IEDs.
  • Cost-effective wave division multiplexing (WDM) is used to increase communications network capacity for new traffic while leveraging embedded fiber assets.
  • Multiprotocol label switching (MPLS)/ IP routing infrastructure is introduced as an overlay on the transport layer only for traffic requiring higher-layer services that cannot be addressed more efficiently by the transport layer MSPPs.
  • Circuit emulation over IP virtual private networks (VPNs) is supported as a means for carrying sensor traffic over shared or leased network facilities.
  • A variety of communications applications are delivered over this integrated infrastructure to enhance operational efficiency, reliability, employee productivity and customer satisfaction.
  • A toolbox of access technologies is appropriately applied, per specific area characteristics and requirements, to extend power service monitoring and management all the way to the end-customer’s premises.
  • A smart home network offers new capabilities to the end-customer, such as Advanced Metering Infrastructure (AMI), appliance control and flexible billing models.
  • Managed and assured availability, security, performance and regulatory compliance of the communications network.

THE SMARTGRIDNET ARCHITECTURE

Figure 1 provides an architectural framework that we may use to illustrate and map the relevant communications technologies and protocols.

The backbone network in Figure 1 interconnects corporate sites and data centers, control centers, generation facilities, transmission and distribution substations, and other core facilities. It can isolate the distinct operational and corporate communications networks and subnetworks while enforcing the critical network requirements outlined in the section above.

The underlying transport network for this intelligent backbone is made up of both fiber and wireless (for example, microwave) technologies. The backbone also employs ring and mesh architectures to provide high availability and rapid restoration.

INTELLIGENT CORE TRANSPORT

As alluring as pure packet networks may be, synchronous SONET remains a key technology for operational backbones. Only SONET can support the range of new and legacy traffic types while meeting the stringent absolute delay, differential delay and 50-millisecond restoration requirements of real-time traffic.

SONET transport for legacy traffic may be provided in MSPPs, which interoperate with embedded SONET elements to implement ring and mesh protection over fiber facilities and time division multiplexing (TDM)-based microwave. Full-featured Ethernet switch modules in these MSPPs enable next-generation traffic via Ethernet over SONET (EOS) and/or packet over SONET (POS). Appropriate, cost-effective wave division multiplexing (WDM) solutions – for example, coarse, passive and dense WDM – may also be applied to guarantee sufficient capacity while leveraging existing fiber assets.

BACKBONE SWITCHING/ROUTING

From a switching and routing perspective, a significant amount of traffic in the backbone may be managed at the transport layer – for example, via QoS-enabled Ethernet switching capabilities embedded in the SONET-based MSPPs. This is a key capability for supporting expedited delivery of critical traffic types, enabling utilities to migrate to more generic object-oriented substation event (GOOSE)-based inter-substation communications for SCADA and teleprotection in the future in accordance with standards such as IEC 61850.

Where higher-layer services – for example, IP VPN, multicast, ATM and FR – are required, however, utilities can introduce a multi-service switching/routing infrastructure incrementally on top of the transport infrastructure. The switching infrastructure is based on multi-protocol label switching (MPLS), implementing Layer 2 transport encapsulation and/or IP VPNs, per the relevant Internet engineering task force (IETF) requests for comments (RFCs).

This type of unified infrastructure reduces operations costs by sharing switching and restoration capabilities across multiple services. Current IP/MPLS switching technology is consistent with the network requirements summarized above for service traffic requiring higher-layer services, and may be combined with additional advanced services such as Layer 3 VPNs and unified threat management (UTM) devices/firewalls for further protection and isolation of traffic.

CORE COMMUNICATIONS APPLICATIONS

Operational services such as tele-protection and SCADA represent key categories of applications driving the requirements for a robust, secure, cost-effective network as described. Beyond these, there are a number of communications applications enabling improved operational efficiency for the utility, as well as mechanisms to enhance employee productivity and customer service. These include, but are not limited to:

  • Active network controls. Improves capacity and utilization of the electricity network.
  • Voice over IP (VoIP). Leverages common network infrastructure to reduce the cost of operational and corporate voice communications – for example, eliminating costly channel banks for individual lines required at remote substations.
  • Closed circuit TV (CCTV)/Video Over IP. Improves surveillance of remote assets and secure automated facilities.
  • Multimedia collaboration. Combines voice, video and data traffic in a rich application suite to enhance communication and worker productivity, giving employees direct access to centralized expertise and online resources (for example, standards and diagrams).
  • IED interconnection. Better measures and manages the electricity networks.
  • Mobility. Leverages in-plant and field worker mobility – via cellular, land mobile radio (LMR) and WiFi – to improve efficiency of key work processes.
  • Contact center. Employs next-generation communications and best-in-class customer service business processes to improve customer satisfaction.

