Customer Empowerment

Lighting the Way

Persistent climate change concerns, volatile energy prices and a growing awareness of technological advancement in energy are leading consumers across the globe to reconsider their role in the electric power value chain. Likewise, substantial increases in utility infrastructure investment are likely due to global demands for climate change mitigation; the need to support aging networks and generation plants; and proliferation of government stimulus plans for weakened economies.

For energy and utility companies, this presents an historic opportunity to encourage new, mutually beneficial behaviors and create business models to meet new consumer demands.

Our last report, "Plugging in the Consumer: Innovating Utility Business Models for the Future," explored the radically changing relationship between energy providers and consumers who took part in a survey conducted in late 2007. Even during the global economic downturn, progress has continued along the two dimensions shaping these changes: technology advancement and consumers’ desire for more control. Ultimately, this will result in movement of the basis of the industry to a participatory network – an interconnected environment characterized by a wide variety of grid and network technologies that enable shared responsibility and benefits. It will drive the creation of entirely new markets and products.

To continue our research about consumer expectations, we launched a followup survey in the fall of 2008. We surveyed over 5,000 customers from an expanded group of countries. This included the "core group" from our prior survey – the U.S., the U.K., Germany, the Netherlands, Australia and Japan – plus Canada, Denmark, Belgium, France, Ireland and New Zealand. Our survey findings strongly suggest the historical view of customers as "like-minded" is already outdated in most places.

Encouraging New Behaviors

In our surveys over the past two years, many consumers demonstrated at least one goal associated with asserting more control over their energy usage. The features of a participatory network appeal tremendously to them, because it would offer abundant service options and information to manage energy usage according to specific goals, such as cost reduction or environmental impact.

There is not much evidence that consumers think lower rates are coming. Over half see the cost increasing at roughly the same pace as usage. Forty percent see their bills increasing more rapidly than their usage (or not decreasing as much as any reduction in usage). Six percent think their bills will increase more slowly (or decrease more rapidly) than their usage. Overall, this year’s respondents have a slightly more pessimistic view of the next five years than those last year.

Cost remains the powerful motivator behind a desire for control over energy usage and a willingness to change behavior. Four in five consumers are willing to change the time-of-day in which they perform energy-consuming housework in exchange for cost savings of 50 percent or more. With the prevalent feeling that prices will move inexorably upward and awareness of smart meters growing, over 90 percent of respondents indicated that they would like a smart meter or other tools to manage their usage, with 55 percent to 60 percent of these respondents willing to pay a one-time or monthly fee for that capability.

Consumers’ emphasis on climate change and the availability of renewable energy programs in response to this demand for more carbon-neutral products remained about the same year to year. Across the core group countries, the percentage reporting that they did not have renewable power programs available dropped to 16 percent from 21 percent in the new survey (see Figure 1). Rather than changing their answers to the affirmative, however, most of the movement was to "don’t know" (up to 50 percent from 46 percent).

According to industry experts in some of the countries surveyed, the high level of "don’t know" responses, in part, reflects doubts in some countries about the veracity of green power claims. Still, if to a larger extent many customers truly cannot answer that question, this could indicate a valuable opportunity lost to ineffective communication with customers in countries with significant renewable resources and high participation levels.

In addition to environmental concerns, the global economic downturn of 2008 is clearly having severe impact on consumers. Across the core group countries, the number of consumers paying a premium for green products and services is down 20 percent to 30 percent (see Figure 2).

This change in spending patterns also seems to influence perceptions of green power options among consumers from core group countries that do not have (or are unsure if they have) green power options. The percentage of people who say they want green power options is down slightly, falling to 78 percent in 2008 from 85 percent in 2007. But, during that one-year period, the percentage of those willing to pay an additional 20 percent or more monthly dropped by nearly two-thirds, to just 6 percent from 16 percent.

The percentage of those who have green power options and actually buy them remained about the same, however. This is not surprising given contractual commitments, significantly higher prices for nonrenewable fuels in the past year (which eliminated some of the cost differential between standard and green power), and the overall commitment to the environment expected of "green" consumers.

Analyzing Consumers

In "Plugging in the Consumer," we described an emerging segmentation comprised of four consumer types: passive ratepayers (PR), frugal goal-seekers (FGs), energy epicures (EE) and energy stalwarts (ES) (see Figure 3). Our latest survey results reinforce these segments as likely outcomes of current trends. Two main attributes are associated with variances in consumers’ behavior profiles:

Personal Initiative. A consumer’s willingness to make decisions and take action based on specific goals such as cost control, reliability, convenience and climate change impact.
Disposable Income. A consumer’s financial wherewithal to support energy-related goals. In early adoption phases, only those with sufficient resources will be able to implement new technologies and buy more expensive products.

We also found that other demographic characteristics – such as age and country of residence – affect the speed of technology adoption, ability to leverage control "behind the meter," goals embedded in accepting more responsibility for energy choices, among others.

Consumer Profiles

PRs that embody a passive preference for the status quo remain the most prevalent of any of the four consumer archetypes. However, we see a remarkable transition in progress. In the past, these typically uninvolved, acquiescent customers comprised virtually 100 percent of the customer base. They represent just 31 percent of our 2008 survey respondents.

The number of more engaged and goal-oriented customers all along the income spectrum is approaching one-half of the total customer base. Frugal goal-seekers (FGs), about 22 percent of the survey population, have limited resources but strong will to change the way they use energy and manage its consumption. This group desires low-cost control of energy choices. Energy stalwarts (ES) have enough strength in both will and wallet to proactively take measures from making simple efficiency improvements to generating their own electricity. They have a clear willingness to invest in energy choices and represent about one in five consumers surveyed. Both of these groups will strongly influence the other half of consumers as they succeed in meeting their goals.

The remaining respondents (26 percent) are the EEs, who are curious but not committed. While they actually demonstrate more knowledge about their provider and options than any other group, they do not share the cost concerns or clear desire for information and control. This appears to be a matter of choice and not ignorance. While passive in some ways, this group is open to experimentation, particularly when the cost and lifestyle impact of a behavioral change are low.

Generational Change

In the short term, changes in customer needs will occur based on personal initiative and income. In the long run, even more radical changes may emerge as the millennial generation continues to move into adulthood and the energy customer base. By varying definitions, the first wave of these information-hungry, technology-savvy consumers is somewhere in our 25- to 34-year-old demographic grouping and fully encompasses the 18- to 24-year-old age group.

Precisely at this juncture, we see major changes in the survey results related to the ways consumers learn about companies and products, what they value and what they will pay for, as well as how they communicate with each other and the companies with which they do business. This, ultimately, may give way to new customer segments that will influence the shape of the industry in ways unimagined just a decade or two ago. To effectively determine the best strategy for a customer-focused transition to the participatory network of the future, every provider of energy or related services will need to construct an inventory of existing customer interactions with a wide variety of current and future service and product models.

In the following sections, we outline how specific consumer segments view the technology and business advances associated with key interactions.

Learning about Providers

Important messages from providers do not always reach consumers, as evidenced by consumers’ lack of awareness of available green power options (see Figure 1).

Additionally, only one in six consumers foresees a decrease in usage over the next five years, and only about a third say their provider can help them save energy despite strong efforts by the industry and governments to promote efficiency. In particular, provider messages are not reaching the youngest consumers. For example, those aged 18 to 34 are 40 percent more likely to not know if they have a choice in providers versus those 35 and older. The under-34 group also is twice as likely to not even know their provider’s name.

While all age groups will continue to rely heavily on their providers for information about energy (85 percent to 90 percent of respondents indicated this was a likely source), reliance on other sources differed starkly. Those over 55 are more than 10 times more likely to look to government for energy information than to social networks and other Web 2.0 content. Current trends also imply that those under 25 are becoming almost as likely to use the latter, rather than the former. To reach all generations, companies need to understand how different consumers tend to educate themselves about providers and their offerings with the wide variety of media available.

