For Arlen Orchard, CEO and general manager of Sacramento Municipal Utility District, in order to understand how his utility will change over the next decade, it’s helpful to start by looking back.
“It’s 2014. Our revenues are flat or declining despite [having] more customers; our customers want more options and choices; we can’t install technology fast enough to keep up with the changes in our industry; and we struggle to manage the data we have from technology we’ve already installed,” said Orchard, speaking at Opower’s PowerUp conference in Miami earlier this month. “And if that’s not enough, more than 70 percent of the electricity I sell to my customers has to be carbon-free by 2030.”
“We didn’t see the sharp shift in the path. To be fair, a lot of folks in the industry didn’t, but that’s a really small consolation,” he added. “Now we’re playing catch-up, and that’s a pretty uncomfortable place to be and pretty unfamiliar for SMUD.”
Sacramento Municipal Utility District (SMUD) is one of several electric utilities that’s now proactively looking for ways to address new customer preferences and capitalize on the change at the same time. For all types of utilities -- municipal, cooperative and investor-owned -- the growing demand for cleaner energy, at a lower price, with more convenient services and greater choice has become impossible to ignore.
Results from a recent survey of residential customers conducted by E Source, in partnership with the Smart Electric Power Alliance, demonstrate this trend. The survey found that 80 percent of respondents believe policymakers should encourage people to install solar through subsidies. Support was strong across the country, across age groups and across income brackets.
Before conducting the survey, E Source took several steps to educate customers about a utility’s need to cover its fixed costs to support the grid. Even with that information in hand, 69 percent of respondents said it’s fine for solar customers to zero out their utility bill if they produce enough electricity to cover their own needs in aggregate.
“Given this overwhelming support, utility efforts to block subsidies for solar installations are likely to be seen in a negative light by most of their customers, resulting in a hit on the utility’s brand image,” the report states.
While the policy outlook remains uncertain, an increasing number of utilities are positioning themselves to be a trusted provider of solar and other energy services -- mostly because they see no other choice.
“I suppose I could have fought the changes at every turn and focused on self-preservation, but that would have meant ignoring my customers and betting against technology,” said Orchard. “At best, I’d end up as the Comcast of utilities, or at worst the Blockbuster.”
‘Lean in to our discomfort’
To adapt its business, SMUD recently launched a consumer-experience study that includes mapping a customer’s journey through each of the utility’s services. Going through this exercise allows the utility to identify and fix pain points, as well as enhance operational efficiencies, said Orchard.
In 2016, SMUD will focus on improving customer experience with billing and payment. In 2017, the utility plans to launch its own online marketplace for energy products and services.
By 2025, Orchard said he envisions SMUD as the trusted advisor for all things energy-related. In a decade's time, nearly all of SMUD’s customers will have moved to digital services, there will be automatic payment systems and programs to control energy costs, customers will be able to communicate through the channel of their choice, and they’ll be able to use SMUD’s marketplace to buy everything from LED light bulbs to electric vehicles to home batteries.
By that time, SMUD projects that revenues will be on the upswing from the adoption of electric vehicles, fuel switching, sales of new products and services, and by capitalizing on SMUD’s intellectual property.
To transition to a 3.0 utility, “We at SMUD have to shift our perspective from a monopoly paradigm to a competitive mindset,” said Orchard. “We have to reimagine our business to be more robust, nimble and innovative.”
“To be frank, I think SMUD had become pretty comfortable in our past successes, and that’s a real danger going forward,” he added. “We have to lean in to our discomfort to be successful.”
Siri, Watson and shared solar
Innovation isn’t only relevant to new products and services. There are many ways for utilities to improve customer satisfaction and engagement by making the basics better.
At Con Edison, for instance, Twitter has become an effective communication channel that now operates year-round, 24 hours per day. At the PowerUp event, Craig Ivey, president of Con Ed, said the company boasts a 12-minute Twitter response time. In an unprompted test, the utility delivered with minutes to spare.
Social media is just one part of Con Ed’s customer engagement strategy. The New York utility recently announced a partnership with Opower to modernize its relationship with customers as part of its Connected Homes demonstration project, which aims to make energy-saving and energy-generating as seamless as an Uber ride. Con Ed plans to spend $50 million to enhance the overall digital customer experience, as it rolls out advanced metering infrastructure starting in 2017.
As the industry evolves, Ivey said utility call centers could soon deploy services similar to Amazon’s Alexa, Apple’s Siri and IBM’s Watson. These digital agents would know every rate schedule and rate change, and speak 150 different languages.
