Regulatory mandates and smart grid technologies are creating an opportunity for utilities to adopt a new approach to customer service—an approach that balances a range of strategic and operational...
Paying with Plastic
Customers demand real choices for bill payment.
cards—and the potential savings in servicing distressed accounts. Also, the business case now becomes more compelling because of the longer-term benefits that materialize from providing enhanced customer services enabled by the smart grid.
The primary costs in the traditional no-fee card payment business case remain the direct costs of bank interchange fees, TPP fees, and potential system integration fees to internally process card payments. Additionally, ACH cannibalization—a concern for many utilities that want to eliminate convenience fees—is fairly limited.
While determining the costs of no-fee card payments is challenging, a much greater challenge is quantifying the benefits associated with increased usage of payment cards. Utilities must consider the direct benefits associated with increased remittance float, payment risk transfer, reduced collections, and reduced bad debt write offs. These benefits have the potential to be substantial, particularly when adoption rates for low-income customers are included. Utilities also must consider the design of their no-convenience fee card payment programs. Specifically, for utilities to move toward cost neutrality in their business cases, card payment programs must be structured to take advantage of several business case drivers, including cost reductions in billing and collections (see Figure 3) .
Utilities also can estimate the indirect benefits associated with increased customer satisfaction and new program adoption tied to services enabled by the smart grid. While these benefits are difficult to quantify today, they do provide real long-term value. As utilities begin offering a broader set of capabilities ( e.g., energy management, mobile payments), these indirect benefits will provide quantifiable value, which makes the business case even more compelling.
Finally, an additional indirect societal benefit can be expressed as a result of a reduced carbon footprint, principally tied to the suppression of paper bills from increased card payment adoption. By using a total carbon output for mailing a paper bill and receiving a check payment at 100 grams of CO 2 per customer per month, the estimated environmental impact as a result of decreased paper use can be calculated. For example, a representative utility mailing paper bills to 1.6 million customers generates the equivalent carbon output of 451 sport utility vehicles, each driving 11,000 miles per year. If this calculation is applied to the more than 212 million electric and gas customers in the United States, it represents an overall reduction of almost 60,000 SUVs. 4 This societal benefit, which might or might not necessarily be quantified, can provide tremendous value to utilities as part of their future positioning by demonstrating a focus on sustainability to both regulators and customers.
Pay at the Pump
Industry pundits accept the fact that the utility of the future will be a more customer-facing organization. However, the definition of customer-facing varies significantly from one utility to the next. Utilities likely will expand from simply providing reliable and low-cost electricity to providing customers with a myriad of services that meet their clean energy needs. Examples of such services—all supported by the smart grid—include:
• Energy efficiency (EE) programs that extend beyond the wall socket to appliance control;
• Demand response and dynamic pricing programs that