Controlling Costs

Not surprisingly, those aged 18 to 34 were most eager for the types of "self-service" and automated energy management that smart metering and smart grids will bring. What may be surprising, however, is that this age group – and particularly those under 25 – is the most willing to pay a stated premium for these services of approximately $100 U.S. as a one-time fee, or a monthly fee of $5 U.S. (see Figure 4).

Having a message sent to a mobile device when power is out at the consumer’s home also garnered significantly higher interest from the under-25 age group. About 30 percent were more likely than the other age groups to pay $1 per month for such a service. This finding may be related to the generally higher willingness we observed of younger age groups to subscribe to these programs, to their higher rate of ownership of mobile data devices and plans, or a combination of the two.

Investing in the Consumer

Substantial new increases in investment in utility infrastructure will come with a great deal of public, regulatory and shareholder scrutiny. All of these stakeholders will want to know how the public as a whole can benefit.

Energy and utility companies will need a strategy for aligning customer wants and needs with technology deployment roadmaps, beginning with rigorous customer segmentation and building an inventory of customer interactions. This must be followed by a program to analyze the interactions that are anticipated with each consumer segment and to assess whether existing capabilities are sufficient to leverage the new infrastructure in ways that support the new customer experience:

Identifying customer wants and needs specific to the interactions that will be most important to each particular segment;
Identifying the interactions that can be most effectively enhanced through participatory network deployment strategies;
Defining new or augmented business capabilities and regulatory models that must be developed to translate technological capabilities into customer benefits;
Determining which capabilities, if any, will be ceded to other providers for further development;
Integrating the development of specific new business capabilities into the participatory network deployment roadmap; and
Communicating these new capabilities clearly and effectively to all stakeholders.

The outcome of this process will lead to critical decisions about the customer-facing business capabilities on which the enterprise will focus.

Existing organizational strengths and new capabilities to be developed – one by one or in combinations – will form the basis for a broad menu of new products and services that the energy provider can offer. Each energy or service provider must be prepared to analyze its customer base to determine specific wants and needs before assessing how customers want to see new products and services emerge. After preferences are evaluated, they need to be applied to the customer interaction inventory in a way that identifies what should to be enhanced through technological improvements, regulatory change or improvements to communication channels.

This needs to be an ongoing process; customer assessment will not cease to be important once the participatory network is in place. The good news is that the data required to perform this continual assessment will be ubiquitous and arrive in real time from multiple sources of value-generating insights. But with this capability comes a challenge: finding new and powerful ways to collect, assimilate and evaluate this torrent of data in a way that will lead to inspiration for new programs and products that appeals to an expanding number of involved consumers.

The Smart Grid Gets Real

Utilities around the world are facing a future that demands technology and service to better measure, manage and control distributed resources. Sensus has anticipated that future with real-world solutions that are already at work in millions of households today. As a leading provider of advanced metering and related communications technologies to utilities worldwide, Sensus has been aggressively pushing the boundaries of utility management. Our innovative communication systems enable utilities to intelligently utilize their resources with unprecedented efficiency.

FlexNet Smart Grid Solution

FlexNet is the electric utility industry’s most powerful AMI solution. It meets AMI requirements of today; ubiquity, redundancy, security and demand response, and is smart grid ready. FlexNet is simple; its lean architecture uses a powerful, industry-leading two Watts of radio power to transmit information that maximizes range and minimizes operational costs with low infrastructure requirements. FlexNet insures sustainability, protecting the utility infrastructure investment and uninterrupted delivery.

Every FlexNet endpoint is equipped with the ability to accept downloadable revised code; modulations, protocols, frequency of operation, even data rate can be fully upgraded as future requirements and features are developed. Sensus FlexNet further mitigates risk by using APA™ (All Paths Always) technology; this ultimate form of self-healing ensures critical messages are delivered without re-routing delay.

iCon Smart Meters

The iCon line of solid state smart meters integrates seamlessly with the FlexNet AMI solution. Communication vendors and metrology engineers nationwide consistently find that the advanced family of Sensus meters provides complete functionality, superior reliability, flexible integration capability, industry standards compatibility, and economical value. The modular mechanical, electrical, and software designs, in combination with the advanced sensing capability, predictably deliver the speed, accuracy, and reliability required to meet today’s electric utility needs. With an unsurpassed accuracy exceeding ANSI C12.20 (Class 0.2), the iCon Meter by Sensus is built with a backbone of reliability and precision.

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:

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.
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.

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.
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.
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:

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.

Shaping a New Era in Energy

In the last few years, the world has seen the energy & utilities business accelerate into a significant period of transformation as a result of the smart grid and related technologies. Today, with some early proponents leading the way, the industry is on the verge of a step-change improvement that some might even classify as a full-scale revolution. Utilities are viewed not only as being a critical link in solving the challenges we face related to climate change and the care of our planet’s energy resources, but they’re becoming enablers of growth and innovation – and even new products, services and jobs. Clearly the decisions the industry is making today around the world’s electricity networks will impact our lives for decades to come.

If the current economic environment has muted any enthusiasm for this transformation, it hasn’t been much. With the exception, perhaps, of plummeting oil prices temporarily providing some sense of calm in the sector, there are probably few people left who don’t believe the world needs to urgently address its clean, smart energy future. As of this writing, fledgling signs of an economic recovery are emerging, and along with it, increases in fossil fuel prices. As such, enthusiasm is growing over the debate about how countries will utilize billions in stimulus funding to enable the industry to achieve a new level of greatness.

There is a confluence of events helping us along this path of dramatic and beneficial change. IBM’s recent industry consumer survey (selected findings of which are featured in this publication in "Lighting the Way" by John Juliano) signals a future that is being shaped in part by a younger generation of digitally savvy people who care about – and are willing to participate in – our collective energy future. They willingly engage in more open communication with utility providers and tend to be better at understanding and controlling energy utilization.

As utilities instrument virtually all elements of the energy value chain from the power plant to the plug, they will improve service quality to these customers while reducing cost and improving reliability to a degree never before achievable. Customers engage because they see themselves as part of a larger movement to forestall the effects of climate change, or to battle price instability. This fully connected, instrumented energy ecosystem takes advantage of the data it collects, applying advanced analytics to enable real-time decisions on energy consumption. Some smart grid projects are already helping consumers save 10% of their bills, and reduce peak demand by 15%. Imagine the potential total savings when this is scaled to include companies, governments and educational institutions.

While positive new developments abound, they also are creating a highly complex environment, raising many difficult questions. For example, are families and businesses truly prepared to go on a "carbon diet" and will they stay on it? How will governments, with their increased stake in auto manufacturers, effectively and efficiently manage the transition toward PHEVs? Will industry players collaborate with one another to deal with stealth attacks on smart grids that are no longer the stuff of spy novels, but current realities we must face 24/7? How do we responsibly support the resurgence of nuclear-based power generation?

Matters of investment are also complex. Will there be sufficient public/private partnership to effectively stimulate investment in new businesses and models to profitably progress safe alternative energy forms such as solar, tidal, wind, geothermal and others? Will we have the "smarts" – and the financial commitment – to build more smarts into the reconstruction of ailing infrastructures?

Leading the Way

IBM has been a leading innovator in smart grid technology, significantly investing in energy and environmental programs designed to promote the use of intelligent energy worldwide. We created the Global Intelligent Utility Network Coalition, a strategic relationship with a small group of select utilities from around the world to shape, accelerate and share in the development of the smart grid. With the goal to lead industry organizations to smart grid transformation, we actively lead and participate in a host of global organizations including the GridWise® Alliance, Gridwise Architecture Council, EPRI’s Intelligrid program, and the World Energy Council, among others. By coming together around a shared vision of a smarter grid, we have an unprecedented opportunity to reshape the energy industry and our economic future.

The IBM experts who engage in these groups – along with the thousands of other IBMers working in the industry – have contributed significant thinking to the industry’s progress, not the least of which is the creation of the Smart Grid Maturity Model (SGMM) which has been handed over to the Carnegie Mellon Software Engineering Institute (SEI) for ongoing governance, growth and evolution of the model. Furthermore, the World Energy Council (WEC) has become a channel for the global dissemination of the model among its worldwide network of member committees.

