Article: Energy Central Customer Care Topic Center/ Energy Pulse

Authors: Jamie Wimberly and Peter Shaw

Title: Future Utility Customer Service Model

Date: December 2006

Words: Approximately 1,500

Prices are rising. Customers are demanding more information and control over their usage. Existing information systems can not 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 utility 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 utility 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 utility 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.

• 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 EPAct2005 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 they plan 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 a remote possibility.

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, e.g., 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 principals, e.g., integration, flexibility, information, standardization, important 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 their 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 which 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 ten to fifteen years after this period. But as the Chinese proverb states, where there are challenges, there are opportunities.

Jamie Wimberlyis the CEO of the Distributed Energy Financial Group (DEFG, http://www.defgllc.com/), a specialized consulting and financial services firm focused on energy technologies and the energy sector. Jamie co-founded and co-manages the Customer Care Research Consortium (CCRC), an executive forum for utility customer service and marketing executives.

Peter Shawis Director of Customer Strategy consulting services in the Energy Industry practice of Navigant Consulting (www.navigantconsulting.com). Navigant Consulting is a leading management and strategy consulting firm to utilities. Peter co-founded and directs research for the CCRC. Peter consults to utilities on process transformation and customer relationship business strategy.

For more information on the Customer Care Research Consortium or the respective firms, please contact Jamie Wimberly at jwimberly@defgllc.com or Peter Shaw at pshaw@navigantconsulting.com