When utilities and regulators consider smart-grid investments, they tend to focus their analysis on operational issues, such as cost savings, reliability and the ability to defer capital investments through greater demand-response capabilities. They seldom focus on customer-service processes, practices or standards.
This stands to reason, because utilities traditionally are driven to achieve two overriding goals: reliability and cost control. As a result, T&D investments of any kind are justified primarily on whether they serve those two goals. However, smart-grid technologies might be opening the door to some fundamental changes that transcend the basic drivers of reliability and cost control—and perhaps starting a revolution in the way utilities serve their customers.
“Today the industry is focused on operational benefits because they are the most easily quantified in smart-grid business cases,” says Kit Hagen, a senior director with customer service company Convergys. “But smart grid is laying the foundation for a new world of customer interaction that will benefit both utilities and customers.”
A recent survey by Microsoft suggests that utilities recognize the growing tension between smart-grid systems and customer service processes. The survey showed half of utilities expect to offer some form of dynamic pricing to all residential customers by early 2013. Fully two-thirds are now incorporating distributed generation, including solar rooftops, into their systems, or are planning to do so in the next two years. And yet, more than 90 percent say their back-office architecture isn’t ready to support these new business processes.
From a customer service perspective, that’s a recipe for trouble. For instance, last November, after utilities in California rolled out smart meters, customers filed class-action lawsuits when their bills went up. The plaintiffs are arguing the meters are inaccurate, while PG&E says weather and higher rates caused bills to spike. Either way, it’s a customer-service disaster—and explaining rising bills is just one challenge as the industry builds a smarter grid.
“If new technologies aren’t managed from a customer service perspective, we know it can lead to negative results,” says Roland Labuhn, a vice president with call-center outsourcing company Telus. “Putting more distributed generation in the system puts reliability at risk. Self-healing systems will be good approaches in the long term, but that journey will take several years. Smart grid isn’t a panacea and customers could see reliability impacts if the transition isn’t managed correctly.”
To get a clearer picture of where the smart-grid journey is taking the industry’s customer-service processes, Fortnightly assembled a roundtable of experts from seven leading IT and customer-service companies. They included: Hagen at Convergys; Labuhn at Telus; Guerry Waters, a vice president with Oracle; Maureen Coveney, executive director with SAP; Karen Sweat, senior business manager with Twenty First Century Communications; Jose Jimenez, director of HP’s global energy practice; and Dan Sullivan, managing director at Vertex.
Fortnightly: In the year 2020, what will customer service look like in the U.S. utility industry?
Sweat, TFCC: The actual answer is seriously, who knows? Technologies are changing at an exponential pace. Ten years ago we didn’t even have smart phones, and the term ‘social media’ hadn’t been coined yet, so it’s hard to imagine where we’ll be in 2020. But it’s fair to say there will be a heavy virtual component to customer service.
A demographic shift is happening—and utilities are aware of it—including a new generation of customers and a retiring workforce. In 10 years half of the utility workforce probably will retire. And customers are adopting technologies quickly. Some statistics say the volume of text messages now exceeds that of phone calls. And with the rise in smarter self-service applications for mobile devices, a clear direction is unfolding. There are things that haven’t been invented yet, but it’s going to be virtual, with a high level of self sufficiency.
Waters, Oracle: I’d hope that by 2020 smart meters would be common throughout the industry. The demand response and energy conservation programs that utilities are talking about today will be in place. We’ll have a substantial amount of renewable energy being injected into the grid, both from large commercial wind farms, solar facilities and biomass plants, and also distributed generation down to the residential level. Maybe a carbon cap-and-trade system will be in place, or some kind of carbon tax, and energy will be quite expensive. The days of cheap energy will be over, but we’ll have a cleaner environment, fewer carbon emissions and more renewable energy sources.
And the future will bring benefits in customer service. Customers will still use the telephone to communicate with utilities, but customer service representatives (CSR) will know the needs of the customer and will be able to handle the customer’s experience. Customers will be able to take many actions on their own via self-service systems. This will reach new levels beyond the automated call-in systems and kiosks utilities use today, with things like mobile applications and social media.
In short, customer service will reach a new level, with a high degree of self service, much like we see in retail industries today.
