Do utilities really need their customers onboard?

What if 'customer engagement' is just so much lip service?

Phil Carson | Oct 10, 2011

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Be forewarned: today's column may either stun you or make you shake your head over my foolishness. Either way, I doubt it'll be the first time.

Yesterday's column asked about the next customer-facing step utilities will take following the installation of interval meters. It is assumed that utilities will use those meters to improve their own operational efficiencies to improve the bottom line. What about on the customer side?

Will utility offerings be limited to Web portal-based energy use feedback to inform customers and, perhaps, inspire changes in behavior? Or will utilities engage stakeholders such as regulators, legislators and even customers to push dynamic pricing that reflects the hour-by-hour cost of generation, transmission and distribution, forcing a change in the compact between the regulated power industry and the public?

I meant to take the discussion in the direction of utility programs, policies or pricing plans that address the consumer. Because in several cases last year, regulators required a utility to spell out the customer benefits and deliver them, if the regulators were to approve advanced metering infrastructure paid for by said customers.

One reader wrote in to suggest: "Creating and communicating value for consumers should be the next step."

The customer has gone from being absent in such discussions to having in some ways dominated industry discussion in the past 18 months. The concepts of "customer engagement," the "customer experience" and customer segmentation using non-traditional demographics have been the focus of entire conferences.

So I was a bit surprised, despite nearly 30 years as a journalist, when yesterday morning during a conference call with a legitimate, veteran vendor of customer-related services, an executive made the following remark about private discussions with some utility CEOs about customer engagement.

"We're a monopoly," more than one CEO flatly told my source behind closed doors.

"They're going to back into customer engagement," my source explained of these CEOs' likely approach.

Although I cannot recall the exact statement, my source explicitly linked the term "lip service" with the term "customer engagement."

Frankly, while this may shock some, others may be shocked by my naïveté in thinking this arrogance is remarkable. But the real shock may well be for shareholders and, perhaps, regulators. They may be surprised to find out the magnitude of the gulf between utilities' talk and their walk, should this attitude be real and become public at a specific utility.

And then there is the customer, one (millions, actually) that is perhaps already inured to the—as they see it—systemic arrogance of the regulated monopoly. Because, of course, reality-speak is not the sole province of CEOs. Their customers harbor their own down-and-dirty truths, learned from lifelong, uneasy relations with, say, their local power company.

Frankly, in many cases, that's the baseline from which all our rosy talk of adding intelligence to the grid sort of departs. We can discourse all day about the technical possibilities but when it comes down to it, newspaper forums about energy and my daily dealings with fellow "ratepayers" makes clear there's robust distrust awaiting many utilities and their initiatives. It's a given that many if not most ratepayers simply resent their local regulated monopoly. (We're talking investor-owned utilities here; municipals and cooperatives by their nature escape the brunt of this discussion.)

Two thoughts:

If some utility CEOs are talking out of both sides of their mouth when it comes to their customers and those customers have a lifetime of mistrust or, at best, unease under their belts, what positive outcome could possibly result from the two sides' interaction?

Secondly, using an outside-the-box analogy, it appears that the "Occupy Wall Street" protests in this country have gotten far more interest from foreign media than domestic media. Why? Because in countries convulsed by the "Arab Spring," for instance, the disenfranchised were easily and suddenly willing to stop looking the other way and confront those they perceived as their oppressors. And the powers that be were utterly blind until it was too late.

Obviously I'm not suggesting that civil unrest will result from a few arrogant utility CEO's paying lip service to customer engagement. But the same mechanism could be at play. What if certain IOUs really, secretly, don't give a hoot about the customer/ratepayer? And what if those customers/ratepayers not-so-secretly just plain hate their utility and its perceived arrogance?

Do you suppose that all the progress the power industry, policymakers and pundits envision for the grid is going to simply roll out across the land in a milk-and-honey dream sequence? We already know it hasn't. But yesterday's conversation made me wonder if there's an unseen chasm yawning beneath us.

Maybe the CEOs in question are just rhetorical devices that don't really exist, except in juicy anecdotes. Surely no one really ever said something so arrogant. Where are the names? Who are these folks? you might demand.

I have no answers, obviously. Only questions.

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757  
 

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Comments

Toxic Mix

IOU's are publicly traded companies and as with any other corporation the executive's primary goal is to drive profits to the bottom line of that corporation.  And like most corporations today, they are focused on the short term quarter to quarter results and how to maximize shareholder wealth.  Customer service comes second, or even later, on the executive's priority list and is a tolerated necessity for driving profits to the bottom line.

