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Prices are rising. Customers are demanding more information and control over their usage. Existing information systems cannot meet these new needs. These are some of the many issues facing utility executives today.
A storm is surely brewing for the utility sector over the next five years, with executives confronting a number of converging trends that will challenge the utility’s current customer service model. Change is a given. Yet whether the change will be incremental or transformational is yet to be determined.
The question is how utility executives will respond to the complex issues facing the provision of customer service in the industry today and into the future.
The first task is to create an analytical approach that is comprehensive but flexible enough to cover different scenarios, contingencies and unique requirements of individual utilities based, in part, on regional concerns and markets served. Due to history, regulation and varying levels of customer expectations, the sector is not monolithic and the differences are real when comparing one utility to another.
The overall objective of this approach is to strategically think about the future of customer service within a utility company. The approach analyzed key industry trends and developed alternative future scenarios to drive an examination of customer service model requirements.
In order to contemplate the future, one needs to understand the converging trends that will shape the future. There are eight primary trends:
Technology. Investment in new AMI, DR, CIS, and ERP technologies will grow slowly because of utility legacy issues, costs, and lack of product standardization or flexibility.
Regulation and Public Policy. The regulatory and legislative arena will be dominated by the impact of EPAct 2005 and the expected increase in new rate cases.
Customer Expectations. Changing customer expectations will be highly correlated with shifting demographics, exposure to service innovations in other industries, and concerns over higher energy prices, increasing expectations in regards to digital customer interfaces, greater choice of service offerings and new tools.
Financial. The utility financial environment will be under increasing pressure as interest rates rise, regulated return rates decline and fuel prices increase.
Fuel and Energy Prices. Escalating fuel prices, the termination of rate caps in some regions and the replacement of aging infrastructure will continue to drive up rates.
Load and Economic Growth. The rate of increase in load will decline, but high-growth pockets will exist in warmer regions of the country, reflecting demographic shifts.
Demographics. Changing population demographics will impact utility workforce composition and customer base, as well as customer service expectations.
Aging Infrastructure. Aging infrastructure will contribute to increased replacement costs and strain transmission and distribution systems.
Once the trends are identified and calibrated to a particular company’s market, these trends can be projected into likely scenarios that bound the risk a company will encounter as it plans for the future of customer service. Likely scenarios are an incremental change scenario and a transformational change scenario. In other words, utility executives must ask themselves: Do I currently have the people, systems and processes in place to handle the changes expected with a given set of trends? If yes, you would be operating under an incremental change scenario. If no, then the expected changes would be transformative or disruptive, indicating a need to change the utility’s strategy.
Based on work we have conducted, most utilities believe that change would come in incremental steps, but many believed that those incremental changes would lead to an overall transformation over a period of time. For example, AMI has the potential to be transformative, even though it will be implemented over time and the value proposition from a utility perspective will evolve. Also, there is always a wild-card dimension, e.g., huge price spikes or sudden reliability issues, which need to be planned for even if the possibility is remote.
Most utility executives are actively reviewing and reconfiguring the customer service model elements, including channels, choices and platforms. For example, self-service options through a web site or other means have greatly progressed over the past couple of years. Yet, with the proliferation of channels (just look at the growth and functionality of mobile phones, and increasing customer expectations in regard to control, ease of use and choice), utility executives must continuously plan for and anticipate the future, especially when faced with making expensive investments in systems such as a new CIS system.
An examination of the customer service model elements that will be required in the future leads to a further examination of the people, processes and technology that will be required to enable those elements. Moreover, customer service is a part of the larger utility operating model, and perhaps not the primary focus.
Customer service and the service model elements need to be looked at from an enterprise-wide perspective and evaluated against the design principles, e.g., integration, flexibility, information, standardization, importance across the company and its various platforms that intersect with the customer service model.
The offering or service portfolio, in other words, what customers are actually offered in regard to products, choices, service levels, communication, etc., is at the core of the framework. Everything drives toward and then outward in an iterative process from the service portfolio. There is a recognized tension between customer experience requirements and business performance requirements, especially for regulated utilities.
Having a strategic framework is particularly useful when thinking of the issues all utilities face when considering current trends and the future of the utility. These strategic issues include:
1. Segmentation/Marketing: Moving away from traditional rate class designations and segmenting the customer base to reflect generational movements and changing customer expectations. Segmentation will enable utilities to take a marketing approach to the creation of new customized products and services built out from the current core offering and utility assets, delivered through multiple channels. Special needs identification will be more important.
