Voice of the customer: Why utilities should embrace a customer-centric business model to succeed in a smart grid world
 

Voice of the customer: Why utilities should embrace a customer-centric business model to succeed in a smart grid world

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Today, most customers don't interact much with their utility companies — apart from paying their bills and making the occasional phone call. But with the advent of smart grids, that's all set to ...

Today, most customers don't interact much with their utility companies — apart from paying their bills and making the occasional phone call. But with the advent of smart grids, that's all set to change. Connected customers want more information about how much they're using and how they can use less and save money. And they want customized services that reflect the way they really live. More info: http://www.pwc.com/us/en/industry/utilities/publications/customer-centric-smart-grid-business-model.jhtml

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Voice of the customer: Why utilities should embrace a customer-centric business model to succeed in a smart grid world Voice of the customer: Why utilities should embrace a customer-centric business model to succeed in a smart grid world Document Transcript

  • Voice of the customer Why utilities should embrace a customer-centric business model to succeed in a smart grid world July 2012 At a glance The smart grid will provide utilities companies with real-time data about customer needs and service preferences. Connected customers seek more information about energy use and guidance on conserving energy, reducing costs, and customized services. Utilities companies should prepare for highly interactive customer relationships that educate, incentify, and serve their customers.
  • Introduction Beyond regular billing statements and the unexpected service call, there has traditionally been little interaction between customers and their utilities providers. According to PwC’s 12th Annual Global Power and Utilities Survey report, “The shape of power to come”, 80% of those surveyed in North America worry about customer engagement being a barrier to realizing the full potential of smart grid and smart metering technology.1 Although some leading utilities are embracing social networking and dynamic usage information, they need to do more. Smart grid customer engagement The utility industry’s traditional relationship with customers can be described in a single word: limited. Most customers today use electricity, receive a bill, and pay it. Interaction with the utility is typically limited to a request for starting or stopping service, alerting the utility when there is a service outage, and an occasional billing inquiry. But that is changing. The implementation of the smart grid, including the deployment of smart meters, allows two-way communication between customers and utilities. It also gives customers a great deal to talk about: The modernized grid will deliver an unprecedented amount of data about a customer’s power needs, and also enable new rate structures, support new Demand Response and Efficiency programs, and enable customers to participate in the market via Distributed Generation. 2 Voice of the customer For utilities, this information provides the building blocks with which they will construct an entirely new type of customer relationship, one that puts the customer at the very center of a utility’s business strategy. This new customer-centric business model will be nothing short of revolutionary for most utility companies. Now is the time to prepare. As of May 2012, approximately 36 million smart meters had been deployed in the US, and that number is forecast to rise to approximately 65 million by 2015.2 It is estimated that by the end of 2012, 22 utilities in 16 states will have smart meters fully deployed to their entire customer base, representing 29 million customers.3 1 PwC’s 12th Annual Global Power and Utilities Survey report, The shape of power to come, April 2012. 2 Institute for Electric Efficiency, Utility Scale Smart Meter Deployments, Plans, & Proposals, May 2012. www.edisonfoundation.net/iee 3 Ibid
  • $165smart grid deployment billion Cost of US over next 20 years. The smart grid can enable customers to have greater control of their power consumption and, in many cases, actively avoid the higher costs of electricity. The Electric Power Research Institute (EPRI) estimates that smart grid technologies could cut electricity use by more than 4% annually by 2030 for an annual savings of $20.4 billion for businesses and customers across the country. The modernization of the electric grid is an enormous and expensive undertaking, however. There are many stakeholders who benefit from smart grid solutions, and the idea of spreading costs across all the stakeholders is still not clearly understood. Today, utilities are the largest investor in smart grids by owning the majority of the investments made in a smart grid infrastructure, updating customer information systems, deploying new billing applications, and implementing