IBM’s own Intelligent Utility Network (IUN) solution enables a utility to instrument everything from the meter in the home to miles of power lines to the network itself. In fact, the IUN looks a lot more like the Internet than a traditional grid. It can be interconnected to thousands of power sources – including climate-friendly ones – and its instrumentation generates new data for analysis, insight and intelligence that can be applied for the benefit of businesses and consumers alike.

Our deep integration skills, leading-edge technology, partner ecosystem and business and regulatory expertise have earned us roles in more than 50 smart grid projects around the globe with showcase projects in the U.S. Pacific Northwest, Texas, Denmark and Malta (See "The Smart Grid in Malta" by Carlo Drago in this publication) to name just a few. IBM also has a role in seven out of the world’s 10 largest advanced meter management projects.

The IBM Solution Architecture for Energy (SAFE), is a specialized industry framework focused on the management, maintenance, and integration of a utility’s assets and information, inclusive of generation, transmission and distribution, and customer operations. This is complemented by a world-class solution portfolio based on the most comprehensive breadth of hardware, software, consulting services, and open standards-based IT infrastructure that can be customized to meet the needs of today’s energy and utilities enterprises around the globe.

These activities are augmented by the renowned IBM Research organization that engages in both industry-specific and cross-industry research that influences our clients’ progress. This includes new computing models to handle the proliferation of end-user devices, sensor and actuators, connecting them with powerful back-end systems. How powerful? In the past year IBM’s Roadrunner supercomputer broke the "petaflop" barrier – one thousand trillion calculations per second using standard chip sets. Combined with advanced analytics and new computing models like "clouds" we’re turning mountains of data into intelligence, making systems like the smart grid more efficient, reliable and adaptive – in a word, smarter.

IBM Research also conducts First-of-a-Kind research – or FOAKs – in partnership with our clients, turning promising research into market-ready products and services. And our Industry Solution Labs around the world give IBM clients the chance to discover how leading-edge technologies and innovative solutions can be assembled and proven to help solve real business problems. For example, we’re exploring how to turn millions of future electric vehicles into a distributed storage system, and we maintain a Center of Excellence for Nuclear Power to improve design, safety analysis, operation, and nuclear modeling / simulation processes.

IBM is excited to be at the forefront of this changing industry – and our changing world. And we’re honored to be working closely with our clients and business partners in helping to evolve a smarter planet.

The Smart Grid in Malta

On the Mediterranean island of Malta, with a population of about 400,000 people on a land mass of just over 300 square kilometers, power, water and the economy are intricately linked. The country depends on electrically powered desalination plants for over half of its water supply. In fact, about 75 percent of the cost of water from these plants on Malta is directly related to energy production. Meanwhile, rising sea levels threaten Malta’s underground freshwater source.

Additionally, in line with the Lisbon strategy and the other European countries, the government of Malta has set an objective of transforming the island into a competitive knowledge economy to encourage investment by foreign companies. Meeting all of these goals in a relatively short period of time presents a complex, interconnected series of challenges that require immediate attention to ensure the country has a sustainable and prosperous future.

In light of this need, the Maltese National Utilities for Electricity and Water – Enemalta Corp. (EMC) and Water Services Corp. (WSC) – reached a partnership agreement with IBM to undertake a complete transformation of its distribution networks to improve operational efficiency and customer service levels. IBM will replace all 250,000 electricity meters with new devices, and connect these and the existing water meters to advanced information technology applications. This will enable remote reading, management and monitoring throughout the entire distribution network.

This solution will be integrated with new back-office applications for finance, billing and cash processes, as well as an advanced analytics tool to transform sensor data into valuable information supporting business decisions and improving customer service levels. It will also include a portal to enable closer interaction with – and more engagement by – the end consumers.

Why are the utility companies in Malta making such a significant investment to reshape their operations? To explore this question, it helps to start with a broader look at smart grid projects to see how they create benefits – not just for the companies making the investment, but for the local community as well.

Smart Grid Benefits

A case is often made that basic operational benefits of a smart grid implementation can be achieved largely through an Advanced Metering Infrastructure (AMI) implementation, which yields real-time readings for use in billing cycles, reduced operational cost in the low voltage network and more control over theft and fraud. In this view, the utility’s operational model is further transformed to improve customer relationship management through the introduction of flexible tariffs, remote customer connection/disconnection, power curtailment options and early outage identification through low voltage grid monitoring.

But AMI extended to a broader smart grid implementation has the potential to achieve even greater strategic benefits. One can see this by simply considering the variety of questions about the impact of the carbon footprint of human activity on the climate and other environmental factors. What is a realistic tradeoff between energy consumption, energy efficiency and economic and political dependencies on the local, national and international levels? Which energy sources will be most effective with such tradeoffs? To what extent can smaller, renewable resources replace today’s large, fossil-based power sources? Where this is possible, how can hundreds or thousands of dispersed, independently operated generators be effectively monitored?

Ultimately, distribution networks need to be smart enough to distinguish among today’s large-scale utility generators; customers producing solar energy for their own needs who are virtually disconnected from the grid; those using a wind power generator and injecting the surplus back into the grid; and end-use customers requiring marginal or full supply. An even more dispersed model for distributed generation will emerge once electric vehicles circulate in towns, placing complex new demands on the grid while offering the benefit of new storage capabilities to the network.

Interdependence

Together, water and power distributors, transmission operators, generators, market regulators and final customers will interact in a much more complex, interconnected and interdependent world. This is especially true in a densely populated, modern island ecosystem, where the interplay of electricity, water, gas, communications and other services is magnified.

These points of intersection take numerous shapes. For example, on a national scale, water and sewer services can consume a large portion of the available energy supply. Water service, which is essential to customer quality of life, also presents distribution issues that are similar in many ways to those embedded in the electric grid. At a more local scale, co-generation and micro-CHP generation plants make the interdependency of electricity and gas more visible. Furthermore, utilities’ experience at providing centrally managed services that afford comfort and convenience makes the provision of additional services – communication, security, and more – imaginable. But how to make these interconnections effective contributors to quality of life raises real economic questions. Is it sensible to make an overarching investment in multiple services? How can this drive increased operational efficiency and bring new benefits to customers? Can a clear return on investment be demonstrated to investors and bill payers?

Malta is an example of an island that operates a vertically integrated and isolated electricity system. Malta has no connections with the European electricity grid and no gas pipelines to supply its generators. In the current configuration of the energy infrastructure, all of its demand must be fulfilled by the two existing power plants, which generate power using entirely imported fossil fuel. Because of these limitations on supply, and dependencies on non-native resources, electricity distribution must be extremely efficient, limiting any loss of energy as much as possible. Both technical and commercial losses must be kept fully under control, and theft must be effectively eliminated from the system to avoid unfair social accounting and to ensure proper service levels to all customers.

Estimates of current economic losses in Malta are in the millions of Euros for just the non-technical losses. At these levels, and with limited generation capacity, quality of service and ability to satisfy demand at all times is threatened. Straining the system even further is the reality that Malta, without significant natural water sources, must rely on a seawater purification process to supply water to its citizens. This desalinization process absorbs roughly one-third of the annual power consumption on the island.

But the production process is not the only source of interdependency of electricity and water as the distribution principles of each have strong ties. In most locations in the world, electricity and water distribution have opposing characteristics that allow them to enjoy some symbiotic benefits. Electricity cannot be effectively stored, so generation needs to match and synchronize in time with demand. Water service generally has the opposite characteristic: in fact, it can be stored so easily that it is frequently stored as pre-generation capacity in hydro generation.

But on an island like Malta, this relationship is turned on its head. There is no natural water to store, and once produced, purified water should be consumed rather quickly. If it is produced in excess, then reservoir evaporation and pipeline losses can affect the desalinization effort and the final efficiency of the process. So in Malta, unlike much of the rest of the world, water providers tend to view customer demand in a similar way as electricity providers, and the demand profiles are unable to support each other as they can elsewhere.