2. Information/Advanced Metering: Customers will expect information and services to be provided anywhere and anytime. Customers will demand the ability to manage and control expected price increases. The days when a utility would rely on customers to report outages are nearing an end. Advanced metering will be at the core of capturing and leveraging information in meaningful ways for the customer.
3. Culture: Changing the utility culture to be more flexible and customer-focused will be one of the biggest challenges facing utility executives. New skill sets and constant training will be required. Following current trends in customer service, the utility will need to create collaborative opportunities with its customers rather than taking a traditional, paternal approach that the utility always knows best.
4. Sourcing/Labor: Utility workforce demographics point to a record number of retirements and a historical generational shift. In order to attract and retain talent and labor, utilities will need to provide a better work life balance reflective of overall trends in the market, and a work environment that focuses on the growth and nurture of new employees. Utilities will also be in the market for new sourcing solutions that provide both cost reductions and add value to the core capabilities of the utility.
5. Cost Recovery: For many states, re-regulation will define the next five years. A historic wave of rate cases will provide ample opportunities for regulatory intervention. Prudence and cost-benefit analysis will be rigorous and more intensive than ever before, with many utilities already facing a slow decline in allowed returns.
6. Standardization: The assumption that every utility is different needs to be critically re-examined in order to discover cost reductions and greater efficiencies. For most utilities, the 80-20 rule is relevant, meaning that 80 percent of the utility processes are governed by business drivers, and only 20 percent is actually dictated by regulations or interpretations of regulations. There is a lot of room for standardization, leveraging vendors and partners in regard to design and implementation, e.g., developing greater plug and play products and capabilities across utilities.
For each of these strategic issues, any particular set of issues can be examined by understanding what trends are driving the need, developing scenarios and parameters, examining the business case, implementation and then measurement/ monitoring.
In conclusion, our research is pointing to a very challenging business and regulatory environment for utilities over the next five years. In fact, the decisions made and outcomes over the next five years should carry the industry forward over the next 10 to 15 years after this period. But as the Chinese proverb states, where there are challenges, there are opportunities.
For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com. Copyright 2010 CyberTech, Inc.
The reason that “Customers are demanding more information and control over their usage,” as the authors state, is that they want to reduce their energy costs, or, better yet, to increase the value that electricity enable for them.
Deloitte Research made a Scenarios Studyand found that the "Continuity" scenario is what is expected by most companies in the next 5 years. However, Deloitte also found out that the next five years might turn out very different from the strategic plans of many companies (read utilities). The result is a very different perspective on the interdependencies of markets and Enterprise Solutions.
On one, or both, of the other two scenarios ("Tough Times" or "Rising Expectations"), instead of Utilities Enterprise Solutions, a Retailers Enterprise Solutions arrives, which will make much more business for IT suppliers than expected under the Continuity Scenario. The main reason is that current business models are at the end of there useful life, while new technology is available to be transformed into competing innovative business models, leading to true deregulation of electric markets.
What the authors are calling the “incremental change scenario,” is the same as the “continuity scenario.” However, I see a lot of progress has occurred in just one year, with the insights added by Mr. Wimberly and Mr. Shaw.
While the authors are proposing to adopt an analytical approach, I am proposing a systemic approach that goes beyond trends – pattern of behavior, “responsive” explanations, as Peter Senge calls them – to generative or “structural” explanations for the discovery of the emerging system. The change is going from a mechanistic thinking to systemic thinking.
Please join the generative dialogue, that cuts across topics, which had the latest (not lasted) insight on the EnergyPulse article: Condemned to the Fourth Quartile? by Matt Chwalowski, Principal Consultant, PA Consulting. Posted on 12.9.06. At this instance out of "Active Discussion" and out of "Highly Read." The post starts as follows:
I think I found by myself, on the website of the PA Consulting Group, the answer to my question: “Should Electricity Without Price Controls (EWPC) be considered as a new paradigm of the electricity industry?”...
New directions for the utility industry are being sought by many interested parties in the government, the private sector, and the universities. One such direction has been widespread interest in utility-customer cooperation through innovative rates characterized by broader options and better use of information on utility costs and customer needs. The goal of this book is to provide a theoretically sound, yet practical foundation for the implementation of utility-customer transactions based on today's needs. Our goal is to meet four criteria:
1) Freedom of Choice: provide customers with options on the cost and reliability of supply and how they choose to use electric energy. 2) Economic Efficiency: Motivate customers to adjust their own electric energy usage patterns to match utility marginal costs. 3) Equity: Reduce customer cross-subsidies… 4) Utility Control, Operation and planning: Consider the engineering requirements for controlling, operating and planning an electric power system.