Sullivan, Vertex: There will be a huge amount of data available to the utility and to the customer, about everything from appliances to rooftop solar cells to how the customer’s electric car is performing and whether it needs maintenance. But that conflicts with peoples’ desire to have simplicity in their lives. Utilities are thinking about how to convert data into something valuable for the customer.
An important piece of that is integration. The data will be everywhere, and systems will need to be integrated. For example, if you plug in your electric car at your grandma’s house, who pays for the electricity?
Non-utility companies are looking at this market and asking how they can make money. If systems are interconnected and integrated, the utility’s next competitor might be an appliance company or a mass-market retailer. It might be General Motors.
Jimenez, HP: The industry is going into territory that it doesn’t really understand. But taking such industries as banking and telecommunications as examples, we can speculate about the way companies will set up customer-centric service models. Twenty years ago, the whole mission for telecom companies in the United States was to provide phone lines, and they didn’t have to deal with customers except to collect on a bill or handle a complaint. As time passed, telecom companies had to scramble as services expanded, and now the relationship between companies and customers is more dynamic. It will be similar for utilities. Customers are looking for transparency, and that will generate a different kind of interaction. It won’t always mean answering questions on the phone. It might mean addressing questions posted on the utility’s Twitter or Facebook page. I don’t know what model it will be, because there are so many ways you can get interaction between customers and the utility. It will be a combination of multiple channels of communication. And whatever utilities do, it will have to be scalable and able to respond to whatever level of customer interaction is required, whether it’s 5 percent or 80 percent of customers using it.
Hagen, Convergys: In 2020 you’ll see a lot more focus on the customer experience. Today people in the utility industry talk about the meter-to-cash process. There’s really no customer aspect to that, but the smart grid is changing that with the opportunity to know, in real time, what’s going on in someone’s neighborhood or behind the meter, for example in a home area network (HAN), and the opportunity to communicate that information to the customer. That’s blossoming as the smart grid grows.
Massive amounts of data will change the utility industry’s operational focus in the same way we’ve seen it change other industries. For instance, in the grocery business the UPC system was initially designed as an operational benefit for grocery stores, to speed up the check-out process and turn customers through the store more quickly. But over time UPC information turned into an opportunity for grocers to use data as an asset, so they could better interact with customers, to know what they’re buying, what coupons they’re using and to create reward programs that make the business more sticky. Operational benefits blossomed into an overall better customer experience because of the data that became available. The same trend will happen in the utility industry. If the product can become more targeted, that will take inefficiencies out of the system.
Fortnightly: What does that future vision imply about technology advancement between now and 2020?
Hagen, Convergys: The industry needs systems that are designed with the purpose of handling the customer experience. It’s challenging to take a system that was designed to handle resources and leverage it to serve customer segments. And it has to be able to use real-time data. It’s not sufficient for the system to know the best action for the customer to take 15 minutes after they hang up the phone. The CSR or automated channel needs to know instantly who the customer is, what their segmentation specifications are, what meter they have on their property, what real-time data you can get and the implications for what you have to serve them. Technologies need to deliver those services through multiple channels, not just the two traditional utility customer touch points, the bill and the phone call.
As data proliferates and people access it, you’ll have channels open up via telephone, CSRs and interactive applications. You need to be able to control that experience, keep it consistent across channels, and provide intelligent recommendations so customers can take the best actions. You need real-time capabilities to deliver on that. And you need to view the smart-grid ecosystem as just that: an ecosystem. Smart grid and AMI aren’t just about distribution systems, meters, meter data and CIS. It’s also about all the IT systems within the utility operation being aligned to work together, realize the value of data and deliver it to customers, whether it’s an outage management system (OMS) dispatching a truck to the customer’s location, or flagging the customer’s bill for a refund.
Sullivan, Vertex: We’re going to see vast improvements in battery technology, hydrogen production and distributed generation. We’ll see improvements in solar cells, year over year. It will be intriguing to see how utilities stand up and address distributed generation when consumers start putting solar cells on their houses and want to sell excess power back to the utility. Time-of-use (TOU) rates will go two ways, for buying power from the utility and also selling it into the grid. Utilities now are starting to think about the infrastructure, including customer information systems (CIS), two-way communications and hardware technologies, to address those needs. Certainly billing infrastructure isn’t there today, but utilities are placing bets on this happening in the not-too-distant future. Companies are spending money today, trying to position themselves for changes in technologies, regulations and the market.
