How to enhance customer engagement in the Texas market

Written By: Jen Neville
February 28, 2018

Proxy Revenue Swap

grid modernizationGrid Modernization 2018 Summit will bring together regulators, utility leaders and key technology innovators to explore how to optimize grid investment to meet growing customer demands and operational needs…

Stratton Report: I have with me Laura Mann, Director of Navigant.

Laura: I really appreciate being here today. I’ve been working on the ERCOT market for many years, there are some interesting drivers for change right now in the market. In many parts of the country, ERCOT is trying to sharpen wholesale prices, find ways to encourage more customer participation, demand-side participation and up with any policy changes. Things sometimes move slowly, so what I’ll discuss is the rate of change at the wholesale which is more and more matched by the rate of change at the customer level, as technology and data and information become a larger part of the picture.

When we talk about the ERCOT wholesale market, some of the changes under consideration are real-time co-optimization and that’s talking through how we consolidate the markets for energy ancillary services and reliability products into a market that products can be traded across all timeframes. The expectation is that those will come out with sharper prices and essentially more efficient pricing in the long run. This is a disruptive change, lots of details and money to get the system’s running and up to 40 million dollars has been projected and perhaps up to four years to make these changes. It’s a slow march towards something that ultimately will provide benefits at least from everybody’s best projections.

Some of the other changes under consideration for sharper and more location-based pricing are marginal losses, which would show more about what’s actually going on in the system. As far as losses being currently averaged around two or three percent on the transmission system, they don’t always give the signal to customers about when it might be valuable to use energy and not use energy. Marginal losses come with a need to provide a set of rebates which can get very complex. Locational reserves which may change the prices in certain locations give more indication of when transmission is scarce or not.

One of the things that have been discussed and that would directly have an impact on customers is the changes in transmission planning and cost recovery. My interpretation is that it’s very complex. It has far-reaching implications and isn’t a subject that will get addressed in the short run or enough to make meaningful business decisions for people on this call.

The whole goal in the market price reform or the improvement in price formation, to get sharper prices that will level the playing field between generators participating and loads participating in the wholesale market and providing solutions for reliability. This comes with the understanding that the barriers to entry to being in the wholesale market are lowered. You need to qualify to be a market participant or represent a market participant in ERCOT.

Customer participation right now is kind of difficult. ERCOT doesn’t have sharp prices. They have a short forward-looking window and it’s really hard for large customers and small customers to participate, so in many of these areas, the benefits outweigh the costs. But there are also political hurdles at the moment, so the appetite for change has somewhat diminished. These improvements could create cost savings but it will take a while. Meanwhile, what’s happening is that technology, especially on the customer side, is catching up. In some cases, it’s surpassing the pace of change in the wholesale market. What we see is the shift toward downstream value creation. Creating value and opportunities closer to the customer interface is seen by many new non-traditional providers targeting the energy space as a means of changing their value proposition and extending their value proposition. Innovative technology offerings are bringing in many new participants into homes and businesses. The challenges for new entrants might be product oriented or service oriented. Sometimes was just a case of strengthening a brand or a consumer relationship from something that’s already present in the customers home.

As behaviors evolved and customers are changing their preferences, they’re becoming more energy savvy. Some are becoming more environmentally conscious and there’s a lot of expectation that the customer service experience needs to be seamless and effortless. Many of us have stories about not knowing what’s going on with our energy and there’s no information.  That’s changed significantly over the past few years. Customers really want better control of their energy usage and are willing to spend money to get better control and better transparency about when would be a good time to change their energy usage. There’s a great degree of emphasis on choice, not only for who is the energy provider,  but also what is the mix of the energy portfolio is provided.

There’s also personalized services and more proactive pushing toward the customer data information, getting much more information to the customer about their usage, their trends, their neighbors and how they fit into like-minded groups or similarly situated groups. Digital access is a big changer with apps and iPads and technology that’s transportable and remote for customers to have that digital experience. Another thing customers are looking for is low cost. Customers are looking to find ways to save money and as much as it was assumed that customers who were inelastic and not responsive to price, over time that’s proven to be quite different. There is a lot of customer behavior change based on their opportunities to save.