These are qualitative observations. But if electricity and water networks can be monitored, and real-time data supplied, providers can begin to assess important questions regarding operational and financial optimization of the system, which will, among other benefits, improve reliability and service quality and keep costs low.

Societal Implications

An additional issue the government of Malta faces is its effort to ensure that the population has a sufficient and diverse educational and technical experience base. When a company is attracted to invest in Malta, it benefits from finding local natives with appropriate skills to employ; costs increase if too many foreign nationals must be brought in to operate the company. Therefore, pervasive education on information and communication technology-related topics is a priority for the government, aimed at young students, as well as adult citizens.

Therein lies a further – but no less important – benefit of bringing a smart grid to Malta. Energy efficiency campaigns supported by smart meters will not only help its citizens control consumption behavior and make more efficient and effective electricity and water operations a reality, but they will prove to be a project that helps raise the island’s technology culture in a new dimension. Meter installers will deal with palmtop and other advanced IT applications, learning to connect the devices not only to the physical electrical infrastructure, but also to the embedded information infrastructure. From smart home components to value-added services, commercial and industrial players will look to new opportunities that leverage the smart grid infrastructure in Malta as well, adding highly skilled jobs and new businesses to the Maltese economy.

Benefits will expand down to the elementary education levels as well. For example, it will be possible for schools to visit utility demonstration centers where the domestic meter can be presented as an educational tool. This potential includes making energy efficiency a door to educational programs on responsible citizenship, science, mathematics, environmental sustainability and many other key learning areas. Families will find new incentive to become familiar with the Internet as they connect to the utility’s website to control their energy bill and investigate enhanced tariffs for more cost-effective use of basic services.

Conclusion

Malta is famed for its Megalithic Temples – the oldest free-standing buildings in Europe, older than the Pyramids of Egypt [1]. But with its smart grid project, it stands to be the home of one of the newest and most advanced infrastructure projects as well. The result of the Maltese smart grid effort will be an end-to-end electricity and water transmission and distribution system. It will not only enable more efficient consumption of energy and water, but will completely transform the relationship of Maltese consumers with the utilities, while enhancing their education and employment prospects. These benefits go well beyond the traditional calculation of benefits of, for example, a simple AMI-focused project, and demonstrate that a smart grid project in an island environment can go well beyond simply improving utility operations. It can transform the entire community in ways that will improve the quality of life in Malta for generations to come.

Reference:

1 The Bradshaw Foundation, 2009

An Australian Approach to Energy Innovation and Collaboration

Just as global demand for energy is
steadily increasing, so too, are the
recognized costs of power generation.
A recent report about the possibility
of creating a low-emissions future by Australia’s
Treasury noted that electricity production
currently accounts for 34 percent
of the nation’s net greenhouse gas emissions,
and that it was the fastest-growing
contributor to greenhouse gas emissions
over the period from 1990 to 2006 [1].

This growing realization of the true
cost of energy production will be brought
into stark relief, with the likely implementation
of a national emissions trading
scheme in 2010.

Australia’s energy producers are entering
an era of great change, with increasing
pressure to drive efficiencies in both the
supply and demand sides of their businesses.
These pressures manifest themselves
in the operation of energy and utilities
organizations in three basic needs:

To tighten the focus on delivering value,
within the paradigm of achieving more
with less, and while concentrating on
their core business;
To exploit the opportunities of an industry
in transformation, and to build new
capabilities; and
To act with speed in terms of driving
leadership, setting the agenda, managing
change and leveraging experience
– all while managing risk.

The net effect of the various government
initiatives and mandates around energy
production is to drive energy and utility
companies to deliver power more responsibly
and efficiently. The most obvious
evidence of this reaction is the development
of advanced metering infrastructure
(AMI) and intelligent network (IN) programs
across Australia. Yet a more fundamental
change is also starting to emerge – a
change that is leading companies to work
more openly and collaboratively toward a
smarter energy value chain.

This renewed sense of purpose gives
energy and utilities organizations an opportunity
to think and act in dynamic new ways
as they re-engineer their operations to:

Transform the grid from a rigid, analog
system to a responsive and automated
energy delivery system by driving operational
excellence;
Empower consumers and improve their
satisfaction by providing them with near
real-time, detailed information about
their energy usage; and
Reduce greenhouse gas emissions to
meet or exceed environmental regulatory
requirements while maintaining a
sufficient, cost-effective power supply.

A Global Issue

In Australia, Country Energy, a leading
essential services corporation owned by
the New South Wales Government, is leading
the move to change not just its own
organization, but the entire electricity
supply industry.

With the strength of around 4,000
employees, and Australia’s largest power
supply network covering 95 percent of
New South Wales’ landmass, Country
Energy recognized the scale and scope of
this industry challenge meant no single
player could find all the answers by himself.

A Powerful Alliance

Formed by IBM, the Global Intelligent
Utilities Network (IUN) Coalition represents
a focused and collaborative effort
to address the many economic, social and
environmental pressures facing these
organizations as they shape, accelerate
and share in the development of the
smart grid. Counting just one representative
organization from each major urban
electricity market, the coalition will collaborate
to enable the rapid development of solutions, adoption of open industry-based
standards, and creation of informed
policy and regulation.

Not only does the coalition believe
these three streams of collaboration will
help drive the adoption of the IUN, or
smart grid, in markets across the planet,
but the sharing of best practice information
and creation of a unified direction for
the industry will help reduce regulatory,
financial, market and implementation
risks. And, like all productive collaborative
relationships, the rewards for individual
members are likely to become amplified as
the group grows, learns and shares.

Global Coalition, Local Results

As Australia’s only member of the coalition,
Country Energy has been quick to
capitalize on – and contribute to – the
benefits of the global knowledge base,
adapting the learnings from overseas
operators in both developed and emerging
markets, and applying them to the unique
challenges of a huge landmass with a
decentralized population.

From its base in a nation rich in natural
resources, the Australian energy and utilities
industry is quickly moving to adapt to
the emergence of a carbon economy.

One of Country Energy’s key projects in
this realm is the development of its own
Intelligent Network (IN), providing the
platform for developing its future network
strategy, incorporating distributed generation
and storage, as well as enabling consumer
interaction through the provision of
real-time information on energy consumption,
cost and greenhouse footprint.

Community Collaboration

Keen to understand how the IN will work
for customers and its own employees,
Country Energy is moving the smart grid
off the page and into real life.

Designed to demonstrate, measure and
evaluate the technical and commercial
viability of IN initiatives, two communities
have been identified by Country Energy,
with the primary goal of learning from
both the suitability of the solutions implemented
and the operational partnership
models by which they will be delivered.

These two IN communities are intended
to provide a live research environment
to evaluate current understandings and
technologies, and will include functionality
across nine areas, including smart meters,
electrical network monitoring and control,
and consumer interaction and response.

Demonstrating the Future

In preparing to put the digital age to
work, and to practically demonstrate to
stakeholders what an IN will deliver, Country
Energy has developed Australia’s first
comprehensive IN Research and Demonstration
Centre near Canberra.

This interactive centre shows what the power network of the not-too-distant
future will look like and how it will
change the way power is delivered, managed
and used.

The centre includes a residential setting
to demonstrate the “smart home of
the future,” while giving visitors a preview
of an energy network that automatically
detects where a power interruption
occurs, providing up-to-date information
to network operators and field crews.

An initiative as far-reaching as the IN will
rely on human understanding as much as it
does on technology and infrastructure.

Regional Delivery Model

In addition to the coalition, IBM and
Country Energy developed and implemented
an innovative new business model
to transform Country Energy’s application
development and support capability. In
2008, Country Energy signed a four-year
agreement with IBM to establish a regional development centre, located in
the city of Bathurst.