business information analytic tools. EPRI estimates US smart grid deployment will cost $165 billion over 20 years, a figure that does not include costs that utilities will incur for ancillary services and technologies necessary to fully leverage a modernized grid. Some utilities see the move to a smart grid primarily as a technology deployment, a viewpoint that is logical from an internal engineering standpoint. But a technology-centric approach to the smart grid may overlook one of the most critical key success factors: the customer. Once real-time digital communications among utilities and customers are in place, customers may demand more information about their energy usage and expect their utility to provide them guidance on how to conserve energy and reduce costs. Connected customers will also demand services and pricing programs new to the industry and specifically tailored to their unique lifestyles. These customer demands will intensify as youthful millennials of today become paying customers of tomorrow. These “digital natives” grew up with the Internet and mobile devices and are accustomed to unrestrained 24/7 access to information and customer service delivered via web, e-mail, smart phone apps, and social media tools. Customers are not the only group with higher expectations. Public utility commissions closely monitor customer satisfaction and customer benefits when considering rate case decisions; in fact, customer service is quickly becoming the yardstick upon which successful, innovative companies are measured. Utility companies should be able to demonstrate to their regulators that their smart grid and smart meters deliver the planned benefits and boost customer satisfaction. PwC 3
  • The challenges and opportunities of an enhanced customer relationship There are challenges that utilities face in modernizing their relationships with customers, none is more challenging than customer communications. A focus on customer relationships requires process innovation, technology and education. Utilities should consider communications technologies that meet operational needs and respect the communication preferences of customers: broadcast, e-mail, smart phone apps, social networking tools, and blogs. Respecting customer preferences is critical to smart grid customer participation. A reactive approach to customer communications will no longer suffice—utilities should anticipate the needs of customers and build services and pricing plans based on these needs. This means looking at customer segmentation in a new way, often borrowing from other industries like the airlines and banks that are defining the customer’s expectation for service provider interaction. As the economic relationship becomes more complex, for example, as customers are allowed to sell excess energy onto the grid, or their willingness to curtail their demand in exchange for payment, the customer service relationship must mature. Utilities should not presume that customers innately understand the value of the smart grid; studies have proven that they don’t. However, when participants were presented with a definition of smart grid, the perceived positive impact of the effect of smart grid technology was highest in the areas of improving energy conservation and providing/ restoring power (see Figure 1). To a lesser degree, there was a perceived positive impact on greenhouse gas emissions and the cost of electricity. However, smart grid was perceived to have no impact in the areas of consumer health (i.e., high exposure to radio frequencies) and data/information privacy. The good news is that based on a clear understanding of the benefits of smart grid technology, nearly 90% of all respondents are at least somewhat to very willing to adopt Smart Grid technology. Recently, PwC conducted a study4 with a Midwest utility in which customer awareness and perceptions of smart grid initiatives were examined nine months after the program launched with limited capability. With significant investments in communication, the awareness scores of those surveyed were 58%. And even among those who were aware, nearly 80% did not feel very confident about their level of knowledge about what the smart grid is. Figure 1: Impact of smart grid technology 88% Energy Conservation 76% Providing and Restoring Power 63% Greenhouse Gas Emissions Voice of the customer 1% 36% Electricity Costs 60% 30% 10% Greater Customer Control 59% 33% 8% Consumer Health 21% Data/Information Privacy 19% 0% 73% 20% 40% Will get worse with Smart Grid No change related to Smart Grid 4 PwC Power and Utilities research data 6% 61% 20% 60% 80% 0% 1% 24% Will Improve with Smart Grid 4 12% 100%