There are drivers of erosion. A poor customer experience would erode loyalty of a customer to its energy provider. Rising retail prices and the costs being directly attributable to a customer would erode loyalty.
The lack of a value proposition, what am I getting for my experience, would also be an indicator. Reliability power quality issues this might be even more important to large customers that are very power quality sensitive. Is the reliability there? Is the resiliency there? The ability to recover if something happens on the grid? How do these reliability and resiliency issues impact different segments of the customer, especially for our participants from Texas that have had bad weather experiences lately? It’s bringing that all to the floor.

A weak brand image or reputation could also be an indicator. How is the corporation that’s interacting with the customer perceived? Do I feel good as a customer interacting with this particular corporation?
Then there are the market drivers. Do we have enough competition? Do we have economics being driven all the way down into the customer experience?  Also the regulations and policies. What’s happening with mandates to build transmission? How does that reflect on my customer bill? What are the preferences that come about through regulatory policy as opposed to preferences that are coming from the customer experience?

There seems to be a bit of a disconnect between the policy drivers in the wholesale market and some of the preferences on the customer experience side. What happens is these customer erosion experiences allow an energy provider to develop a scorecard that helps them get a sense of where they sit with the customer or where they sit with a target market of customers that they’re looking to acquire. The metrics around the customer experience and how to make sure that any negative indicators can come up with a mitigation plan to move that in a more positive direction. Rising retail prices, there may be an opportunity to do budget billing or to find some other way of doing an intervention. Something that would allow customers to have an efficiency improvement or something that would help them manage their rising prices. The lack of a value proposition, really engaging with the customers, finding out through surveys what value customers would like and how to adapt to be in that space with the customer.

Around reliability and quality issues – and that’s a pretty measurable part – the traditional measures of CAIDI, CAIFI, MAIFI all of those, and not only looking at the customer from the traditional measures but is there extra equipment? Is there extra something that can be done? the special work customers are very quality sensitive to put sort of behind the meter or on-premise equipment that would help improve power quality. We’re seeing this for example with microgrids that want to put storage or generation on-site so that power quality is not always dependent on the outside grid. What is the brand image and again getting in touch with the customer, finding out what are their experiences and how to change that in the minds and the eyes of the client?

The market drivers tie back to that 4CP for transmission. That is one way is a real value to customers that can do an interruption on peak days that can significantly reduce their bill and so that’s something that would be a regulatory driver/policy driver and then also how does that work as a market driver? Those are some of the things, the efficiency that we’re talking about in the wholesale market may ultimately wind up as savings for customers. There are ways to develop metrics that will allow energy service providers to gauge where they stand in relation to customer perception and then take mitigation measures to improve that. Navigant is really focused on the future of the utility industry and it’s being very animated by the energy cloud.

The transition of the utility business from a one-way business from a central location – out to the customer – to a business transactional interdependent – is really enabled with new technology. It’s not only two-way energy flows but it’s two-way information flows. It’s new technologies that allow flexibility, digitization, and resiliency and changing that customer experience. As we transition from the centralized inflexible power grid,  it allows all of the customer resources to also act as resources to help provide reliability to the power grid, resiliency to the power grid and then again to go back to my microgrid analogy the grid within the grid, there’s a whole additional level of being able to generate for self-use or generate to sell back to the grid and the utility business models are transforming to help support this two-way information flow in certain parts of the country. We see the notion of a platform provider and ways that customers can use the energy cloud to drive their business and get additional benefits, power quality resiliency information about their use, ways to manage their use that were not even thought about ten years ago.