“Imagine a world where we have Watson or Siri talking to any New Yorker in their own language. I think that’s pretty amazing, and I think that’s a trend that’s starting to happen,” said Ivey.
Opower president Alex Laskey said it is easy to see how utility services will become increasingly automated, and how utilities could offer increasingly sophisticated energy programs like peer-to-peer solar sharing. But most utilities need a major digital upgrade before any of that becomes possible, he said.
“There’s some basic infrastructure utilities have to have if they’re going to be this new energy market-maker -- they need a better website and customer experience,” said Laskey. “If it takes you four calls to start and stop service, how are you ever going to buy your neighbor’s power?”
Better service benefits the bottom line
J.D. Power and Associates has been measuring electric utility customer satisfaction since 1999. The good news for utilities is that there’s been a noticeable increase in customer approval in the last three years, according to Jeff Conklin, senior director of J.D. Power's energy practice. The bad news is that non-utility segments are improving much faster.
“Service expectations of the utility, from a consumer point of view, are set by the experiences they get from Amazon and American Airlines and other service providers,” Conklin said. “So that’s the challenge utilities have -- to continue to accelerate and have a sense of urgency about improving their overall customer experiences.”
Some may argue that utilities have a harder time providing top-notch service because of the size and complexity of the electrical grid. But Conklin doesn’t think utilities are limited at all. In fact, they have the advantage of having a direct physical link to the customer -- and access to a mountain of customer data as a result.
J.D. Power research shows that customer engagement goes a long way toward improving customer satisfaction. By providing customers with information on where the utility is investing in grid upgrades or how they’re responding to an outage, it makes customers feel like they’re getting more value for their money, which can benefit a utility’s bottom line.
J.D. Power conducted a study looking at customer satisfaction one year before a rate ask and one year after a rate ask, over more than 10 years of rate cases. Utilities that came into the rate process with top-quartile-level satisfaction for the industry were allowed a much higher rate of return, said Conklin. Rate asks from high-approval utilities were also approved faster.
Interestingly, the J.D. Power study found that rooftop solar customers are more satisfied with their local electric utility than customers without solar, Conklin said. A third of solar customers surveyed last year said they have a positive opinion of their utility.
“The engagement, even while you’re assisting your customer to take away electricity sales, improves the satisfaction that customer has with [the utility] as a trusted energy services provider,” said Conklin.
The challenges and opportunities distributed solar brings are likely only to continue to grow. Today, rooftop solar customers only make up around 1 percent of all residential electricity customers. But that number is expected to increase dramatically, with 28 percent of households surveyed by J.D. Power last fall saying they “probably will” or “definitely will” consider going solar in the next two years.
Next steps all mapped out? Not quite
More and more utilities see value in becoming a trusted energy services provider, but the economics are still messy.
“When customers are satisfied, it doesn’t directly translate to a higher rate of return, but it translates to a higher confidence that we’re meeting customers' needs, which is exactly what we’re all supposed to be doing,” said Ed White, vice president of the New Energy Solutions unit at National Grid.
Through New York’s Reforming the Energy Vision proceeding, utilities in the Northeast are working with regulators and industry stakeholders to find new ways to make money, so that utilities aren’t always reliant on the traditional rate of return.
“Regulators are actually looking for us to find other ways to make money -- how to split some revenue, how to earn money for connecting customers to folks in the marketplace,” said White.
National Grid created the New Energy Solutions group last year to take on this task. One part of the answer is the creation of a distributed solar marketplace in Rhode Island that allows customers to shop for solar in a transparent manner and receive an incentive for improving energy efficiency at the same time.
These types of initiatives take time and money, and require policy shifts as well as business-model changes. It’s taken stakeholders in New York about nine months just to have a conversation around the various types of assets utilities have to offer -- be it infrastructure, IT capability or labor -- and how they can be leveraged to provide services that third-party vendors will pay for.
“Do we have it all mapped out how [reforming the electricity industry] is going to be profitable? No,” said White. “But are we being thoughtful in how we put our businesses together? Absolutely.”
“I think where other industries and other companies have struggled is if you’re fighting to preserve a business that needs to change, you’re in trouble,” he added.
Interested in how other utilities are grappling with these issues? Experts will delve further into issues and opportunities shaping the next-generation energy system at GTM's Grid Edge World Forum taking place June 21-23, 2016 in San Jose, Calif. Register here.