The centre is designed to help maximize
cost efficiencies, accelerate the pace of
skills transfer through close links with the
local higher-education facility, Charles
Sturt University, and support Country
Energy’s application needs as it moves
forward on its IN journey. The centre is also
providing services to other IBM clients.

Through the centre, Country Energy
aims to improve service levels and innovations
delivered to its business via skills
transfer to Country Energy. The outcome
also allows Country Energy to meet its
commitment to support regional areas
and offers a viable alternative to global
delivery models.

Looking to the Future

In many ways, the energy and utilities
industry has come to symbolize the crossroads
that many of the planet’s systems find themselves at this moment in time:
legacy systems are operating in an economic
and environmental ecosystem that
is simply unable to sustain current levels –
let alone, the projected demands of global
growth.

Yet help is at hand, infusing these systems
with the instrumentation to extract
real-time data from every point in the
value chain, interconnecting these points
to allow the constant, back-and-forward
fl ow of information, and finally, employing
the power of analytics to give these systems
the gift of intelligence.

In real terms, IBM and Country Energy
are harnessing the depth of knowledge
and expertise of the Global IUN Coalition,
collaborating to help change the way the
industry operates at a fundamental level
in order to create an IN. This new smart
grid will operate as an automated energy
delivery system, empowering consumers
and improving their satisfaction by providing
them with near real-time, detailed
information about their energy usage.

And for the planet that these consumers
– and billions of others – rely upon,
Country Energy’s efforts will help reduce
greenhouse gas emissions while maintaining
that most basic building block of
human development: safe, dependable,
available and cost-effective power.

Reference

1 Commonwealth of Australia. Commonwealth
Treasury. Australia’s Low Pollution
Future: The Economics of Climate
Change Mitigation. 30 October 2008.

Author’s Note: This customer story is based
on information provided by Country Energy
and illustrates how one organization uses IBM
products. Many factors have contributed to
the results and benefits described. IBM does
not guarantee comparable results elsewhere.

Surviving the Turmoil

With the new administration talking about a trillion dollars of infrastructure investment, the time for the intelligent utility of the future is now. Political pressure and climate change are going to drive massive investments in renewable and clean energy and smart grid technology. These investments will empower customers through the launch and adoption of demand response and energy efficiency programs.

Many believe that the utility industry will change more in the next five years than the previous 50. The greatest technological advancements are only valuable if they can enable desired business outcomes. In a world of rapidly changing technology it is easy to get caught up in the decisions of what to put in, how, when, and where – making it easy to forget why.

A New Era Emerges

The utility industry has, for decades, been the sleeping giant of the U.S. economy. Little has changed in service delivery and consumer options over the last 50 years. But a perfect storm of legislation, funding and technology has set in motion new initiatives that will change the way customers use and think about their utility service. The American Recovery and Reinvestment Act allocates more than $4 billion, via the Smart Grid Investment Grant Program, for development and upgrade of the electrical grid. Simultaneously, significant strides in smart metering technology make the prospect of a rewired grid more feasible.

While technological advances toward the intelligent utility are exciting, technology in and of itself is not the solution for the utility of the future. How those technologies are applied to supporting business outcomes will be key to success in a consumer-empowered environment. Those outcomes must include considerations such as increasing or sustaining customer service levels and reducing bad debt through innovative charging methods and better control of consumption patterns.

Facing New Challenges

Future smart grid considerations aside, consumer expectations are already undergoing transformation. Although some energy prices have decreased recently in light of declining natural gas prices, the long-term trend indicates rates will continue to climb. Faced with increasing energy costs and declining household incomes, customers are looking for options to reduce their utility bill. Further, utilities’ ability to meet demand during peak periods is often inadequate. According to the Galvin Electricity Initiative, “Each day, roughly 500,000 Americans spend at least two hours without electricity in their homes and businesses. Such outages cost at least $150 billion a year. The future looks even worse. Without substantial innovation and investment, rolling blackouts and soaring power bills will become a persistent fact of life [1].”

Simultaneously, environmental concerns are influencing a greater number of consumers than in the past. In April 2009, the U.S. Environmental Protection Agency (EPA) announced it had identified six greenhouse gases that may endanger public health or welfare [2]. According to the EPA, the process of generating electricity creates 41 percent of all carbon dioxide emissions in the U.S. Utilities are under pressure to offer ways to reduce the impact of fossil fuels to accommodate rapidly changing economic and social conditions.

Strategies such as rate structures that incent customers to schedule their energy-intensive activities during off-peak times would help the utility to avoid, or reduce, reliance on the facilities that produce greenhouse gases. Lowering a residential thermostat by just 2 degrees reduces reliance on less desirable sources of generation. According to McKinsey &
Company, carbon dioxide emissions can be reduced by 34 percent in the residential sector alone through enhanced energy productivity [3].

If a significant number of residential consumers could reschedule their peak usage today, it would extend the life of the current infrastructure and reduce the need to raise rates in order to fund capital investments. But at present, in most jurisdictions there is no demonstrable incentive, such as rate structures that reward off-peak usage, to motivate consumers to conserve in any meaningful way.

Aging CIS

Those utilities saddled with aging customer information systems (CIS) – and those executives who have been reluctant to adopt new technology – will be challenged to adapt to the new paradigm. Even utilities with a relatively new CIS in place may find themselves with technology not suited to today’s world. Typically, utilities have been “load serving entities” – matching supply to demand. In the new recession-prone environment, proactive utilities will need to encourage conservation to match supply. Most utilities do not have the capability to show consumers how and when they can save money by using electricity during off-peak hours.

Until utilities can address these needs, and answer customer inquiries about how to save money and energy, they will not be in a position to focus on desired business outcomes. Currently, many utilities track quantitative performance indicators, not business outcomes.

Desired Business Outcomes

Determining the tools, processes or intellectual property needed to achieve desired business outcomes can be a dilemma. Realizing targeted results may require out-of-the-box thinking. To leverage best-in-class practices, many utilities seek external expertise ranging from advisory and consulting resources to a fully outsourced solution.

When addressing the changes the future utility faces, it is easy to become focused on the what, how, when and where to deploy emerging technology rather than the most important element – why deploy at all? Figure 1 depicts Vertex’s four-level solutions approach to business outcomes as an example of keeping the focus on the “why.”

Level 1: Identify Business Challenges. What are the key issues your organization is grappling with? They may be part of the macro trends impacting the industry as a whole or they may be specific to your company. The list might include issues such as substantial bad debt, poor customer satisfaction, declining revenue and profits, high operating cost to serve, and customer acquisition and retention.

Level 2: Identify Desired Outcomes. While acting on business challenges is an integral part of the process, the desired business outcomes are the drivers that will guide you to the solution. At the same time, the solution will also determine if the desired outcomes can be achieved with in-house resources or if an experienced third party should join the team. The solution will also clarify whether you have the technology to realize the desired outcomes or if an investment will be necessary. For example, desired outcomes might include reducing bad debt by 10 percent, improving customer satisfaction from the second quartile to the first quartile, or eliminating 30 percent of the cost of the meter-to-cash process. One or more of these outcomes may require new supporting technology.

Level 3: Develop and Implement Solution. Once the specific business challenges have been fully discussed and the desired outcomes outlined, the next step requires designing the solution to enable achievement. The solution needs to be realistic, in line with your corporate culture, and deliver the right mix of technology, innovation and practicality, all with the appropriate cost-to-value ratio. Management must avoid the lure of overengineering to meet the goal, and thereby incurring more expense and complexity than needed. And the journey from perceived solution to actual solution to achieve a desired outcome might include some surprising elements.

For example, accomplishing the goal of reducing customer service costs by 30 percent might call for enhanced customer service representative (CSR) education and a reduction in the average number of calls a customer makes to the call center each year. The eventual solution may be very complex, and require touching all areas of the meter-to-cash process, along with implementing next generation technology. Or the solution may be as simple as upgrading the customer’s bill to provide more accurate and timely information. Putting more information in the customer’s hands makes billing easier to understand, resulting in fewer customer calls per year, leading to lower customer service costs. The value proposition enabling the business outcome might rely on a more robust analytics engine for analyzing and presenting data to customers. There are generally multiple paths that can bring about achieving a desired business outcome. Seeking external help on the pros and cons of the paths might be valuable to utility executives,
especially if the path involves deploying new technology.

