focus on 2006 trends: synthesizing customer care and business optimization

Mother Nature threw it all at the electric utility industry in 2005. Unprecedented hurricanes and floods, as well as the usual assortment of winter storms, wreaked havoc, challenging even the most seasoned veterans. And if that wasn’t enough, Congress crafted and President Bush signed into law the most comprehensive changes in energy legislation in decades. The impact of the Energy Policy Act of 2005 likely will reverberate through the industry for years to come.

As a result of ratemaking decisions, limited access to capital and more competition for the available workforce, utilities will continue to have to do more with less.
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Meanwhile, electric utilities are faced with doing more with less. Less as in fewer dollars to update aging assets, potentially smaller rate increases, and workforce shrinkage. It all points to a need to streamline and optimize operations on every front.

At Alliance Data’s request, industry analysts have identified how the convergence of these external and internal trends will affect customer care in 2006 and beyond. The trends that rose to the top of the list include:

“- Increased regulatory scrutiny
“- Constrained resources driving operational streamlining and optimization
“- Selective outsourcing of non-core competencies
“- Continuing explosion of technology including mobile computing and communications

regulators take center stage

A number of utilities will be focused on rate increase requests to offset higher costs of doing business. According to analyst Dennis Smith of Chartwell, rate applications will be scrutinized more than ever before, “especially in the wake of increased rate hike requests and high energy prices.” Regulators have to determine how efficiently the utility uses its resources and whether customers are receiving adequate value. Consumers are not hesitant to voice their concerns, and regulators will be listening. Companies that are already operating under rate freezes will be constrained to respond to market changes.

more demands, less to use

As a result of ratemaking decisions, limited access to capital and more competition for the available workforce, utilities will continue to have to do more with less. A recent Chartwell survey of customer contact management revealed that more utilities say hiring, retaining and motivating customer service representatives (CSRs) is currently their biggest customer service challenge. According to Smith, “Some workforces are lower in numbers from years past.” Combine that fact with a generally aging workforce in the utility industry, and there’s a time bomb looming on the horizon. For example, the required number of young people to fill entry-level positions in the U.S. workforce skyrocketed from 9.4 million in 1992 to 15 million in 2005. The supply of workers in that demographic is not expected to recover until 2010.

consumers demand more choices, “service, my way”

In addition to workforce challenges in the upcoming years, utilities must continue to streamline operations and cut costs while focusing on core competencies. Available resources must work harder and smarter. This translates into seeking ways to reduce costs while at the same time continuing to deliver superior customer service. Meeting or beating service level commitments to the customer base favorably predisposes regulators when utilities have rate hike requests before them.

At the same time, empowered customers continue to demand choices including, according to Smith, “choices in the way they pay their bill, the way in which they contact their utility, how their energy is priced at certain times of the day.” They assume if an online retailer can inundate them with status details immediately after an order is placed, a utility should offer the same level of responsiveness. That includes reaching a real person quickly when calling for customer service. In fact, according to Smith, first contact resolution is one of the key service levels utilities are striving to improve. He stated that about a third of utilities now measure first-contact resolution, but many others are searching for the best way to track this metric. The key is then using the collected data to enhance service levels.

outsourcing and technology: trends that can alleviate the pressure

Two other trends are at work to mitigate the strains brought about by the issues described above. Outsourcing continues to offer utilities a way to improve service performance and rein in costs. Chartwell’s Smith said, “We believe the percentage of utilities outsourcing some level of customer contact function, for example, has grown from less than 10 percent in the late 1990s to about 60 percent today, a complete change in mindset.” Smith added that utilities have been slow to embrace full-scale outsourcing of their business processes, “instead relying on outsourcers to handle more specific areas such as credit and collections or high-volume calling periods.” Regardless of the services outsourced, placing responsibility on the outsourcer for employee recruitment, training and retention for select services reduces strain on utility resources and allows the organization to use its best employees where they can generate the most value.

Smith’s view is borne out by Robert H. Brown of the Gartner Group. In an August 2005 report, “Forecast: Business Process Outsourcing, North America, 2004-2009,” Brown projected that, “Most companies will favor lower-cost, discrete outsourcing options rather than strategic, comprehensive outsourcing….” These projections lead to the conclusion that utilities will be better served by working with outsourcers that specialize in a specific operational area, such as customer care and the meter-to-cash cycle, rather than those that try to be all things to all people. Specialists often work with alliance partners that can offer services beyond their capabilities, thus bringing a team-based smorgasbord of services to the utility.

leveraging the technology explosion

Technological advances present another opportunity for utilities beleaguered by diminishing resources. “The continuing explosion of mobile computing and communication technology,” said Smith, “has led to a growing segment of more sophisticated and educated consumers.” These customers will be well served by advances in meter reading systems that allow them to monitor and control usage according to time-of-day, while reducing their utility bill. With smart meters, utilities can download usage data and generate bills faster, thus improving cash flow and reducing opportunities for customers to accumulate bad debt. In addition, meter data management applications will help utilities improve network monitoring, thus improving reliability.

But even more significant gains in reliability will come from new technologies that reduce outages and their duration. While these improvements are operationally based, they will impact customer care as utilities are more prepared for emergencies and can provide customers with better information about when power will be restored. The ability to restore power more rapidly and keep customers informed can go a long way toward retaining customer goodwill and succeeding in future rate cases.

The Energy Policy Act of 2005 (the Act) also addresses these areas, but most analysts, including Smith, do not see any real improvements as a result of this legislation in the immediate future. For example, the Act calls for time-of-use rates-a potentially customer-pleasing option-but does not specify how these rates should be implemented. Smith said, “The experts agree the next move will be up to the various state regulatory authorities as for how to implement these requirements.” Utilities and regulators are beginning to model the impact time-of-use rates will have on their revenues, but there’s less of an understanding on how they will affect back-office requirements. The back-office requirements to support time-of-use rates will not be insignificant, and may create additional opportunities for utilities to partner with service providers to mitigate costs and risks.

On the topic of reliability, the Act talks about enhancing and improving the grid and related upgrades, which would also improve customer service while drastically changing many elements of the industry itself. However, until these provisions of the Act are further defined, don’t look for any sweeping changes in the near future.

the future of the industry: “smart” utilities

Taken together, these trends point to the need for “smart” utilities, organizations that know how to optimize operations, choose the right outsourcing partners and outsourced processes, and retain a staff that can meet the challenges facing the industry.

Sounds like a tall order. But in this new world utilities face competition, higher priced hydrocarbons for the foreseeable future, tighter regulatory oversight and much higher expectations by customers. The continued viability and success of utilities deserves no less.

Richard Charles is senior vice president of business development at Alliance Data. He has worked in the energy industry for nearly 20 years, beginning his career as an engineer at Commonwealth Edison in Chicago and working with Navigant Consulting before joining Capstone Consulting Partners during its formative period. You can reach Rich at 972-348-5315.

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