Customer way of a widespread transformation of the utilities

Customer
centricity in the utilities industry today

Due to a
number of factors, some utility service providers have already begun the shift
towards more customer-centric business models (source). However, at the present, there are some
significant obstacles which stand in the way of a widespread transformation of
the utilities industry from product-based to service-based.

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Motivation for customer centricity in the
utilities industry

Consumer’s perspective

The consumer’s eagerness for
a more service-oriented industry can be characterized in a number of ways.

First, by a desire for greater transparency of information. In a study of
perceptions of power providers conducted by Appalachian State
University using a nine-item scorecard, the strongest correlation was
found between level of customer satisfaction with the utility company and the
ease with which the the customer’s utility bill could be understood (Mueller,
2017). An additional stimulus leading customers toward customer-centric
utilities is the attractiveness to take on a more conscious and active role in
their relationships with energy providers, in contrast to the passive customer
interaction associated with the commoditized, one-way utility model of the past.

In the context of smart grid projects in Europe, motivation behind this decision
has been most highly attributed to mitigating environmental damage, reducing
personal energy expenses and achieving an optimal level of comfort (Gangale,
Mengolini, & Onyeji, 2013). “Prosumers”, consumers who also produce and
supply energy, represent a significant stakeholder group in the context of
smart grids and need a marketplace to sell their excess energy (Zafar, 2018).

Additionally, customized solutions are searched for by both corporate customers
to reach their sustainability targets as well as by cities and towns to develop
micro-grids and/or smart cities, or to incorporate a greater percentage of
solar and wind energy (Gimon, 2016).

Provider’s perspective

Thanks to certain trends in the utility industry, many utility companies
are recognizing the need for business model innovation. With the loss of half
of the European utility industry’s value between 2008 and 2013, the entrance of
new players in Germany and both declining demand and wholesale prices, Germany
utility companies are faced with the necessity of offering more services to
their customers as a means of differentiating themselves (Helms, 2016).

Additionally, when searching for financing, utilities may note that when given
the choice between business models with a focus on “operational excellence”, “product
leadership” or “customer intimacy”, investors in renewable energy indicated a
clear preference for the “customer intimacy” model, signifying the importance
of a company’s emphasis on service leadership (Loock, 2012). One study
indicated observing, understanding, motivating and empowering the customer as
top reasons for smart grid projects to promote customer engagement activities
(Gangale et al., 2013).

A slew of management consulting firms has been advising utility
companies to focus on customer centricity for some years already. Bain &
Company cites the ever-growing ease with which consumers can switch between
utility companies and recommends putting a heavy focus improving the customer
experience to achieve customer loyalty, supposedly the key to long-term
profitability and growth (Dullweber & Petrick, 2011). Accenture Strategy notes
time, convenience and value as the main three criteria for selection of a
utility company and recommends that a combination of embracing innovative
business models, which streamline processes, and investing in employees as a
means to improve the limited customer interaction with the utility company
(Mezger, 2017).

Customer centric utilities business
models (more sources?!)

In a review of business models related to the transition to renewable
energy, three main categories were identified. The first of which,
customer-owned product centered business models, refers to the sale of renewable
energy technologies as well as devices designed to aid with demand side
management. The second main category, third-party service centered business
models, refers to financing, installing and maintaining renewable energy technologies,
sending price signals to the customer to encourage demand response as well as
energy efficiency services to produce savings from the generation side. The
third main category, energy community business models, involves facilitating
local players to create and manage their own renewable energy communities with
the aim of maintaining control over the electricity supply source as well as sharing
inherent risk associated with renewable energy generation (Hamwi, 2017).

Technologies in the customer
centric utilities industry of today

In order
to exchange information with the customer, utility companies have begun
implementing different communications technologies for different purposes.

Though more expensive upfront than one-way communication methods, two-way
communication methods are preferred, as they offer the ability to accurately
monitor and verify the real-time impact of demand response initiatives among a
wide array of users. Wireless options such as Wi-Fi or ZigBee protocols have
proven themselves to be appropriate at the local level, however unused
television networks have recently presented themselves as a valid option to
achieve longer range and greater reliability, even when line-of-sight is not
available. Where an even longer range is necessary, cellular wireless networks
or broadband wireless access networks are more appropriate. When even more
reliability and robustness is required, power line or fiber optic
communications should be implemented (Siano, 2014).

Monitoring
systems represent an additional subcategory of relevant technology related to
putting the customer at the focus of the utility business. To provide customers
with information about their energy consumption as well as to gather remote
billing data, utilities have begun smart meters which records usage parameters
in time intervals ranging from 15 minutes to one hour. Energy management
systems (EMS) represent a series of sensors, switches and algorithms which
allow the user to implement their strategies for energy savings in one building
or even a campus of buildings. In addition, smart thermostats provide a possibility
for the user to program their personal preferences in order to respond to price
signals from the utility (Siano, 2014).