Level 4: Measure Solution Results. Continuous process improvement must be a component of all solutions. The results must be measured and compared against the desired business outcomes. Reviewing results and lessons learned in a closed loop will empower continuous process improvement and maintain focus on the process.

Conservation and Education

While current technology may not be up to the task of helping consumers conserve and save money on energy, those restrictions will change in the very near future. Utilities need to start viewing themselves less as responders to supply and demand and more as advocates for conservation, the environment, and de-coupling of rates. Massive investments in clean and renewable energy, and smart grid technology, will empower customers to employ demand response decisions and gain energy efficiency. The real issue for the utility will not be how to implement the technology itself – wired, wireless, satellite, etc. – but how best to use the technology to achieve its desired business outcomes. Further, utilities need to be prepared for some disruption to business as usual while technology and business processes undergo a sea change.

The capability of deploying a smart grid and advanced meter management (AMM) is one of the most significant changes impacting utilities today. The outcomes are not achieved by technology alone. Those outcomes require the merging of AMM with meter-to-cash processes. The utility will realize business value only if the people and discrete processes within the customer care component of the end-toend process evolve to take advantage of new technology.

The New Reality

Most utilities already enjoy acceptable levels of customer satisfaction. As the smart grid comes on line, with its associated learning curve, myriad details and inevitable glitches, customers will depend on the utility for support and clarification. Call center volumes and average handle times will increase as the complexity of the product grows by an order of magnitude. The old standard of measuring productivity according to number of calls completed within a pre-determined number of minutes will no longer be viable. Average call length increased by a factor of four for one utility that has experimented with smart grid technology. Longer call times, however, can ultimately translate to increased customer satisfaction as consumers receive the information they need to understand the new system and how to reduce their energy bill.

But a four-fold increase in call center staff to accommodate longer calls is not economically practical. In the future, utilities will need to provide more in-depth education to CSRs so they can, in turn, educate customers. They may even need to change their hiring criteria, and seek more highly skilled call center staff who are already versed in the meter-to-cash process. For some customers, alternative sources of information such as the Internet will suffice, thus offsetting some of the strain placed on the call center.

Achieving Desired Outcomes

The following section provides examples of how the combination of advanced meter management and redefined meter-to-cash processes and tools can enable and help achieve desired business outcomes.

Accurate and Timely Data – With smart meters and the smart grid able to capture usage data in intervals as frequent as five minutes, utilities will have more current information about system activity than ever before. Developing a strategy for managing this massive database will require forethought to avoid overwhelming the back office. When fully deployed throughout a service area, customers will no longer receive estimated bills. Devices in the home will provide readouts about usage activity, and some consumer education may be needed to help households understand the presented data and how it translates to their usage patterns and billing. Demand response participation is likely to increase as consumers become more aware of the benefits of managing their energy usage patterns. The federal government’s stimulus bill funding may include allocations for retrofits for low-income homeowners. The call center can function as a resource for customers who wish to investigate this program.

Reduced Bad Debt – As noted earlier, average handle time will be a less significant metric as consumer interaction with the call center increases. The CSR will become a key element in the strategy to reduce bad debt. CSRs will be the conduit for consumer education and building rapport with the customer when resolving past-due bills. As an alternative, utilities may want to turn to Madison Avenue to help them design and roll out a customer information campaign.

Better Revenue Management – If customer education about the smart grid pays off, and consumers are using energy more judiciously, utilities will benefit. Without the pressure to make capital investments for new plants, there will be more opportunities for profit-taking and shareholder rewards. Utilities may instead be able to make profits on their energy efficiency and investments. New technologies will help utilities avoid spending the hundreds of billions of dollars that would otherwise be needed for base load. In addition, demand response participation on the part of residential consumers will better align commercial and industrial (C&I) energy pricing with residential pricing. C&I customers will see the quality and consistency of their power supply improve.

Increased Energy Efficiency – Utilities, whether municipal, public or private, will feel the social pressure to apply technologies in order to gain energy efficiency and encourage conservation. The future utility will become a leader, instead of a follower, in the campaign to improve the environment and use energy resources wisely. By using energy more strategically – that is, understanding the benefits of off-peak usage – consumers will help their utility reduce carbon emissions, which is the ultimate desired business outcome for all involved.

Increased Stakeholder Satisfaction – Stakeholders run the gamut from shareholders and public utility commissions to consumers, utility employees and executives. All of these groups will be pleased if the public uses energy more efficiently, leading to more revenue for the utility and lower costs to consumers. Showing focus on business outcomes is generally a huge plus that helps increase stakeholder satisfaction.

Lower Cost to Serve – Utilities must try to design a business model with flatter delivery costs. For example, if it costs the utility $30 to $40 per customer per year, staying within that existing range with more and longer customer calls will be a challenge. Some utilities may opt out of providing customer service with in-house staff and contract with a service provider. Recognizing that supplying and managing energy, not delivering customer care, is their core competency, a utility can often reduce the cost of customer care by partnering with an organization that is an expert in this business process. If this is the path a utility takes it is very important to find the provider that will enable the desired outcomes of your business; not all service providers are equal or focus on outcomes. We expect relationships with vendors within the industry will change, with utilities embracing more business partners than in the past.

Increased Service Levels – Public utility commissions (PUC) often review financial and service metrics when considering a rate case. Utilities may need to collaborate with PUCs to help them understand the dynamics of smart meters, along with temporary changes in customer satisfaction and service levels, when submitting innovative rate cases and programs. Once the initial disruptive period of new technology is completed, utilities will be able to increase service levels with greater responsiveness to customer needs. When the call center staff is fully educated about smart meters and demand response, they will be positioned to provide customers with more comprehensive service, thus reducing the number of incoming and outgoing calls.

Future Competition – The current and upcoming changes in the industry are so dramatic that utilities must first assess how consumers are accepting change. Reinventing the grid via the smart grid and its related products and services will create new opportunities and new business models with potential for increased revenue. The extent to which the future market is more competitive depends on the rate of acceptance by consumers and how skillfully utilities adopt new business models. It is our premise that utilities who desire the right business outcomes and focus on enabling them through process, people, and technological changes will be most able to excel in a more competitive environment.

References

Galvin Electricity Initiative, sponsored by The Galvin Project, Inc., www.galvinpower.org
Press Release, “EPA Finds Greenhouse Gases Pose Threat to Public Health, Welfare/Proposed Finding Comes in Response to 2007 Supreme Court Ruling,” April 17, 2009. http://yosemite.epa.gov
McKinsey Global Institute, “Wasted Energy: How the US Can Reach its Energy Productivity Potential,” McKinsey
& Company, June 2007.

Business Process Improvement

In the past, the utility industry could consider itself exempt from market drivers like those listed above. However, today’s utilities are immersed in a sea of change. Customers demand reliable power in unlimited supply, generated in environmentally friendly ways without increased cost. All the while regulators are telling consumers to “change the way they are using energy or be ready to pay more,” and the Department of Energy is calling for utilities to make significant reductions in usage by 2020 [1].

“The consumer’s concept of quality will no longer be measured by only the physical attributes of the product – it will extend to the process of how the product is made, including product safety, environmental compliance and social responsibility compliance.”

– Victor Fang, chairman of Li and Fang,
in the 2008 IBM CEO Study

If these issues are not enough, couple them with a loss of knowledge and skill due to an aging workforce, an ever-increasing amount of automation and technology being introduced into our infrastructure with few standards, tightening bond markets and economic declines requiring us to do more with less. Now more than ever the industry needs to redefine our core competencies, identify key customers and their requirements, and define processes that meet or exceed their expectations. Business process improvement is essential to ensure future success for utilities.

