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.