Demystifying fixed billing

By Jan Moore, Direct Options

Aug. 27, 2003 — The first and second articles in this series, “Demystifying fixed billing” (EL&P May and June, 2003) reviewed the benefits of a fixed billing rate plan from the utility’s and customer’s points of views. In this final installment, Moore explores the long-term marketing and operational potential of the fixed billing concept and its impact on a utility’s entire organization.

As was revealed in the two previous articles, the fixed bill concept (where customers pay a flat monthly charge for energy, regardless of usage) is growing in popularity and acceptance. Based upon the experience of utilities such as Georgia Power, and others, it’s clear this customer-centric billing plan has a brilliant future.

Not only does a fixed bill plan generate incremental revenue in “demand light” times, but it also engages customers with a new, forward-thinking rate plan that meets their desire for options in how they pay for their energy. The result? Spectacular enrollment/penetration rates and negligible churn rates.

From the utility’s perspective, a fixed billing plan generates predictable and incremental revenue on a month-by-month basis. With its natural built-in hedge, a fixed billing plan shores up the softness of moderate weather. And in extreme weather, the utility is protected by customers not on the rate plan who more than compensate for any shortfall.

The customer perspective is equally impressive. Customers flock to this rate plan thanks to its predictability and stability. And, they’re willing to pay a pre-disclosed premium to have that security. In addition, customers accepting the fixed billing plan have a significantly lower incidence of complaint calls to their utility, and their public service commission.

“Rarely has there been a program affording such broad customer appeal with commensurate increases in customer satisfaction,” notes Dick Wight, president of Energy Market Solutions, an Atlanta-based utility research and consulting firm.

Furthermore, you can discard the idea that this program appeals to a single customer profile. It doesn’t. A fixed billing plan adapts to the needs of multiple customer segments simply by changing the offer’s terms and conditions.

According to Michael O’Sheasy, vice president of Christensen Associates in Madison, Wisc., and a rate consultant for utilities, “In the case of fixed billing, we’ve learned that the product’s appeal is far more encompassing, and it’s capable of meeting a host of diverse, customer expectations.”

You can also abandon the notion that a fixed billing plan appeals only to current customers. It can meet the needs of customers you don’t currently have but would like to serve.

As we work with more and more utilities in implementing a fixed billing plan, new and previously unimagined marketing opportunities arise. It has become abundantly clear that this is not a traditional marketing opportunity where one size fits all. This is a program with depth, scope, breadth and untapped possibilities that are virtually limitless.

In fact, Bob Hughes, manager of product marketing for Georgia Power, which launched its highly successful FlatBill( program in 2002, thinks fixed billing is arguably the most flexible marketing program in the utility industry today.

“Customers are quick to point out that they want options in how they pay for their energy. With a fixed bill program, we are able to tailor the offering to meet customers’ myriad needs, as well as continue to look for new applications for the plan concept,” Hughes said.

Hughes is also quick to put out a warning to those utilities that might be inclined to apply conventional marketing tactics. He suggests utilities remain flexible and opportunistic.

Fixed billing program extensions

Remaining opportunistic is indeed an important virtue when implementing a fixed bill offer because fixed billing is extremely adaptable and can attract a multitude of diverse customer segments.

Direct Options, a Cincinnati, Ohio-based marketing firm, has helped energy companies introduce fixed billing programs to more than 5 million residential and commercial customers, including Georgia Power and other utilities. The firm not only develops the program’s positioning and supports that positioning with creative, benefit-rich direct marketing programs, it also works with clients to develop natural extensions of the product concept. Some of these potential program extensions include:

“- Discounted pre-pays–A fixed monthly payment with no end-of-year settle-up fee means customers can prepay their fixed bill on a quarterly, semi-annual or annual basis. If a customer chooses to pre-pay, he or she receives a discount. The more advanced the payment, potentially the greater the discount.

“- Employer package–In this case, employers would provide a fixed billing offer to their employees. It’s a benefit that other employers may not offer. Not only is this forward-thinking, but it’s also a way to meet the needs of employees.

“- Total energy package–As a convenience to customers, combined gas and electric bills could be offered which saves administrative time, postage and reduces the number of inquiries or customer complaints to the utility’s call center.

“- Green packages–Companies as well as individuals are becoming more and more environmentally conscientious in these days of increased smog alerts and toxic emissions. Customers that favor environmentally sensitive, or “green” products may very well be interested in a fixed billing program. In turn, the utility gains increased loyalty and a marketing advantage not offered by its competitors.