Jimenez, HP: As our utility clients try to plan their future, they tell us one of their biggest areas of concern is they don’t know how they’ll leverage customer intelligence with grid intelligence to minimize capital investments, improve reliability and make the best use of energy resources, whether it’s power the utility provides to the end user or power the end user will provide to the utility. That is intelligence. It’s not about data warehousing or data mining, but enterprise intelligence—how you perform your service. It’s the ability to make choices with some level of automation, for decisions that will improve the customer experience and the service the customer needs. That’s the key going forward; everything else already has been invented.
People talk about ‘sentiment mining’—the ability to mine for interactions between customers and CSRs. It’s new in this industry, but the technology has been around for a while and it is improving. How do you start now to add new technologies like this to your existing technology?
Sweat, TFCC: The important thing is the middleware, the open platform that allows multiple systems to be integrated on the utility side. For example, a customer wants to schedule a service appointment under a utility’s home appliance warranty program. They’ll call in and select choices from an interactive voice response (IVR) program, or they’ll use a smart-phone or web app. That action will query the system and identify the same information that the CSR would be looking at. They’ll select the appointment window that works for them, and then select a method for the utility to confirm the appointment, whether it’s text, email or phone. On the day of the appointment, the utility contacts the customer and asks whether the appointment is still on. If yes, then the truck rolls. If no, it reschedules.
This is a back-end system that’s going across multiple systems, including mobile data, CIS, appointment scheduling, etc., and it can provide what the customer needs without having to talk to a person. That’s the direction we’re going—toward a middleware environment that supports multiple systems and enables communication through various channels.
Labuhn, Telus: In general, the industry has to realize that in this transition we need to work toward standards that are globally accepted. In the telecom industry, we used to battle each other over standards. Most telecom companies now are going to 4G technologies. The same kind of consolidation of standards has to occur in smart grid for it to be truly stable and interoperable.
Coveney, SAP: As someone who’s involved in technology interoperability discussions, I’m pretty pleased with how far the technology has come in the last couple of years. The HAN providers and IP-based solutions have taken great steps forward and I see them making even more leaps forward in the next few years. Microsoft, Google and others, including appliance companies like Whirlpool and GE, are changing the landscape of how utilities will be interacting with the home environment.
There’s a lot that can be done, but the technology is ahead of what we can accommodate in the business model. It will continue developing at a faster pace than we can derive impacts from it.
Fortnightly: What’s driving these changes? Is it purely about advancing technology, or are market forces driving utilities to change the way they provide customer service?
Sweat, TFCC: When you look outside the utility space, there’s a desire among customers to transparently transact across the spectrum. They’re accustomed to transacting with other retail providers using a credit card or with a mobile app, and they don’t understand why utilities shouldn’t be able to interact with them in the same way.
It also comes back to the workforce heading toward retirement. As retiring workers are replaced with app-savvy utility workers, that itself will bring a process of change—or at least will make change more acceptable within the utility.
Waters, Oracle: As the costs of energy escalate, customers will become more concerned about how they use energy. They’ll want to become a more active participant [in the transaction]. With conservation, green energy, distributed generation and other products, customers will want assistance and ways to administer their options.
Also it’s being driven by the need to improve service quality and cost. Smart- grid systems will allow utilities to isolate outages, in some cases right down to the piece of equipment that’s causing the outage, and dispatch crews directly to that location to fix it. Service quality will improve, but it will come at a cost. A lot of what’s being planned now [in back-office system upgrades] is to mitigate that cost.
Labuhn, Telus: A hidden trend is that the consumer world is starting to invade this industry. When you talk about home energy management solutions, or services for commercial and industrial customers, the people who are making a lot of hay in those markets are consumer names, such as Google, Microsoft and Cisco. That trend is becoming more prevalent in the market for solutions to manage customer energy demand.
Coveney, SAP: Having a manageable energy portfolio is a major driver. From a national perspective, with an energy portfolio comprised of 20-percent nuclear, 50-percent fossil and a rising proportion of renewables, we need to know that’s a sustainable portfolio that doesn’t put us at risk in terms of economics and national security. The very important word is sustainability. What’s sustainable for our country, utilities, communities and the consumers who have to pay for the investment in energy infrastructure?
