Aligning Customer Satisfaction with Utility Regulation

Transcription

1 Aligning Customer Satisfaction with Utility Regulation June 26, 2013

2 Our distinctive combination of functional expertise, industry experience, and deep business & technical know-how delivers sustained success. JW 2

3 Your Hosts Will McNamara & Jack Winter Will McNamara, Senior Manager, and Lead for WMP s Regulatory Support & Stakeholder Relations Practice Area Electric ratemaking experience in a number of U.S. states, including defining & implementing new customer service initiatives Experience in planning PBRbased program executions for utilities Along with Smart Grid project management, primary focus has been concentrated on the regulatory & legislative strategies of electric utilities Along with consulting, previously worked at Sempra Energy (SDG&E) developing regulatory policy initiatives before the CPUC Jack Winter, Senior Manager and Lead for our Executive Advisory Services Group Former staff member at the PUC of Ohio, operations and regulatory executive at combination IOU, and Executive Manager at Public Utility District of Chelan, WA Extensive experience developing and delivering PBR and expert witness testimony, and regulatory policy recommendations and changes Consulting experience includes Regulatory Strategy & Dispute Resolution, Organizational Performance, & Workforce Management 3

4 We have the following strategic objectives for today s Webinar. Introduce a hypothesis that has framed the contents for our discussion; Summarize how customer satisfaction metrics can be built into a performance-based regulatory model; Introduce a discussion about the appropriate level of customer satisfaction investments, given costs, stakeholder expectations, and jurisdictional benchmarking; Evaluate best practices in customer satisfaction, as illustrated by those utilities that consistently are obtaining the highest scores in customer satisfaction surveys. A White Paper addressing all of these issues in greater detail will be provided to all attendees. WM 4

5 What is Customer Satisfaction And Why Is It Once Again On The Regulatory Radar? WM 5

6 We are currently witnessing an evolution that is pushing Customer Satisfaction into the forefront of the E&U industry. 1) First, customer satisfaction is an evolving concept for the E&U sector. Electric utilities are emerging out of a monopolistic paradigm. As a monopoly, utilities had little need to focus on customer experience or customer satisfaction, and interaction between customers and their electric utility was minimal. This is a rapidly eroding model and utilities must adapt to new market forces. 2) There are a number of recent conditions that are increasing the focus on customer satisfaction Customer expectations are more sophisticated; Millennium Generation increasingly in a decision-making position Retail competition although stunted has eroded the monopolistic model Rise in energy efficiency and demand response programs The growth of distributed generation alternatives Acceleration of new smart grid technologies National customer satisfaction (e.g., JD Power) surveys are a fairly new trend in the E&U sector WM 6

7 Customer expectations for electric utility service have taken on a new level of sophistication. The level of service that has suddenly become an expected norm includes: Mobile applications that allow instant access and analysis of their bill and energy usage Easy and successful communication with the utility on a wide range of issues and questions Automatic and one-touch transactions for bill payment, new customer activities, services selection, and even energy control choices Assistance in a wide range of energy management and beyond-the-meter services Ongoing updates and notifications of utility news, conditions, operations, and local construction projects Controlled content and preferences through push messages concerning related energy and utility activities Instant and reliable updated communications before, during, and after storms WM 7

8 We are currently witnessing an evolution that is pushing customer satisfaction issues into the forefront of the E&U industry. The Outcome: Customer satisfaction has been elevated to the level of safety, security, and reliability that are prevalent in current E&U strategic initiatives. Utilities and regulators are evaluating customer satisfaction from a number of vantage points:» What impacts it?» How to improve it?» Why do some electric utilities consistently obtain high marks in customer satisfaction, while others do not?» How can customer satisfaction be measured in regulatory proceedings?» From the utility s perspective, where is the biggest bang for my buck in customer satisfaction investments? WM 8

9 We are closely tracking developments in the E&U space due to what we perceive as a gap in both business planning and regulatory strategy. Our Hypothesis: There is an increasing emphasis on customer satisfaction in the business plans of utilities and regulatory proceedings. We expect this emphasis to continue, given the number of drivers previously mentioned. The utility/customer interface is evolving and adopting attributes more commonly found in the competitive marketplace. However, utilities and regulators have reacted incrementally to the emerging nature and importance of customer choice and satisfaction. The current regulatory regime that is common across U.S. states can be redefined to effectively promote customer satisfaction initiatives. There are lessons to be learned about best practices in customer satisfaction that can be translated into measurable performance metrics contingent on a utility s unique business plan. WM 9