Successful implementation of customer
centricity in the utilities industry

In 1993, Salt River Project, the third largest public utility company in
the U.S., implemented a successful pre-pay program for electricity. On average,
consumers rated the valued the pre-pay program 9% more than that of the
traditional utility rate structure and mentioned benefits such as better
awareness of their energy usage, increased self esteem and saving money (Casey
& Jones, 2013).

In 2006, the Energy Services Directive in Finland set a national target
of 9% reduction in energy consumption between 2008-2016. Companies accounting
for 90% of electricity sales agreed to participate in the initiative, which
included obligations to provide customers with energy saving advice, to
communicate records of real-time consumption to the customer and   to provide the customer with useful
information for comparing current energy consumption with their personal
history as well as with the consumption of similar energy users. By 2012,
significant increases had been seen in customers using hourly metering (+900%),
customers attending stakeholder events (+500%), customers signed up for online
energy consumption monitoring (+200%), energy saving website visits (+150%) and
customers receiving energy saving advice by phone (+40%), indicating a positive
consumer response to an increase in service options (Apajalahati, 2015).

In 2008, Amy’s Kitchen undertook a renovation of their controls systemin
order to participate an automated demand response program offered by Pacific
Gas & Electric (PG).

In 2010, Commonwealth Edison (ComEd), Illinois’ largest utility company,
initiated a Customer Appreciation Pilot (CAP) to better understand the effect
of advanced metering infrastructure (AMI) on its customers’ electricity
consumption behavior. Of the 130,000 homes in the network equipped with smart
meters, random participants were selected and offered the opportunity to switch
to participate in a study in which they would receive either one of five
dynamic rate structures or a flat rate. Of significance was the response to
elevated pricing on peak days, on which participants exhibited 20% average
reduction in energy consumption, indicating the importance of customer
education. Additionally, customers on the dynamic rate structures exhibited a
statistically significant higher level of satisfaction than the group on a flat
rate, indicating the preference of consumers to take on a more active role in
the transaction with their utility companies (Casey & Jones, 2013).

In 2012, San Diego Gas & Electric (SDG), a regulated public
utility company with a customer base of over three million Californians, became
the first utility company in the United States to respond to the White House’s
Green Button initiative, intended to provide consumers with easy, secure
methods of accessing their electricity, natural gas and water usage data. With
SDG&E’s service “Green Button – Connect My Data”, users were able to choose
from over 60 third party applications which provided useful ways for consumers
to engage with and understand their usage patterns. In line with the launch of
this service, SDG began efforts to reward reduced energy consumption for
consumers who purchased an additional “smart” thermometer, which had the
ability to remotely control home temperatures on certain days throughout the
year. These efforts led to over a half million consumers receiving rewards for
their participation as well as a 500% increase in online viewing of energy
usage data (Casey & Jones, 2013).

Introduced
in 2017, Foreseeä is a customer-centric home energy management system
which uses machine learning to identify user preferences and balance variables
such as cost, comfort, convenience and emissions. According to simulations
using existing field data, the system is able to reduce overall energy
consumption by 7.6% without the need for major behavioral changes (Jin, Baker,
& Christensen, 2017).

Obstacles for growth of customer
centricity in the utilities industry

The transformation of the
utilities industry to focus on customer service faces challenges, however
opinions vary on which pose the biggest threat. A qualitative and inductive
research of utility companies in Germany and Switzerland cites the following as
major inter-company roadblocks in the way of a shift toward customer
centricity: the difficulty of transforming the center of a business from
tangible to intangible assets, shifting a corporate mindset from risk
minimization to entrepreneurship as well as simultaneously balancing the
existing product-centered business model with a new service-centered business
model. Additionally, in this research, market factors in the way of “servitization”
were identified to be the inability to define profitable and scalable services
in an immature market, mistrust of the utility companies providing offerings
which compete with their traditional business model as well as a lack of
in-depth knowledge of the customer and their preferences. Even with a carefully
organized transition strategy and buy-in from all levels of the corporation, an
unfavorable legal and regulatory environment can prevent utility companies from
reaching their ultimate service providing potential (Helms, 2016).

Along with the difficulties
associated with a company’s transition from a product- to a service-based
business model, personal opinions of utility representatives were also shown to
be a hindrance. In a series of focus groups conducted in the U.S. with
representatives from seven different states, a positive correlation was shown
between the perceived importance of renewable energy and of customer engagement
opportunities. In states where the need for a shift to renewables was less
popular, such as in Texas, opportunities for customer engagement were also more
likely to be framed in a negative way (Stephens, Kopin, Wilson, & Peterson,
2017).

In addition to difficulties
faced by companies in making the transition towards customer centricity, there
are also things which stand in the way of customer acceptance. Despite their
overall favor of the utility industry adopting customer centricity in an
appropriate way, Accenture notes that 44% of energy users are not interested in
interacting with their utility companies and that consumers spend just ten
minutes on average interacting with their utility companies throughout the year,
indicating that a shift of core business model may not be advantageous (Mezger,
2017). In the context of smart grid acceptance, privacy of detailed usage data,
radio frequency (RF) safety and possibility of rate increases are seen as the
biggest obstacles (Ellabban, 2016).