DISTRIBUTION AND ACCESS NETWORKS

The intelligent utility distribution and access networks are subtending networks from the backbone, accommodating traffic between backbone switches/applications and devices in the distribution infrastructure all the way to the customer premises. IEDs on customer premises include automated meters and device regulators to detect and manage customer power usage.

These new devices are primarily packet-based. They may, therefore, be best supported by packet-based access network technologies. However, for select rings, TDM may also be chosen, as warranted. The packet-based access network technology chosen depends on the specifics of the sites to be connected and the economics associated with that area (for example, right of way, customer densities and embedded infrastructure).

Regardless of the access and last-mile network designs, traffic ultimately arrives at the network via an IP/MPLS edge switch/router with connectivity to the backbone IP/MPLS infrastructure. This switching/routing infrastructure ensures connectivity among the intelligent edge devices, core capabilities and control applications.

THE SMART HOME NETWORK

A futuristic home can support many remotely controlled and managed appliances centered on lifestyle improvements of security, entertainment, health and comfort (see Figure 2). In such a home, applications like smart meters and appliance control could be provided by application service providers (ASPs) (such as smart meter operators or utilities), using a home service manager and appropriate service gateways. This architecture differentiates between the access provider – that is, the utility/U-Telco or other public carrier – and the multiple ASPs who may provide applications to a home via the access provider.

FLEXIBLE CHARGING

By employing smart meters and developing the ability to retrieve electricity usage data at regular intervals – potentially several readings per hour – retailers could make billing a significant competitive differentiator. detailed usage information has already enabled value-added billing in the telecommunications world, and AMI can do likewise for billing electricity services. In time, electricity users will come to expect the same degree of flexible charging with their electricity bill that they already experience with their telephone bills, including, for example, prepaid and post-paid options, tariff in function of time, automated billing for house rental (vacation), family or group tariffs, budget tariffs and messaging.

MANAGING THE COMMUNICATIONS NETWORK

For utilities to leverage the communications network described above to meet business key requirements, they must intelligently manage that network’s facilities and services. This includes:

  • Configuration management. Provisioning services to ensure that underlying switching/routing and transport requirements are met.
  • Fault and performance management. Monitoring, correlating and isolating fault and performance data so that proactive, preventative and reactive corrective actions can be initiated.
  • Maintenance management. Planning of maintenance activities, including material management and logistics, and geographic information management.
  • Restoration management. Creating trouble tickets, dispatching and managing the workforce, and carrying out associated tracking and reporting.
  • Security management. Assuring the security of the infrastructure, managing access to authorized users, responding to security events, and identifying and remediating vulnerabilities per key security requirements such as NERC.

Utilities can integrate these capabilities into their existing network management infrastructures, or they can fully or partially outsource them to managed network service providers.

Figure 3 shows how key technologies are mapped to the architectural framework described previously. Being able to evolve into an intelligent utilities network in a cost-effective manner requires trusted support throughout planning, design, deployment, operations and maintenance.

CONCLUSION

Utilities can evolve their existing infrastructures to meet key SmartGridnet requirements by effectively leveraging a range of technologies and approaches. Through careful planning, designing, engineering and application of this technology, such firms may achieve the business objectives of SmartGridnet while protecting their current investments in infrastructure. Ultimately, by taking an evolutionary approach to SmartGridnet, utilities can maximize their ability to leverage the existing asset base as well as minimize capital and operations expenses.

Ontario Pilot

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.

Cutting-Edge Communication: Streamlining Customer Contact With Automated Messaging

Improving cash flow, reducing costs, freeing up agents, experiencing an immediate return on investment: These are what it’s all about, right? Since 1992, TeleVox has been at the forefront of customer communication, offering best-of-breed communication technology. More than 14,000 clients rely on TeleVox each and every day to efficiently and effectively contact their customers. Why? Because the subscription-based HouseCalls automated messaging system has proven to meet all their objectives for only pennies per call.