At the end of the day we’ll discover we can’t do everything at once because it’s too costly. Customers are willing to pay for the most important things if we make it cost effective and we explain why it’s important. It involves a lot of education and communication.
I hope legislative and regulatory changes provide incentives for utilities to change their business models, become more open and transparent and have a closer relationship with customers. That will tell them more than anything else what the customer values, and that will provide a better basis for making decisions about investments in the future.
Fortnightly: Will these new customer service capabilities force changes in the utility business model and regulatory model?
Hagen, Convergys: A lot of the rate case decisions we’ve seen are based on the value the smart-grid investment brings to customers. Regulators are asking, ‘What will this look like? What will it do for customers? How will it affect the customer experience?’ And as a result you’re seeing incremental changes in utilities’ business models.
But the smart grid represents a broad change for utilities. It’s not just a data exercise. The industry is overlaying a full communications network over an existing grid. That alone is a massive undertaking, but with the systems behind it that will take advantage of it, it’s creating a whole ecosystem for new business opportunities.
You see it today in pilot programs happening around the country, involving more options for customers, such as TOU and critical peak pricing. You’re seeing new approaches to customer presentment. Utilities are developing Web sites where you can get your account information and compare it to last month’s. These things are first steps, but over time you’ll see a proliferation of products and services offered by utilities. Today they dabble in things like lightning-strike panels, appliance services and heat-pump installation. That will expand to include things like customer generation equipment, including rooftop solar panels, with the ability sell power back into the grid. Utilities can sell HAN equipment or become HAN service providers. You can create green power bundles and allow customers to self-select their segment.
I think it’s a good thing, not only for consumers who will have greater choice, but also for utilities that are looking at ways to increase revenue.
Sullivan, Vertex: Unless we have a complementary change in the way utilities are regulated, then the billions of dollars we’re investing won’t be used as beneficially as they could be. To get the true leverage out of that investment, we need a change in the utility’s economic model. The challenge we have in the United States is that, unlike such markets as England, we have 50 states with different regulations. The regulatory process is very political, and politics can get in the way of creating new opportunities for utilities and consumers.
Sweat, TFCC: In a number of jurisdictions, rate caps are coming off, rate cases are ongoing, and things are changing outside of the utility’s control and pushing them along. You’ll start to see business models that resemble deregulated businesses, with more customer segmentation and customer life-cycle analysis. In regulated jurisdictions, commissions have more or less ruled out using customer segmentation to do any targeted marketing. There is behavior scoring happening on the collections side, but in the future we’ll see more emphasis on customer usage analysis and segmentation with regard to the way programs are offered. That doesn’t mean the program isn’t available to everybody, but that it just isn’t necessarily communicated to everyone.
Absent anything else, utilities won’t do anything without being pushed to do it by the commission. But the second driver for utilities is shareholder value, and they want an appropriate return as an investor-owned company. In the broad market space utilities will learn to take advantage of their market information more precisely and proactively. With segmentation and life-cycle analysis, and with the capabilities of new CIS systems, you’ll be able to identify customers and put them into appropriate channels for customer care. This will reduce the cost of customer care while providing the same level of service.
Coveney, SAP: Government agencies and commissions could enact policies that have a very beneficial impact, or they could put us into the place where they’ve often put us—not by design, but into a place where we can’t accommodate regulatory changes in the time required.
We will have to ask utilities to change their business model slightly, and PUCs to change the regulatory structure, from a system where vertically integrated utilities do everything, to companies that deliver energy in a little more competitive fashion.
You’ll start to see natural competition happening. Companies will become competitive internally to take costs out of the enterprise. But the business model will have to change to accommodate distributed generation and microgrids. Utilities will have to wrap their business models around those things.
When we get to the point where we’re following our European brethren and incorporating emissions credits into energy costs, then there will be an emissions market overlay on top of all of this. Consumers can participate in that market, perhaps with a community-based model. But certainly in the next 10 years we’ll be trying to change the business model to support distributed generation within communities, and hopefully we’ll be able to do that without doing too much damage to utilities. Utilities can’t change their business model overnight. It’s a work in progress that always takes five years after new regulations come out. It might require additional infrastructure changes that will cost money, and it wouldn’t be right to ask ratepayers to pay for all of that at once.