  • 80% respondents to a Number of recent PwC survey who did not know what the smart grid is. Utilities should initiate educational campaigns that inform customers about benefits and challenges of the smart grid but must do so across a range of media. It is essential that estimates of cost/benefits and other impacts to customers are carefully considered and accurate, and that the communication is ongoing. In some deployments, customer backlash is not uncommon. In many cases, the concerns take the form of billing and meter inaccuracies, data privacy, and health safety. While PwC has evaluated the accuracy of the measurement/metering to billing processes for several utilities, in most cases we have found that the underlying issue stems from a lack of knowledge, and poor communications. This reduces customer satisfaction and increases regulatory resistance for further investments. Customer satisfaction is an imperative in a world in which customers have a choice of power providers. As the industry moves towards deregulation, competition of energy providers will increase. And already an emerging group of energy services providers enable users to buy energy from the provider of their choice at competitive pricing with a focus on renewable sources of generation, often enticing them to switch providers with incentives like airline frequent flyer miles. A rich relationship and improved customer care will strengthen customer loyalty. The smart grid will help utility companies to use customer data to innovate and create new products and services that can further increase customer satisfaction—and boost revenue. Just as cell phones gave rise to unanticipated new services like text messaging, the smart grid will provide data to provide similar new, as-yet-undiscovered services. Utility companies can also expand their customer base by bundling new services, much like cable companies offer packages that combine voice, television, and Internet services. Some utility and third-party companies, for example, are offering to install solar panels for customers, adding value by allowing customers to participate in the evolving energy marketplace while reducing the complexity of such participation. Others are expanding to deliver home automation systems that allow customers to remotely control smart appliances and power using mobile devices. Utilities also could leverage user data to broaden their customer base by creating affinity plans for targeted groups of users or encouraging customers to enlist new subscribers, much like the telecommunications industry does with programs that offer a block of talk-time minutes when customers persuade friends and family to change carriers. Some electricity retailers are using these types of programs today, using social networks as an inexpensive marketing tool. Above all, utilities should recognize that customers are no longer simply ratepayers; they are becoming active participants in a dynamic energy market and partners in the overall success of a smart grid program. Utilities that educate, incent, and proactively serve their customers will gain advantages in an increasingly competitive business environment. PwC 5
  • Embracing the customer service mandate Unfettered access to information and the collaborative wisdom of the social Internet has created a new breed of customer that is educated, individualistic, and discerning. These connected customers have greater expectations of companies with which they do business, and once the smart grid is in place, they will extend these attitudes to utilities. To meet these expectations, the customer service organization should be proactive, engaged, and skilled in anticipating and responding to market needs. Consider, for example, one western US utility that encourages dialog about its smart meter program by hosting customer service events, attending community meetings, and meeting with parents at school science fairs. The company also has created a frequently updated online education center—available in English and Spanish—that provides useful tips on energy efficiency and safety issues. Users can sign up for e-mail messages that detail their energy consumption and digital newsletters that explore issues of interest. 6 Voice of the customer Some utility companies have demonstrated their commitment to customer service by hiring a chief customer officer (CCO) to create and manage a customer-centric service strategy.5 These CCOs have launched valueadding initiatives like demand response programs, cost-effective energy consumption campaigns, and educational programs on ancillary services, like renewable deployments or lease of home charging stations for electric vehicles. Forward-thinking utility companies are also using social networking tools to interact with customers, provide information on power outages, and serve up energy usage tips. One utility uses these social networking sites to answer customer questions and address complaints, provide updates on its services, post photos and videos of power line crews at work, and build casual, trusting relationships. 5 Greentechmedia, “Wanted: Chief Customer Officer for Utility Rolling out Smart Grid”, October 19, 2010 Some utilities are working with third parties to provide more dynamic usage information to customers. These providers combine customer usage data with demographic information to create personalized reports that enable customers to make informed and specific decisions on energy use. To reach customers via their preferred channels, the information is delivered via paper, e-mail, or text messaging.