 

As IOU holding companies have changed CEO's, who use to come from within the ranks of the utilities but now typically comes from outside those ranks, the utility's oligopoly mission of "Obligation To Serve" has taken a backseat to shareholder value.  They still believe in serving the customer but they look for ways to reduce the cost to deliver service while maximizing the price they can get.  The typical model for increasing value for utilities happens when they build a new capital project which allows them to increase their rates.

 

Customers are not guilt free either as our culture has trended to spread out from the cities and they don't want that "utility junk" in their front or back yard.   Marginal infrastructure build outs have become the Achilles heel of utilities and it becomes very evident when interruptions happen which are "under the control of" or "out of control of" the utility.  Fast growing population areas have quickly consumed the excess capacity of the utility infrastructure and at the same time, the cost to replace or expand infrastructure has risen just like everything else.  The country's current mindset seems to be we still want everything we had and all the new bells and whistles yet, we're not willing to pay a penny more for it. 

 

Needless to say, it is a very toxic mix when you get all the stakeholders in the same room.  CEO's hate to be called before the regulators to explain their decisions and customers love the public regulation process because it's the place where their voices are heard and it allows them to confront the "Arrogant" utility on a very personal level.  Sitting in the middle is the politically driven regulator who must mediate the issues between the utility and the customers. 

 

As stated by the comment before mine, utilities stand to lose the customer relationship and I'm becoming more convinced that the ship has already left the harbor and is in search of better ports.  Utility CEO's will continue to satisfy shareholder needs by increasing their acquisitions.  It will be the only way they can grow the shareholder's profits to meet their expectations.  That strategy will produce winners and losers but all IOU CEO's believe their leadership will make them the winners.  The customer base will eventually be forced to pay more for their electricity as the realizations of "Not In My Back Yard", limited resources and global warming come into focus.  Customers will embrace technology to reduce their rising cost as the "industrial" and "commercial" segments of customers have done for years and continue to do.  The exact name or names of the companies who will provide this new technology and how it will drive the electric suppliers is still unknown, but when the "killer app" hits, it will be decisive. 

 

For the companies who get it right, they stand to change the market and become the next Microsoft or Goggle.  Unlike Microsoft Windows and Google Search Engines, electricity already has a 98% or better penetration into every building and is foundational to our quality of life.  Another fact about electricity is that it is the ultimate commodity.  It is consumed immediately and storage or alternative generation methods needed at the consumption volumes and reliability of the typical household are not yet as cost effective as present electricity delivery methods.  The electricity commodity touches every man, woman and child everyday where we live, work, and play.  It is a huge opportunity.

 

Richard G. Pate

Pate & Associates, Principal

 rgpate@pateassociates.com 

 www.pateassociates.com 

 

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Times they are a changin

I would agree if I was a CEO of a monopoly and I knew that the industry was going to remain static for the long term or if the utility simply wants to be poles and wires.  In our world the market is already changing and if we want to remain relevant to our customers, we must connect with our customers. 

First, if the brand is weak and customers are not at least sometwhat interested, our ability to communicate and influence is minimal.  Without a positive customer experience and positive brand, customers will not listen.  If they are not listening, then utilties must resort to more heavy handed tactics which only further erodes trust and the willingness to listen.  This manifests itself in the issues that are currently facing utilities as they implement smart meters.  The utilities that are having implementation issues are often those with weak customer relations and minimal trust.  As a result they must incur incremental costs to convince regulators and legislators of the smart meters benefits.  And that they don't cause cancer and send subliminal messages.

Second, there are for profit companies that are looking at the utility value chain and considering how they can skim away revenue.  This comes in the form of demand response aggregators, distributed generation, large energy suppliers, and PHEV energy supply and storage.  In addition, information providers will look to capture our customer's attention regarding their bill and usage, which will also impact the utilities' ability to influence.  Lastly, how confident are we that electric deregulation will not return over the next 20 years.  Those utilities with the strongest brand and customer relations will be best positioned to weather these competitive incursions. 

Third, shifting a supply side organization to a customer centered company takes many, many years.  Sitting back on ones monopoly position fails to recognize the cultural, organizational, labor, and process change that is required to prepare a company for competition.  It is probably not prudent to incur the costs and chaos associated with a full blown transition to a customer driven organization, but it is also not prudent to disregard the customer because the utility is a monopoly. 

It is not an all or nothing outcome when it comes to consumers.  There is some middle ground that positions the utility for the uncertainty ahead.  The primary reason companies fail is because they do not adjust to market changes.  Did the post office account for Fed Ex and UPS?  How did Kodak adjust to digital photography?  How will utilities adjust to the technology and consumer changes resulting from smart meters?

Technology, consumer empowerment, and legislation/regulation are powerful external forces that will change and influence how utilities do business.  The successful utilities will be the ones that adapt to these changes and create value for customers.

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