"Restructuring Debate Still Rages," December 11, 2006, by Ken Silverstein, EnergyBiz Insider, Editor-in-Chief, starts out with a dilemma as follows: "The discussion over whether electricity can be made into a competitive enterprise or whether it is an uncommon commodity that should be tightly regulated still rages more than a decade after the concept of restructuring was first envisioned."
Missing in the decade old debate was a third way: the natural and simple way. The way to do it: the wires are natural monopolies to be kept integrated and tightly regulated to meet Schweppe’s 4th criteria – “consider the engineering requirements for controlling, operating and planning an electric power system.” The mistake: open transmission access, which also violated the other three criteria for the end-customers. My research shows that the separation of transmission and distribution is not done at a modular interface from the operation standpoint. Generation and retail marketing are natural competitive enterprises.
Thank you to Dr. Vanderhorst-Silverio for his interesting comments and citations. We also agree that a systemic approach is required to envisioning the future. In fact, many utilities also are moving in that direction and attempting to more tightly integrate their systems, platforms and practices. Technology such as AMI is allowing for this progress in a way that simply did not exist five years ago.
At my firm, the Distributed Energy Financial Group LLC, we believe the changing utility customer service model is simply one manifestation of a technological revolution akin to the industrial revolution that promises much more value creation over time. Building off of the advances in information technology and network management begun decades ago, those advances are now being incorporated into complex systems and the management of assets that form the bedrock of any economy, namely, energy, transportation, water, telecommunications, etc. Greater levels of efficiency and productivity are leading to new product and service generation.
And what do customers want? Most customers are not buying “alternative” or “green,” but are more interested in cheap, reliable energy sources. In fact, I would argue that they are not even buying energy per se, but rather comfort, convenience, light, entertainment, mobility, etc. Greater levels of efficiency allowing for greater levels of consumption of what people desire have the virtuous impact of being “cleaner and greener.” One must be careful to not confuse cause and effect.
Jamie
Jamie Wimberly DEFG CEO
Jose Antonio Vanderhorst-Silverio 12.19.06
You are most welcome Mr. Wimberly. Your sharp closure is also in synchronicity with the emerging power sector reform paradigm.
Bob Amorosi 2.13.07
The implementation of a customer feedback information system, demand response control, and dymamic energy pricing can be very daunting when one considers the volume of data to manage in a large population of consumers. Some of the burden on the utility's data management could be off-loaded by utilizing new technology in the consumer's home.
Consider a relatively low-cost real-time in-home portable energy display device that communicates directly both ways with a Time-Of-Use Smart Meter by wireless radio. Consider also the Time-Of-Use Smart Meter is connected to the utility company through an AMI channel that is two-way, used for meter reading but also capable of carrying messages and utility data back to the home-owner through the meter to the display in real time. I suggest this type of device would be a technology solution that simultaneously addresses affordable masse deployment of real-time in-home displays, education of consumers about electricity use and conservation, instant access to accurate bill tracking and present and historical energy use, the ability for utilities to send alert messages and implement effective dynamic pricing, and permit consumers to actively feedback acknowledgements of receiving messages.
If the display device uses a radio communication networking standard, such as the modern "Zigbee" protocol, it allows for relatively easy future expansion of its capabilities to adapt the display device to water meters, gas meters, load-shedding thermostats and controls, and Zigbee radio-equipped consumer appliances. This adaptation could be easily performed by simple firmware downloads to the display device through the meter's AMI channel.
Prepaid metering can also be addressed using this display device to actively purchase more energy without having to call in a new purchase over a phone using a credit card. The utility company could receive purchase orders from the consumer for an amount specified by the consumer keying it into the display, and then bill their bank account or credit card automatically.
The meter manufacturer Elster Electricity is engaged in the development of this technology in partnership with another company, 4C Energy Solutions. The AMI channel referred to above is Elster's own Energy Axis Meter Administration System connected by the internet or some other dedicated communications pipe to Elster's collector meter nodes, and then through Elster's own radio LAN to each consumer's Smart Meter.
If anyone is interested in more details, I would suggest contacting Elster about it.
