Friday, March 25, 2016

A Look at Changing Utility Pricing Structures

This past week Dave Elve from PayGo and Scott Whitmire from Southern Company joined us for an SGCC Peer Connect Webinar: A look at Changing Utility Pricing Structures. Dave and Scott guided us through a conversation on the many ways to keep consumers engaged through pricing programs while sharing their experiences and lessons learned. Together, Dave and Scott explained how they have been successful in reducing strain on the grid while simultaneously enhancing customer engagement.

Scott kicked off the webinar by providing an overview of Georgia Power’s (a subsidiary of the Southern Company) newest Smart Usage Rate (SUR) Program that was introduced in May of 2015. Scott explained that the SUR Program is a hybrid program that combines a demand response rate with a time of use component for residential customers. Essentially, customers are incentived to keep their electricity bills low by shifting how and when they use major appliances during hours of peak demand (June-September, 2:00 PM – 7:00 PM). To incentive customers to participate in the SUR Program, Scott explained that Georgia Power provides customers with a free Nest Learning Thermostat, a tactic already proving itself successful at increasing customer satisfaction and reducing demand on the grid.

Transitioning to more traditional rate plans, Scott explained how Georgia Power has re-vamped their payment processing system, and now offers pre-payment options in order to increase customer satisfaction.

In an effort to better understand their customers, in 2013 Georgia Power completed a customer engagement segmentation study that divided their customers into six distinct segments; Mass Market Homeowners, Everyday Georgia, Day to Day, Just Getting Started, Young and Mobile, and Established Households. This study also looked at Georgia Power’s Customer Value Chain which revealed five “pain points” for consumers. Building off of this segmented analysis, Scott and his team began a Payment Strategy Initiative which set out to address two of the largest concerns. 1) Customers want more flexibility and ease with payment options 2) customers want to use their preferred method of payment.

Taking a tiered approach, Scott explained that he and his team sought out to adjust their service offerings. In terms of flexibility, Georgia Power added additional locations where customers could go to pay their bills with cash, in addition to the 130 Georgia Power offices throughout the state. By allowing new vendors in grocery and convenience stores to take cash payments–and immediately post the payment to the customer’s account–there were now hundreds of more locations, most of which have extended hours beyond those of the Georgia Power offices, and are turning out to be a huge benefit for customers. Additionally, Georgia Power added the ability to accept credit and debit cards to each of their local offices, a service that was previously only offered over the phone.

Lastly, Scott explained that Georgia Power set out to establish a pre-payment program that built off of these new capabilities, as well as their AMI deployment which was completed in 2012. By taking advantage of the new local payment stations and credit card processing, Georgia Power’s pre-payment program was designed with the customer at heart.  Using their segmentation framework to better understand the subset of their community who would be interested in the pre-payment program, Georgia Power requires no deposits or re-connect fees, gives the customer total control, and helps them pay down existing debt. When a customer with a past due balance decides to shift to the pre-payment plan, 25 cents of every dollar contributed to the pre-payment program is used to pay down their existing debt. To date, 56% of customers who enrolled in the program have been able to eliminate their previous balance, benefiting themselves and Georgia Power. As of March 2016, Georgia Power had collected $1.5 million from the pre-payment program with only 8% of the eligible population enrolled. All-in-all, Scott explained that there have been many lessons learned–primarily focusing on customer education– but the program has been a true benefit for everybody involved.

Transitioning the conversation, Dave from PayGo took over and explained that the benefits achieved through next-generation pricing programs such as pre-payment are only possible thanks to the smart grid, smart meters, and the national focus on electrical grid modernization. Dave explained that the smart grid has transitioned the meter-to-cash process from a period of weeks to only a number of hours, reinventing the utility / customer relationship. A customer can make a payment online or through their mobile device, and that payment posts immediately to their account, adding or restoring power to their home.

Dave explained that PayGo’s pre-payment system–available as a service to energy providers–helps open the dialogue between the customer and their utility. Highlighting just one example, Dave explained how the PayGo system presents information to customers in terms that they can understand. Through an interactive portal or customized notifications, the customers is alerted as to how many days worth electricity they have left on their account based on past usage and variable factors such as weather. As customers don’t know what a Kilowatt-hour is, PayGo presents all information in relatable metrics, days and dollars.

Moving on, Dave provided webinar attendees with an informative profile of the typical utility customer. Dave explained that roughly 33% of customers are already on a pre-payment plan for their cell phone, and that 20% of customers are underbanked and move annually. These customers are incentivized by things such as no late or reconnect fees, and that they do not have to make an initial deposit, similar as to how their wireless plans works. Providing two examples, Dave explained that pre-payment is great for the college student who may move every year and can’t annually fork over a costly deposit, or a typical customer who may be going through a financial hardship and can’t afford to pay their entire electrical bill at once. In both options, a pre-payment program allows the customer to keep their lights on without undue financial burden.

Additionally, Dave explained how pre-payment programs also yield benefits to the energy providers. On average, energy providers who implement pre-payment programs tend to see higher than average customer satisfaction scores and operational savings in terms of write-off reductions and reduced call center demand. There is also a net-benefit in terms efficiency as customers on pre-payment plans tend to use between 7.5% and 12.7% less energy than customers on a traditional pricing plan.

Looking further down the road, Dave provided the audience with a current snapshot of the entire pre-pay market. Less than .5% of customers in the United States are currently on a pre-paid program while 10 Investor Owned Utilities are either contracted or in some stage of the pre-payment program life-cycle. Dave explained that while these numbers are low, studies have shown that as pre-payment programs become more prevalent, 15%-20% of customers are expected to enroll as millennials, environmentally focused, and financially challenged individuals makeup the key demographic.

As the webinar came to a close, both Dave and Scott presented “lessons learned” from their experiences with pre-payment programs, calling special attention to the importance of well-trained call center staff. Both presenters explained that the majority of pre-payment customers are enrolled when they call into their energy provider to talk about their bill. Scott explained that customer service representatives must be specially trained to be able to talk about the programs fluently and to answer any questions that may arise. Scott simply stated “how can the customer get it (the concept of pre-pay) if the person selling it doesn’t get it?” Backing Scott up, Dave explained that pre-payed enrollment increases almost 3 fold when call center staff are properly trained and are working from a script.

Together, Dave and Scott provided an excellent overview of the way utility pricing programs are beginning to change. If you were unable to attend the live webinar and would like to learn more about these programs, I encourage you to watch the webinar recording and listen to the Q&A with the attendees. Additionally, I would like to let all SGCC Members know to Save the Date for our Annual Members Meeting being hosted September 21-22 by ComEd in Chicago, IL. Learn more about the Smart Grid Consumer Collaborative and upcoming webinars, please visit www.smartgridcc.org.