There is no need to reinvent the wheel and develop a model for utilities to address business process improvement. One already exists that offers the most holistic approach to process improvement today. It is not new, but like any successful management method, it has been modified and refined to meet continuously changing business needs.

It is agnostic in the way it addresses methods used for analysis and process improvement such as Lean, Six Sigma and other tools; but serves as a framework for achieving results in any industry. It is the Baldrige Criteria for Performance Excellence (see Figure 1).

The Criteria for Performance Excellence is designed to assist organizations to focus on strategy-driven performance while addressing key decisions driving both short-term and long-term organizational sustainability in a dynamic environment. Is it possible that this framework was designed for times such as these in the utility industry?

The criteria are essentially simple in design. They are broken into seven categories as shown in figure 2; leadership, strategic planning, customer focus, measurement, analysis and knowledge management, workforce focus, process management and results.

In this model, measurement, analysis and knowledge management establish the foundation. There are two triads. On the left hand side, leadership, strategic planning and customer focus make up the leadership triad. On the right hand side of the model, workforce focus, process management and results make up the results triad. The alignment and integration of these essential elements of business create a framework for continuous improvement. This model should appear familiar in concept to industry leaders; there is not a single utility in the industry that does not identify with these categories in some form.

The criteria are built to elicit a response through the use of how and what questions that ask about key processes and their deployment throughout the organization. On face value, these questions appear to be simple. However, as you respond to them, you will realize their linkage and begin to identify opportunities for improvement that are essential to future success. Leaders wishing to begin this effort should not be surprised by the depth of the questions and the relatively few members within your organization who will be able to provide complete answers.

In assessment of the model’s ability to meet utility industry needs, let’s discuss each category in greater detail, provide relevance to the utility industry and include key questions for you to consider as you begin to assess your own organization’s performance.

Leadership: Who could argue that the current demand for leadership in utilities is more critical today than ever before in our history? Changes in energy markets are bringing with them increased levels of accountability, a greater focus on regulatory, legal and ethical requirements, a need for long-term viability and sustainability, and increased expectations of community support. Today’s leaders are expected to achieve ever increasing levels of operational performance while operating on less margin than ever before.

“The leadership category examines how senior leaders’ personal actions guide and sustain the organization. Also examined are the organization’s governance system and how it fulfills legal, ethical and societal responsibilities as well as how it selects and supports key communities [2].”

Strategic Planning: Does your utility have a strategic plan? Not a dust-laden document sitting on a bookshelf or a financial budget; but a plan that identifies strategic objectives and action plans to address short and long-term goals. Our current business environment demands that we identify our core competencies (and more importantly what are not our core competencies), identify strategic challenges to organizational success, recognize strategic advantages and develop plans that ensure our efforts are focused on objectives that will ensure achievement of our mission and vision.

What elements of our business should we outsource? Do our objectives utilize our competitive advantages and core competencies to diminish organizational challenges? We all know the challenges that are both here today and await us just beyond the horizon. Many of them are common to all utilities; an aging workforce, decreased access to capital, technological change and regulatory change. How are we addressing them today and is our approach systematic and proactive or are we simply reacting to the challenges as they arise?

“The strategic planning category examines how your organization develops strategic objectives and action plans. Also examined are how your chosen strategic objectives and action plans are deployed and changed if circumstances require, and how progress is measured [2].”

Customer Focus: The success of the utility industry has been due in part to a long-term positive relationship with its customers. Most utilities have made a conscientious effort to identify and address the needs of the customer; however a new breed of customer is emerging with greater expectations, a higher degree of sensitivity to environmental issues, a diminished sense of loyalty to business organizations and overall suspicion of ethical and legal compliance.

Their preferred means of communication are quite different than the generations of loyal customers you have enjoyed in the past. They judge your performance against similar customer experiences received from organizations far beyond the traditional competitor.

You now compete against Wal-Mart’s supply chain process, Amazon.com’s payment processes and their favorite hotel chain’s loyalty rewards process. You are being weighed in the balances and in many cases found to be lacking. Worse yet, you may not have even recognized them as an emerging customer segment.

“The Customer Focus category examines how your organization engages its customers for long-term marketplace success and builds a customer-focused culture. Also examined is how your organization listens to the voice of its customers and uses this information to improve and identify opportunities for innovation [2].”

Measurement, Analysis, and Knowledge Management: The data created and maintained by GIS, CIS, AMI, SCADA and other systems create a wealth of information that can be analyzed to obtain knowledge sufficient to make rapid business decisions. However, many of these systems are incapable of or at the very least difficult to integrate with one another, leaving leaders with a lot of data but no meaningful measures of key performance. Even worse, a lack of standards related to system performance leaves many utilities that develop performance measures with a limited number of inconsistently measured comparatives from their peers.

If utilities are going to overcome the challenges of the future, it is essential that they integrate all data systems for improved accessibility and develop standards that would facilitate meaningful comparative measures. This is not to say that comparative measures do not exist, they do. However, increasing the number of utilities participating would increase our understanding of best practices and enable us to determine best-in-class performance.

“The measurement, analysis and knowledge management category examines how the organization selects, gathers, analyzes, manages and improves its data, information and knowledge assets and how it manages its information technology. The category also examines how your organization reviews and uses reviews to improve its performance [2].”

Workforce Focus: We have already addressed the aging workforce and its impact on the future of utilities. Companion challenges related to the utility workforce include the heavy benefits burdens that many utilities currently bear. Also, the industry faces a diminished interest in labor positions and the need to establish new training methods to engage a variety of generations within our workforce and ensure knowledge acquisition and retention.

The new workforce brings with it new requirements for satisfaction and engagement. The new employee has proven to be less loyal to the organization and studies show they will have many more employers before they retire than that of their predecessors. It is essential that we develop ways to identify these requirements and take action to retain these individuals or we risk increased training cost and operational issues as they seek new employment opportunities.

“The workforce focus category examines how your organization engages, manages and develops the workforce to utilize its full potential in alignment with organizational mission, strategy and action plans. The category examines the ability to assess workforce capability and capacity needs and to build a workforce environment conducive to high performance [2].”

Process Management: It is not unusual for utilities to implement new software with dramatically increased capabilities and ask the integrator to make it align with their current processes or continue to use their current processes without regard for the system’s new capabilities. Identifying and mapping key work processes can enable incredible opportunities for streamlining your organization and facilitate increased utilization of technology.

What are your utilities’ key work processes and how do you determine them and their relationship to creating customer value? These are difficult for leaders to articulate; but yet, without a clear understanding of key work processes and their alignment to core competencies and strategic advantages as well as challenges, it may be that your organization is misapplying efforts related to core competencies and either outsourcing something best maintained internally or performing effort that is better delivered by outsource providers.

“The process management category examines how your organization designs its work systems and how it designs, manages and improves its key processes for implementing these work systems to deliver customer value and achieve organizational success and sustainability. Also examined is your readiness for emergencies [2].”

Results: Results are the fruit of your efforts, the gift that the Baldrige Criteria enables you to receive from your applied efforts. All of us want positive results. Many utilities cite positive performance in measures that are easy to acquire: financial performance, safety performance, customer satisfaction. But which of these measures are key to our success and sustainability as an organization? As you answer the questions and align measures that are integral to obtaining your organization’s mission and vision, it will become abundantly clear which measures you’ll need to maintain and develop competitive comparisons and benchmarks.

“The results category examines the organization’s performance and improvement in all key areas – product outcomes, customer-focused outcomes, financial and market outcomes, workforce-focused outcomes, process-effectiveness outcomes and leadership outcomes. Performance levels are examined relative to those of competitors and other organizations with similar product offerings [2].”

A Challenge

The adoption of the Baldrige criteria is often described as a journey. Few utilities have embraced this model. However, it appears to offer a comprehensive solution to the challenges we face today. Utilities have a rich history and play a positive role in our nation. A period of rapid change is upon us. We need to shift from reacting to leading as we solve the problems that face our industry. By applying this model for effective process improvement, we can once again create a world where utilities lead the future.