  • How going digital generates value for all Customer information has become a valuable currency in the retail market, and it will play a similarly important role in the utilities business. However, the industry is just beginning to grapple with the privacy implications. Today, online shoppers readily provide personal information—e-mail address, age, location, product interests, for instance—to online retailers in exchange for sales alerts, discounts, and a personalized customer experience. The result? Shoppers get a better deal and retailers gain a new customer, insight into what customer segments value, the product or service they sell, and a way to communicate with them in the future. However, these affiliations were, for the most part, elective and have evolved over the last 10+ years. The smart grid will enable similar affiliations between customers and utilities. Based on individual preferences, utility can help customers understand their household energy demands and how to save on energy bills. This type of data-driven service will allow utilities to create a value added customer relationship that could be an essential differentiator in a competitive market. One need only consider the impact of Web-based banking on the financial services industry to understand the opportunities for utilities companies. Web-based banking debuted only a decade ago, yet today 80% of US online households use an online banking service and 40% pay at least one bill online through their financial institution, according to a study by Fiserv.6 The survey also found—and this is important—that customers who pay bills online typically develop stronger relationships with their financial institutions and are more likely to sign up for additional services than non-users. The implications for utilities are similar and very powerful: Those that develop stronger relationships with customers via custom products and services could build loyalty and potentially open new avenues for revenue. This interactive relationship with customers is possible if utility companies transform their view of how information is consumed, then invest in certain tools to enable that vision. In particular, the utility company should be able to transform massive amounts of raw data quickly into meaningful information that can be used to help build strong customer relationships. New services and products are one of the key customer benefits of smart grid that a utility company can offer their customers. Some new products and services have been identified and accepted as an industry and because we are at the very early stages of smart grid, there are many more products and services expected to be identified. To date some of the benefits are: 6 Fiserv, 2011 Consumer Trends Survey: Financial Services Continue the Digital Shift, February 2012 • Web Portals: View detailed usage data down to the minute of the day and perform “what if” analysis to better understand billing impacts, or historical outage maps • Remote Meter Reads: Meter reading is performed through wireless means and some customers will no longer need to meet the meter reader at the entrance of their property • Alert Notification: Alerts are sent to the customer notifying them or high bill situations, restoration estimates, price signals • Home Automation: Controlling lighting, temperature, and appliances remotely via the Internet • Home Surveillance: Digital sensors are monitored by the utility company With much more customer information available through communication and data networks, utilities also should sharpen their focus on data security. For example, each smart meter is a mini-computer connected to the utility company’s network, and these networked devices will require rigorous security practices to prevent infiltration of malware, physical tampering, or data breaches. Such breaches could result in theft of customer data or, more seriously, shut down electricity access to a customer, a neighborhood, or an entire city. PwC 7
  • Looking ahead The utility industry is undergoing a transformation that is surpassed only by the creation of the first nationwide electrical grid more than a hundred years ago. For most utilities, the sweeping scope of modernization will require a business transformation that is nothing short of revolutionary. In addition to planning for new processes and IT systems required by smart grids, utilities must put customer service at the very core of their operational strategy. While today’s customers may be satisfied to have reliable power and accurate billing, tomorrow’s customers will expect that utilities improve on their performance of that basic function, while understanding their individual lifestyles and developing products and services that enable them to manage their energy needs in a cost-effective manner. The modern utility company is becoming a provider of energy services rather than simply a generator or distributor of electricity. At the same time, customers should be encouraged to regard the modern power grid as a critical component of their lives, an interactive source of information that they consult on a daily basis and essential to their economic and personal well being. Modernization of the US power grid won’t happen overnight; the transformation will span decades and require tens of billions of dollars to complete. The immense cultural changes inherent in creating a customer-centric organization dictate that utility companies begin building deeper customer relationships now. We believe that the customer facing components of smart grid will succeed only when there is substantial customer choice, involvement, and trust. Simply put, in a smart grid world, customers will no longer be invisible ratepayers. They will become partners in the success of the smart grid—and the utility companies that operate it. Customers will become partners in the success of the smart grid. 8 Voice of the customer
  • www.pwc.com/us/utilities For a deeper discussion on these issues, please contact: Matt Labovich Power and utilities partner (703) 918-3649 matthew.labovich@us.pwc.com Doug King Diamond advisory services partner (412) 355-6011 douglas.p.king@us.pwc.com Andrew Roehr Power and utilities managing director (512) 656-4341 andrew.j.roehr@us.pwc.com Jim Curtin Power and utilities principal (713) 356-5188 james.m.curtin@us.pwc.com © 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more than 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us. PM-12-0334