10 The Regulatory Case for Customer Satisfaction JW 10

11 As we ve seen with other modern initiatives that utilities are pursuing, the traditional regulatory model is proving to be ineffective. The traditional regulatory model is based on a Cost of Service / Rate of Return structure. Under this model, utilities can earn an ROR on capital investments generally for infrastructure such as generating facilities and wires. Customer operations (i.e., customer service initiatives) have been treated by regulators as operating expenses with the utility only being able to pass on the actual cost and not earn a return. COS/ROR regulation does not reward utilities for exemplary performance and therefore a utility has little quantitative incentive to achieve operational or customer service excellence. As a result, incremental utility activities to improve customer satisfaction may not be effective. In the absence of regulatory policies that provide incentives to improve demand-side offerings, a utility has no reason to develop programs that help customers reduce their consumption. In the absence of clear penalties for sub-standard performance, the traditional regulatory paradigm offers few if any financial consequences for continued customer service that is below a national standard. JW 11

12 The regulatory model has been slow to change and only recently has customer satisfaction emerged as a regulatory consideration Regulatory policies enacted 1900s 1950s 1950s 1990s 1990 s Now The Recent Past and The Future Fair rates Equal access Quality of service Price ceilings Mergers and acquisitions PBR introduced in some jurisdictions Deregulation Integrated resource plans Energy efficiency / Demand Response Divestiture Reliability Separate, silo ed activities Grid modernization efforts Increased customer control over their own energy usage Customer satisfaction The model for customer satisfaction is no longer dependent on regulatory mandates; it now includes greater opportunities for utilities to drive their own initiatives. JW 12

13 Including customer satisfaction strategies into a utility s business case raises significant financial and regulatory concerns. Without an integrated approach, it is far more complex for most electric utilities to determine the best placement of incremental customer satisfaction investments. Initiatives that have a more obvious customer engagement element (such as new or expanded CIS/CRM systems, Website overhauls, sophisticated EE/DR programs) and the not-so-obvious initiatives that have a secondary or causal impact on customer satisfaction (such as upgrades to the distribution network) all require competing capital resources. The standard regulatory regime that is in place in most U.S. states sends conflicting signals with regard to risk sharing for programs that seek to improve overall customer satisfaction. JW 13

14 There is a clear basis for incorporating customer satisfaction initiatives into regulatory proceedings. There is a positive relationship between an electric utility s customer satisfaction levels and its regulatory experience: The opportunity to create incentive-based financial metrics The opportunity to reduce disallowance amounts The opportunity to reduce the time it takes to complete a rate case and the interims between rate cases (i.e., regulatory lag) Coupling the benefits of increased customer services such as higher reliability, faster storm restoration, control over usage, and even factors such as green energy choices and energy advisory services may allow utilities and regulators to construct a balanced approach to risk sharing Improved customer satisfaction is correlated with increased rate of return (ROR) on investments Additionally, utilities with the higher proportions of satisfied customers received rate increases closer to their requests than did utilities with low customer satisfaction scores. JW 14

15 Building Customer Satisfaction Metrics Into PBR JW 15

16 Customer satisfaction metrics can be a natural extension to reliability metrics that are fairly common in Performance-Based Ratemaking. Approximately half of the U.S. states have some form of quality of service (QOS) performance-based ratemaking that to some extent incorporates customer service metrics with established targets, penalties, reporting requirements, or some combination thereof. Diverse customer satisfaction initiatives The common approach has been to focus primarily on reliability metrics such as System Average Interruption Frequency Index (SAIFI); System Average Interruption Duration Index (SAIDI); Customer Average Interruption Duration Index (CAIDI) Expanding this model to incorporate customer satisfaction metrics above and beyond reliability and historical servicebased requirements would be a natural extension of regulatory policy. Reliability only JW 16

17 Improvements in regulatory PBR policies would focus on factors that are more typically within a utility s control. Historically customers have been satisfied with their utility if the lights stay on and their monthly bill has been low This perspective created a limited context for utilities to improve customer satisfaction Other elements of customer satisfaction are within the control of utilities: Improved billing practices, outage communications, payment arrangements, disconnects, low income programs, corporate citizenship, etc.) Regulators also are increasingly focused on controllable metrics that measure customer satisfaction To the extent that a utility can include controllable metrics in incentive-based PBR, there is an opportunity to create mechanisms that reward improved customer satisfaction JW 17