What should energy service providers do?  The first step is digitizing core services. So being able to digitize billing and payments, outage communication, meter reading, being fast at connecting new customers, be flexible and nimble in correspondence and communication and then also self-service transactions. Is a customer able to either use a web-based technology or something other than the traditional phone call through the help desk to get the basic services that they’re looking for? The next step up in moving toward the new future of energy is to look at customer engagement. How am I interacting with the customers? Am I providing them proactive alerts rather than reactive alerts? Am I providing them with new insights on how they might experience a new service and way of managing their energy, a new way of billing coming up? Am I providing customer analytics and ways for customers to understand their usage and their experience with the energy company? In the extended value proposition, we consider things like new ways to price.

I’m based in California and we’ve come up with new tariffs for EV charging, for example. That would be an example of new pricing and new products. How do we personalize products? Do we provide warranties? Do we provide rebates or upgrades? What can be offered to the customer that would particularly appeal to them? Energy-related advice and consulting from something as easy as a home energy audit to something as complex as how do I establish my home or business as a microgrid that has generation supplies storage? What else can I do either to manage my bills or to become a participant in the energy market?

We also see energy contract management. These types of companies come in and say I’ll take over your bill and you don’t need to worry about it. Here’s a fixed price that we will agree to and I will take over managing your interface to the utility into the market. As we move to this new business model with a new customer experience perhaps distributed energy strategies, new customers, new services are really coming about through digital solutions, technology-enabled solutions, and the customer experience. We can really get sophisticated energy service providers running on digital platforms that provide not only basic services but can provide categories of premium services, either for quality, environmental or other experiences. What we see now in the industry emerging are the solar PV, solar PV + Storage, creative financing, creative repair options, creative maintenance contracts, creative energy management contracts. We see smart EV charging and then the platform for ultimately transactive energy, which becomes much more decentralized and continues that movement away from the central station toward the customer and becomes a network of interactions that really are completely dispersed in the cloud or in the platform.

The challenge for utilities is how to maintain reliability in a very traditional way while simultaneously creating the flexibility and the agility necessary for innovation. If we strike the balance, on the one hand, we’re requiring traditional reliability – we haven’t really changed any of the quality or customer service measures – are there ways to more efficiently operate the utility? Are their customer service enhancements that can be offered? Is there a way to come up with perhaps performance-based incentives that increase profits or a way to free up capital for reinvestment? On the other hand, there’s agility. How do we come up with new products and services, new business models and new revenue streams? Especially from the utility perspective, how do we remain in our position of the essential provider of last resort and where customers ultimately rely on, to an enabler of the new business model in the utility?  Coming up with the data, information and the innovation is all going to be key in the future.

Green Mountain Power has done a lot with building what they call the utility of the future.

Their ecosystem for customers and it is still within its vertically-integrated franchise. They offer personal energy management. It’s a comprehensive home control and convenience offering that manages every consuming device in the home and allows control to increase comfort and save money. NRG Energy also provides the Portable Power which offers portable power solutions so customers can break free from the outlet and charge the smartphones with the NRG power pack. Related to EV infrastructure, NRG eVgo has been developed and it’s expanding and interconnecting a network of EV charging stations throughout the state and it includes several charging power options. They essentially offer new-age energy products directly to customers and have really gone beyond the traditional way of thinking about the customer relationship to something that’s very interactive, very personalized and comes with small devices that can make large changes

The key takeaways that Navigant is offering are, not only is the wholesale market changing and trying to provide a platform for customers to be more interactive and able to have sharper pricing and interaction with the wholesale market, but also it’s leveraging the parallel and very rapid change of digitalization and information technology. As utilities and energy service providers pursue their transformation journeys, they’ll need to become more adept at anticipating customer needs and will need to know how to market new technologies, how to identify new channels, how to look at bundling product and service options and also how to have innovative customized pricing offerings that might include a green benefit or a power quality benefit, or something else that that’s appealing to a certain group of customers.