“- Conservation package–Customers who are more inclined to conserve energy consumption and reduce costs could be attracted to such a payment plan. The offer would provide incentive to customers to make a concerted effort to maintain low consumption over a 12-month period. After the 12-month billing period is complete, actual usage is analyzed and compared to the customer’s previous years of usage. After weather normalization and other factors are analyzed, customers who enroll in this program receive an added incentive for their efforts to use less energy, or a commensurate fee for using an increased amount of energy.

“- These potential program extensions are merely a sample of the many “marketing legs” that a flexible fixed billing program affords customers. Direct Options is reviewing many additional program extensions that are equally practical and ready for implementation… profitably.

Long-term sales potential

Growth — Utilities have at least two defined opportunities for growth. In regulated markets, a fixed billing program can be configured to allow natural consumption growth in kilowatt-hours. Given the opportunity, and unless otherwise constrained, customer usage will increase slightly…at off-peak (profitable) times. There’s also the opportunity to encourage conversion to electric for appliances, water heating and more.

Market share — In open access markets, a fixed billing program will capture a larger customer share. In regulated markets, you stand to gain sales that may previously have gone to a competitive energy source.

New product platform — Fixed billing may also justify its own marketing organization. We’ve learned over the past few years that marketing of this revolutionary product is constrained more by the utility’s marketing approach than by customer acceptance. This may truly be a case where it’s better to create a separate marketing organization that to adapt an existing staff.

Hidden benefits of fixed billing

A fixed billing program unites and inspires utility staff members. We’ve witnessed time after time where the introduction of this successful program has drawn together staff and management alike into daily monitoring of enrollments. Rates and pricing work more closely with marketing. Marketing interacts with billing and customer service. Walls and barriers disintegrate. People rally to put forth ideas to strengthen the program, to make it even more customer-centric.

We’ve also witnessed the reduced demand on call center resources. Not only is there a reduction in customer complaints, but there’s a perceptible change in the call center staff’s attitude because they’re taking calls for a product customers want–a fixed bill.

There’s also the possibility for a reduction in meter reading costs. Obviously, a majority of customers must enroll in the rate plan, and the risk tolerance must be acceptable, but this potential illustrates the “outside the box” thinking applicable to a fixed bill plan.

Let’s hear it for the regulators

Unquestionably, initial regulatory reaction is skepticism… at best. However, it has been proven that once a program is up and running, regulators become advocates for a fixed billing plan. When one utility applied to expand their program, the head of the public service commission expressed the desire that other utilities in the state would consider such a program.

Regulators understand two key issues regarding a fixed billing plan: 1) research shows customers overwhelmingly want access to this kind of rate plan, and 2) ultimately, this is a customer choice program. Customers are not forced to accept the plan. Upon implementation of a fixed billing program, regulators recognize a reduction in customer complaints that allows them to focus on larger, perhaps more important, issues.

Finally, it’s difficult for regulators to ignore the overwhelming customer satisfaction levels inspired by a fixed billing program.

Fixed billing’s future is bright

By every measure, fixed billing is in its infancy…somewhere between crawling and its first true steps. How soon will it be walking, talking and running? It’s hard to predict.

What is predictable, however, is that in only a few short years, a fixed billing plan will be as commonplace as budget billing/equal payment plans. Perhaps, even more so. And, we intend to continue to be in the forefront of this product’s development.

The long-term potential of fixed billing is truly limitless. Fixed billing is such a revolutionary and innovative product for the utility industry, and it’s one that will drive customer loyalty and provide a utility company with unlimited revenue potential.

Moore is president and CEO of Cincinnati, Ohio-based Direct Options, a database marketing firm that specializes in the development and marketing of customer loyalty programs and creative, direct marketing and database marketing solutions for progressive-thinking utilities and Fortune 500 companies. He can be reached by calling Direct Options at 513-563-4448 or accessing www.directoptions.com.

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Demystifying fixed billing

Jan Moore, Direct Options

In the second installment of a three-part series, Jan Moore, president and CEO of Direct Options, further explores the fixed billing concept by assuming the customer’s perspective. He identifies the features and benefits that customers find so appealing in the fixed bill program concept, as well as how the program has yielded unprecedented customer satisfaction levels.

In last month’s first article in this series, we reviewed how a fixed billing program (“all you can eat” pricing for utilities) generates incremental revenue for the energy industry. We also reviewed the program’s straightforward implementation and management requirements [Electric Light & Power, May, 2003 “Demystifying fixed billing programs”, page 28]. This month we look at the program from the customer’s perspective.

Before launching its unique program statewide in 2002, Georgia Power, the largest subsidiary of Southern Company, conducted more than two years of exhaustive market research which included two pilot offerings, created a risk-averse pricing model, developed a “benefit-rich” direct marketing campaign and earned state-wide roll-out approval from the Georgia Public Service Commission.