References

Quote from U.S. Treasury Secretary Tim Geithner as communicated in SmartGrid Newsletter
Malcolm Baldrige National Quality Award, “Path to Excellence and Some path Building Tools.” www.nist.gov/baldrige.

Enabling Successful Business Outcomes Through Value-Based Client Relationships

Utilities are facing a host of challenges ranging from environmental concerns, aging infrastructure and systems, to Smart Grid technology and related program decisions. The future utility will be required to find effective solutions to these challenges, while continuing to meet the increasing expectations of newly empowered consumers. Cost management in addressing these challenges is important, but delivery of value is what truly balances efficiency with customer satisfaction.

Our Commitment

Vertex clients trust us to deliver on our promises and commitments, and they partner with us to generate new ideas that will secure their competitive advantage, while also delivering stakeholder benefits. Our innovative same-side-of-the-table approach allows us to transform the efficiency and effectiveness of your business operations, enabling you to lower your risk profile and enhance your reputation in the eyes of customers, investors and regulatory bodies. Working as partners, we provide unique insights that will generate actionable ideas and help you achieve new levels of operational excellence.

With a long heritage in the utility industry, Vertex possesses an in-depth knowledge and understanding of the issues and challenges facing utility businesses today. We actively develop insights and innovative ideas that allow us to work with our utility clients to transform their businesses, and we can enhance your future performance in terms of greater efficiencies, higher customer satisfaction, increased revenue and improved profitability.

Achievement of desired business outcomes is best achieved with a strategic, structured approach that leverages continuous improvement throughout. Vertex takes a four-level approach, which starts with asking the right questions. Levels 1 and 2 identify business challenges and the corresponding outcomes your utility hopes to achieve. Need to improve customer satisfaction? If so, is moving from the 2nd to 1st quartile the right target? Pinpointing the key business challenges that are limiting or impeding your success is critical. These may include a need to reduce bad debt, reduce costs, minimize billing errors, or improve CSR productivity. Whatever challenges you face, collaboration with our experts will ensure your utility is on the right track to meet or exceed your targets.

Once the challenges and outcomes have been identified and validated, Vertex partners with clients to develop effective solutions. The solutions implemented in Level 3 consist of unique value propositions that, when combined effectively, achieve the desired business outcome for the business challenge being addressed. Vertex’s proprietary “Value Creation Model” enables us to develop and implement solutions that provide measurable business results and ongoing quality assurance.

Inherent to the success of this model is the Vertex Transition Methodology, which has resulted in 200 successful transitions over a twelve-year period. Due diligence yields a clear understanding of how the business operates. Mobilizing activities lay the foundation for the transition, and a baseline for the transition plan is established. The plans developed during the planning stage are implemented, followed by a stabilization period from the business transfer to when things are fully operational.

Another key element of this model lies in Vertex’s transformation capabilities, and what we refer to as our “6D” transformation methodology. Dream, Define, Design, Develop, Deliver, Drive – our Lean Six Sigma methods guarantee successful deployment of continuous process improvement results. In addition to Lean Six Sigma, the Vertex Transformation Methodology includes change management, people and performance management, and project management.

In Level 4 of the Vertex solution approach, Vertex measures the effectiveness of a solution by determining if it achieved the desired business outcome. We utilize a Balanced Scorecard approach to ensure that the business outcome positively impacts all of the key elements of a client’s business: Customer, Employee, Operational, and Financial. As desired business outcomes evolve, Vertex will remain committed to adapting our solutions in partnership with our clients to meet these changing needs.

Transforming Your Organization

If you’re ready to transform to an outcomes- based business, Vertex has the capability to help. Our service lines include: Consulting and Transformation, IT Applications Services and Products, Debt Management, and Meter-to-Cash Outsourcing.

Our transformation approach blends innovation and business process improvement, focusing on achieving your strategic objectives via our proven expertise and insights. We bring business transformation that secures greater efficiencies, improved effectiveness and enhanced services for your organization. All the while we never forget that our employees represent your brand.

We’ll work collaboratively with you, rapidly implementing services and delivering on continuous improvement to meet your goals. We’ll build on your business needs, sharing ideas and jointly developing options for change – working together to deliver real value.

Empower Your Customers To Reduce Energy Demand

The Energy Information Administration (EIA) forecasts a continuing gap between total domestic energy production and consumption through 2030. This delta will not be closed by supply alone; customer behavior changes are needed to reduce total consumption and peak load. Electric and gas utilities face tremendous challenges meeting energy supply and demand needs and will play a pivotal role in determining practical solutions. With the right approach, utilities will deliver on the promise of energy efficiency and demand response.

Energy market projections are highly speculative as the market is characterized by high price volatility and rapid market transformation. Adding to the uncertainty is the voluntary nature of demand response and energy efficiency programs, and the critical importance of customer behavior change. Utilities are spending billions of dollars, making program penetration essential – and customer education paramount. At an end-point cost of up to $300, a five percent penetration is not the answer. Vertex can help mitigate these risks through highly effective management of customer care, CIS integration, pilot programs, and analytics. Vertex’s core “meter-to-cash” capabilities have undergone a major revolution in response to the new world of AMI, energy efficiency, and demand response. A robust set of new services will allow utilities to transform how they do business.

Smart meters put new demands on CIS platforms and traditional business processes – innovative rates, distributed generation, demand response and new customer programs all require creative change. Vertex is currently helping utilities develop and manage customer programs to fully exploit smart meter deployments and provide customer care to customers migrating to time-based rates. We deliver customer management services to drive penetration and designed to meet the unique customer care needs generated by smart meter installations, energy efficiency and demand response programs to empower customers to manage their energy use and reduce consumption, and cost-effective customer care and billing solutions to support smart meters.

Water utilities are not immune to the need for conservation. In the past 30 years, the U.S. population has grown over 50% while the total water use has tripled. On average, Americans use approximately 75 to 80 gallons of water per person per day. Vertex can help water utilities address the unique conservation challenges they face, including customer care and program support, MDMS solutions to organize data for forecasting, code enforcement, business and customer insight, and other services.

Case Study – Hydro One

Hydro One is an Ontario, Canada based utility that is one of the five largest transmission utilities in North America. As the stewards of critical provincial assets, Hydro One works with its industry partners to ensure that electricity can be delivered safely, reliably, and affordably to its customers. Vertex has been providing Meter-to-Cash outsourcing services to Hydro One since 2002.

Applying the Vertex 4-level solutions approach enabled desired business outcomes:

Level 1: Identify Business Challenges

In 2006 Hydro One approached Vertex and indicated that one of their corporate goals was to dramatically improve customer satisfaction as a result of the Hydro One customer satisfaction survey. At that point, Hydro One customer satisfaction scores on agent-handled calls had hovered in the 75-76% range for several years. Up to that time, the relationship with Vertex had focused on significant reductions to cost with no erosion to service offered to customers. Now, Hydro One was looking to Vertex to help lead the drive to improve the customer experience.

Level 2: Identify Desired Outcomes

In 2007 Vertex and Hydro One entered into collaborative discussions to evaluate and analyze the historical customer satisfaction scores, and to work jointly to develop a plan to radically modify the customer experience and improve customer satisfaction. Those discussions led down several paths, and the parties mutually agreed to target the following areas for change:

The Vertex/Hydro One Quality program
A cultural adjustment that would reflect the change in focus
Technology that could help support Hydro One’s goals
End-to-end process review

Level 3: Develop & Implement Solution

Vertex has worked closely with Hydro One to help them deliver on their goal of significant improvements to customer satisfaction. Changes were applied to process, call scripts, quality measures and performance scoring at all levels in the organization, including incentive compensation and recognition programs.

Level 4: Measure Solution Results

Customer satisfaction scores on agent-handled calls increased from 76% in 2006 to 86% in 2008
Quality monitoring program changes yielded a 10% increase in first-call resolution
Introduced bi-weekly Process/Quality forums
Monthly reviews with the client to reinforce success and progress toward targets