The first step is to digitize and then automate. We see in certain cases that we have automated metering that was digitized, and then it went to a metering that could be interactive. Another example is self-service, that has become the norm, a frictionless customer experience which will drive operating costs down and also drive the customer experience up. More immediate, not holding the phone, being able to get done what they like in a short amount of time with a minimal effort and then move from transaction to a relationship. I think the word prosumer was started about 10 years ago,  but we really do see the ability of proactive consumption or not consumption depending, and much more amounts of control based on a high degree of information. Customers can choose to either manage their use, such as we saw in the Green Mountain Power example. They can know what devices they are using, they can change how their devices are behaving or they can transport and be completely off the grid. We’re seeing more and more active and engaged customers. It important to enable that and to make it easy. The least amount of effort for the most amount of gains.  That’s what the new energy cloud is offering.

The next step helps leverage businesses. Creating customized energy products and services for utilities and energy service providers.  Our high-intensity customers interested in creating a microgrid so that they can self-provide or get a higher degree of resiliency or reliability and really make that happen closer to where they have control of it and then also have regulations and tariffs that allow the sales of excess and become a distributed and transactional experience for the customer. The companies also need to be able to change the experience of the larger customers based on drivers. For example, to gain more customers in sustainability, a lot of larger companies now have a chief sustainability officer and are trying to drive the experience for not only themselves as an energy user, but for the employees themselves that have sustainability preferences in mind.

How do they have a better sense of control?  I work with microgrids that have time and quality critical laboratories. The question is, how do they make sure that in doing energy management, that something like a laboratory that needs 10 tenths reliability and power quality can be alongside another building that might be able to have its lights turned off all night? And how do we customize that to a building, to a floor, to a classroom or a laboratory and that can be made available by using information and digitalization and the energy clouds? Customers want predictability and they want good quality at reasonable cost. That’s a universal driver for many customers. It’s really a matter of how the utility or the energy service provider could provide a cost-benefit of getting additional predictability or quality to customers. It is important to give the customers a very tailored solution.

Stratton Report:  You mentioned the energy cloud and how it’s the new business model and how people are moving towards that.  Do you have any examples of companies that are considering the energy cloud and are moving towards that new model?

In California, universities are using the energy cloud to actually change where they’re using their energy based on time and prices. They are moving computing from one supercomputer to another remotely located supercomputer to take advantage of pricing and solar panels that could be sustaining the computations. Then, they move to another place as the sun changes or as prices change.  I think is a great example of the future of innovation that I’ve personally seen.

Stratton Report:  You mentioned digitizing and reaching out to the new generations with different ways of customer engagement.  I’ve seen some utility companies use apps and a lot of different ways of sharing information and rewarding those prosumers. Do you have anything to share about that type of customer engagement?

One of the companies I know of is the company Opower. Navigant has identified them as a thought leader in this area, and the reason for that is because they have made energy use a bit more fun. They have made the experience of saving energy much more approachable and friendly. I think would be one of the better examples that I’ve seen with companies that are trying to really be more customer focused.

Stratton Report:  Has there been any effort to incorporate blockchain technology in the utility business operations?

I think everyone believes that is the platform of the future. Where there isn’t a central clearing, the blockchain is going to do the validation instead. I believe the challenge at this point in time is making sure of the timing and the speed of blockchain. Being able to do these dispersed and remote verifications and validations is still not fast enough to really accommodate utility transactions. I believe everyone’s working on blockchain being one of the best technologies for transactional energy and a completely distributed future.

Stratton Report:  You also mentioned Green Mountain Power and the Tesla Power Wall. Along with these customer engagement companies making beautiful designs for these personal energy storages, do you think that the trend will continue as they try to reach out to more people who want to be more sustainable and environmentally friendly but not necessarily know as much as an expert?

In my opinion, not shared by anyone at Navigant, I am a fan of the Tesla Power Wall and I think it’s the iPod equivalent of the energy space. I think the design is going to become just as important as the features. It is part of the customer experience. Customers not only want things that are affordable and functional but also stylish and aesthetically pleasing. The Tesla Power Wall is one of those great examples that you could have something that looks like a flat-screen TV, but also provide energy. I believe that’s the beginning of a trend for customers.

Get news, insights, podcasts, videos, webinars, and events delivered to your inbox every Tuesday

applications CAIDI CAIFI