There’s no denying the positive impact of clear, dependable communication between a utility and its customers. Over the years, however, this has presented an increasingly difficult challenge. Utilities are being asked to communicate with growing customer bases with fewer resources. To help reverse this trend, automated messaging technologies, such as TeleVox’s HouseCalls, have emerged to play an important role in customer contact. As other messaging providers have battled rigid pricing structures, limited calling capacity and functionality challenges, HouseCalls has consistently performed as a cost-effective solution that meets the needs of each individual client.

COLLECTIONS

Nowhere are the benefits of automated messaging technology more apparent than in collections. HouseCalls delivers payment reminders personalized with names, dates, amounts due and other information. Messages also employ multiple levels of right-party verification to protect the customer. Once the message is delivered, the customer can take advantage of response options to speak with a live agent or transfer to an automated third-party credit card acceptance company. When matched with a third-party collector, HouseCalls automates the entire collections process without manual intervention from the utility.

Utilities can determine their own strategy when integrating automated messaging into the collections process. The messages sent to customers can vary in tone and content based on internal credit ratings and scores. Many TeleVox clients use HouseCalls to contact large volumes of newly delinquent accounts (30 to 60 days), hoping to resolve them before they age further. This frees agents to focus on more difficult accounts.

The immediate ROI of automated messaging in collections has made it a widely embraced practice among the nation’s leading utilities for reducing Accounts Receivable. Some utilities have estimated as much as $200 in return for every dollar spent. The technology’s flexibility facilitates quicker, less expensive collections efforts. It also decreases expensive mailings, costly disconnects and truck rolls that become necessary as delinquencies progress.

MARKETING CAMPAIGNS

From billing to usage issues, the range of programs utilities offer to customers has become increasingly broad. Automated calls have experienced phenomenal response rates from customers eager to take advantage of new offerings.

Common marketing campaigns include:

  • Budget billing
  • Low-income housing assistance
  • Meter replacement
  • Demand conservation

Why do automated calls produce greater results than direct-mail pieces, bill stuffers or Emails? One factor is audience attention. Since HouseCalls outbound messages can be recorded using 100 percent human voices and feature the Caller ID number of the utility, customers are more likely to listen to the telephone message than read an extra piece of mail. During the message, many utilities give customers the opportunity to transfer to live agents to learn more about the particular program, enroll during the call or be directed to a website for more information.

Calls cost pennies to deliver, far less than the soaring printing and postage costs associated with mailed media. Whether employed as a stand-alone marketing strategy or combined with direct mail, automated messaging proves to be a cost-effective promotional tool.

OUTAGE AND RESTORATION NOTIFICATIONS

In the utility industry, the old saying holds true: Expect the unexpected. A little preparation goes a long way toward instilling customer confidence, and this certainly applies to service outages. It’s inevitable that at some point customers are going to experience unavoidable interruptions in their service.

When that happens, leading utilities can proactively communicate with customers and keep them informed of the progress being made to restore service in the area. Automated messaging is ideal for such situations, covering large service territories (able to reach as many as 300,000 customers per hour) while maintaining a high capability of customer interaction. Messages can be created and delivered in as little as five minutes.

During outages, customers will often receive messages from their utilities reassuring them that technicians are working to restore service. Providing important contact numbers and information can also be helpful to customers during this period.

As restoration efforts progress, utilities can deliver messages to each customer to determine if service has been restored. Automated messages allow for immediate customer feedback and significantly reduce inbound traffic to the utility’s call center.

In some situations, utilities contact their customer base before a planned outage. This approach is especially appreciated when working with critical-care customers.

HOUSECALLS BENEFITS

Since HouseCalls is a subscription-based ASP (Application Service Provider) solution hosted by TeleVox, there are no hardware purchases or capital investments for the utility. Rather than requiring large expenditures for on-site equipment, utilities are charged on a per-call basis for completed calls – with no cost for undeliverables.

NEXT STEPS

To begin harnessing the power of HouseCalls for your customer communication, you are encouraged to contact a TeleVox representative at 1-800-644-4266 or info@televox.com. You may also visit TeleVox online at www.televox.com.