Today, Georgia Power’s FlatBill program, notably the first fixed rate program in the electric industry, has exceeded expectations and will remain a staple of the utility’s billing portfolio, according to Bob Hughes, manager of product marketing for Georgia Power.

“Once we concluded that the financial benefits outweighed the risks, the challenge was determining which customers would be most attracted to the program, and then of course, how best to market FlatBill to attract enough customer enrollments to make it a viable proposition,” Hughes explained.

Almost immediately, Georgia Power recognized a significant increase in customer satisfaction levels among enrolled customers. They also discovered that many of the enrollees in the program had become strong word-of-mouth advocates.

What’s the appeal?

The appeal and proven success of the fixed billing concept among residential and small commercial segments is achieved at several levels:

“- Customers want predictability—In today’s economy, customers are conditioned to expect products and services that simplify their lives (unlimited online access, long-distance phone service, cable TV, etc.). Consumers don’t want “metered” dependency, and they favor bill predictability. A fixed bill program achieves that goal by eliminating monthly billing variations for an entire 12-month period. That means, at the end of the contract year, there is no settle-up fee incurred by the customer. Afterwards, a review of the customer’s consumption over the previous 12-month fixed rate period, along with his or her current tariff type, weather normalization patterns and other behavior indicators, determine the customer’s fixed monthly rate for the next contract year.

“- Customers enjoy a sense of control—Consumers are much more inclined to make a purchase commitment when they perceive they’re in complete control of their buying decision. Ultimately consumers are most gratified when they feel they are getting something for nothing or, at the very least, getting a good deal. A fixed bill program delivers to customers the value proposition that they can use the amount of electricity required to complement their lifestyle, while controlling their monthly costs. Moreover, to attain this freedom, customers willingly pay a premium for the convenience and predictability via a fixed billing program..

“Balancing customer needs for control and budgeting options with the practical limitations of utility billing systems is always a challenge. We see the fixed bill plan as having great potential for achieving these seemingly divergent goals,” explains Jim Thompson, Pricing and Load Research Team Leader for Gulf Power. “Monthly fixed billing is currently in the pilot stage for us. Down the road, we’ll look for logical areas in which we might expand the concept to meet even broader goals and objectives.”

“- Budgeting made easier—Identifiable, predictive customer segments have different reasons for choosing a fixed billing plan. For example, budget constrained and “fixed income” customers appreciate the fixed bill’s predictability and stability. This program also provides higher income customers greater confidence in choosing automatic bill payment and e-bill payment options when their monthly bill is absolutely predictable. Small commercial customers enjoy the fact that they can accurately budget their energy expenses and related profits for the next 12 months. The common element, however, is that customers appreciate knowing precisely how much their energy will cost each month, regardless of underlying energy cost volatility or the amount of energy consumed.

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Michael O’Sheasy, vice president of Christensen Associates, Madison, Wis., and a former rate consultant for utilities, built the pricing model for Georgia Power and a number of other utilities. According to O’Sheasy, “The original concept was to build a pricing model that relieves budget concerns for specific customer segments. We’ve subsequently learned that the product’s appeal is far broader, and the program is capable of meeting a host of diverse customer expectations.”

It adds up to enhanced customer satisfaction

The customer benefits noted above represent more than theory. They do, in fact, manifest themselves in unprecedented customer satisfaction levels. Utilities who have implemented a fixed bill program frequently realize 90 percent and higher satisfaction levels among enrollees. Even more telling are the 90 percent (and higher) re-enrollment rates. It should be noted, however, that the manner in which a fixed bill product is communicated, delivered and managed profoundly influences overall satisfaction and greatly impacts retention levels.

Dick Wight, president of Energy Market Solutions, an Atlanta-based utility research and consulting firm noted, “In addition to the high renewal rates, research also shows that customers on a fixed bill program are more open to accepting other utility products and services. The trust engendered by a fixed bill plan appears to translate into broader customer receptivity to innovative energy products.”

Clearly, a well-crafted and implemented fixed bill program generates customer enthusiasm (as do most customer-centric programs). At the core of this enthusiasm is the customer’s perception that their utility is meeting their individual needs, and that the utility is working to make customers’ lives easier and more convenient.

Over time, utilities will undoubtedly gain experience and a deeper understanding of the fixed bill concept through attentive customer listening. Equally certain, they will find additional program enhancements that serve to meet more customer needs, therefore, create a process of continuous improvement.

In next month’s issue, the third and final installment of “Demystifying Fixed Billing” explores the long-term marketing and operational potential of the fixed bill concept and its impact on a utility’s entire organization.

Direct Options is a database marketing firm that specializes in the development and marketing of customer loyalty programs and creative, direct marketing solutions for progressive-thinking utilities and Fortune 500 companies. Moore can be reached at 513-563-4498 or via www.directoptions.com.