18 Regulators and utilities can customize customer satisfaction metrics to meet their own unique objectives. Types of customer satisfaction issues that may be built into a measurable performance metrics may include: Complaints resolved Service restoration statistics Call center performance Bill accuracy Missed appointments Estimated meter reads Outage communications Commission-led customer satisfaction surveys Customer education / data access Safety Cyber Security / Privacy Economic development / job development Environmental benefits WM 18

19 Illinois is a great example of a regulatory model that has incorporated customer satisfaction metrics. The PBR formula that Commonwealth s Edison has created with the Illinois Corporation Commission (ICC) are being used to determine (in a measurable way) how upgrades to Illinois electric grid are delivering benefits to customers. For context, ComEd had made the case that since 1999 ICC rulings on key financial matters had created uncertainty about cost recovery and future revenues with a history of significant disallowance amounts. Along with five reliability metrics, the EIMA law also establishes four customer metrics that are specific to ComEd: Reduction in estimated bills Reduction in consumption on inactive meters Reduction in accounted for energy Reduction in uncollected expenses WM 19

20 Best Practices in Improving Customer Satisfaction WM 20

21 While each utility will have unique objectives and dynamics that impact its strategy, there are some fairly consistent common denominators related to customer satisfaction. As one example, J.D. Power & Associates includes the following influences: Power quality and reliability; Billing and payment processes; Corporate citizenship; Price; Communications; and Customer service. How these factors might rank at individual utilities and be supported by a utility s unique capital investments is very subjective Moreover, these factors are interpreted by customers through real-word experiences Generally speaking, reliability and price have ranked as being most important by customers, which unfortunately are often the less controllable factors WM 21

22 As regulators and utilities work to define customer satisfaction metrics, best practices gleaned from other utilities are quite useful. The top rankings pulled from the J.D. Power survey and indications of where these utilities have placed their emphasis (and capital investments) creates useful insights for other utilities that may be struggling to improve their overall customer satisfaction levels. Utility East: PPL Electric Utilities score of 664. Midwest: We Energies score of 669 South: Georgia Power score of 695 West: Portland General Electric score of 694 Customer Service Focus Customer segmenting, data analytics, social media, upgraded technology platforms Significant investments in infrastructure to improve reliability Revamped Web portal Multi-channel approach: contact, center, at community offices, through self-service customer channels such as the web, mobile IVR, and by working directly with customers in their homes and places of business WM 22

23 Our work with E&U clients has revealed trends in certain areas aimed to improve customer satisfaction. There are a number of initiatives that an electric utility may choose to pursue these are the ones that seems to be most common. Customer-facing initiative Call center transformations Electronic communications Social media Web portals Industry Best Practices Incorporating a more customer-centric that emphasizes service, program offerings, and education. Knowledgeable call center agents should not only resolve issues, but proactively suggest new energy programs and help inform customers of new offerings. Customers want increased options for electronic billing and payment, messaging, text or mobile applications, websites, and social media platforms. Social media can inform customers of new programs, provide outage information, and suggest energy-saving activities. Web portals offer customers a personalized look into their account and satisfies the growing expectation for personalized digital or mobile interaction. WM 23

24 There are a number of proactive steps that utilities can take to incorporate customer satisfaction initiatives into their broader regulatory strategy. Identify a specific customer satisfaction objective (e.g., increase of customer satisfaction score, increased customer participation in specific programs, etc.) Choose an appropriate benchmarking context for your investments (e.g., jurisdiction, region, other industries, etc.) Collect and compare existing customer satisfaction performance metrics and programs Determine the appropriate investment for specific customer engagement initiatives or programs An overall investment portfolio of customer satisfaction services and systems must be evaluated and prioritized similar to any other resource investment Align and integrate internal performance measures with external regulatory considerations Define cross-organizational responsibilities for improving customer satisfaction Socialize revised customer satisfaction plan with regulators to include new performance metrics in future rate proceedings Without an sharing mechanism with the regulatory jurisdiction, customer satisfaction will continue to be a second-class performance threat, rather than a truly aligned and integral part of a utility business strategy. Reconsider requested ROR for future rate cases WM 24

25 Q&A Session 25

26 Additional Questions? Will McNamara West Monroe Partners (505) Jack Winter West Monroe Partners (727)