The short answer is there will be some changes and utilities will be hard pressed to react to them. Some companies are being proactive and trying to anticipate the changes, but by and large they are waiting to find out what the impacts will be.
Waters, Oracle: Changes in the regulatory model are difficult to predict. The biggest question is whether regulators will level the playing field between fossil generation and renewables and nuclear generation by putting a price on carbon emissions.
Another big question is whether we’ll get retail choice back in the utility industry, driven by some of these factors happening around price and the idea of the prosumer—the consumer who is also a producer. Will that drive the retail model in the United States as happened in Europe and Australia and New Zealand where they have thriving retail markets?
I think there’s no doubt that as prices continue to escalate, North America will revisit retail competition, and it will be driven by regulators.
Jimenez, HP: A lot of utilities are trying to figure out how they’re going to take care of customers now that they have smart meters and information about consumption. What will they tell customers about the way their behavior affects consumption and bills? Many utilities are struggling with this. I see executives coming into utilities from telecommunications companies because they’ve faced these issues about how to capture and retain clients. In the future that will become one of the more important things that makes a utility successful.
It’s not just about deregulation. There’s enough evidence from other countries about what does and doesn’t work, so it’s not about which model we’re going to adopt. I’m pretty sure it will be a combination of everything. But the challenge will be how quickly and effectively utility companies will be able to act on new opportunities, provide new services to existing customers and capture new customers.
We can’t expect utility companies to do everything by themselves. They will line up with partners who provide the infrastructure for an advanced customer experience. Partners will allow them to provide additional services to end users, whether it’s security or appliance services or even entertainment. We haven’t even touched on what happens with customers who invest in solar panels or microgeneration facilities on the premise. It opens another set of issues for utilities. Utilities will be forced to create systems they can leverage to improve the customer experience. It will be a significant challenge because utilities haven’t faced this before.
Labuhn, Telus: There might be a change in the utility’s desire to provide differentiated services if some other players start taking revenue away from utilities. At a minimum, regulators need to be aware of the new models that are emerging so they don’t sink them in the assets of existing utilities.
Fortnightly: What are the most important pitfalls or challenges that could prevent the industry from realizing the smart grid’s potential for improving customer service?
Labuhn, Telus: One of the first challenges is the industry’s current focus. Smart-grid investments for most utilities are very much focused on operational improvements. Getting beyond the meter is the next step toward a customer-engagement mindset.
The other thing that inhibits rapid movement is the belief that these changes aren’t worth the investment. It takes a proactive utility to make investments that allow the company to engage clients more deeply. We’re seeing that engagement in more deregulated markets. Deregulated energy companies are taking engagement very, very seriously.
Jimenez, HP: Every utility and state will have its own issues and opportunities. But as states start deregulating, they have to try some level of standardization and consistency. Otherwise we’ll be facing multiple levels of different services and non-standard ways of doing things, and that will drive up the cost of taking care of the customer—and your enterprise.
Sullivan, Vertex: The biggest tactical challenge today is that current CIS systems are designed for one-way flows of information. IT needs to accommodate massive amounts of data and two-way flows. Many companies now are looking at their current CIS, for which they spent $50 million five or eight years ago, and asking ‘Can we add on to it and harden it and wrap new features around it to accommodate two-way customer and asset data?’ That will be a big challenge in the next few years.
Coveney, SAP: We’re focusing a lot of our R&D work on application-level interoperability. As we’re building out the infrastructure, we’re engaged in dialogue with partners and utilities to make sure they can make use of it. From a technology and application interoperability point of view, I think we’ve got it right, and we’re making sure we’re servicing utilities. The technology is well under way, but the industry is a bit behind on the business model.
Hagen, Convergys: With change comes more change, and the biggest pitfall might depend on whether the industry has the flexibility to explore with confidence what a different business model looks like, and to explore the new approaches that become possible. Change will be a challenge, but that doesn’t mean you have to accept a lot of risk. Systems can be applied with the express purpose of de-risking the change for the utility. For example, why do a full rip-and-replace of your ecosystem when you can run a smart system in parallel with your legacy system, and use it to test new business models without disrupting your whole IT infrastructure?
In the first year or two we’ll see some naysayers who will say this isn’t good. It will take patience among utilities, regulators and customers to get through the early changes and get to the next level of capabilities that can be delivered with the smart grid.