Energy on Demand: Preparing Residential Customers for Demand-Based Rates
To solve emerging capacity and revenue challenges, maintain grid stability and prolong the life of existing infrastructure, utilities are considering new solutions around how residential customers are billed for their electricity delivery.
An idea that is being tested in several geographic markets is billing based on demand or time-of-use rates. This means customers are charged for the highest amount of electricity they pull from the grid at a given point of time during the entire billing period (demand) or charged different rates depending on the time of the day they use electricity (time of use). These innovative rate designs diverge from the traditional utility model of billing customers base service fees on top of usage charges for the overall amount of electricity they use during a billing cycle (measured in kilowatt hours).
While these types of rate-based strategies may help utilities stabilize revenue in the long term, instituting changes in the way customers are billed often requires considerable investment in customer engagement. This includes a heavy dose of education about the impacts the new or impending rate will have on customers’ electricity use behaviors and, more importantly, the impact it will have on their bottom line. Utilities that don’t invest in education or other solutions for vulnerable customers set themselves up for any number of PR or operational headaches: eroding customer satisfaction, exposure to bad publicity, costly spikes in inbound volume to the call center, fire drills in the communications department, a deluge of emails from community stakeholders, and so on.
So how exactly can utilities adequately prepare their customers for rate changes? The following ideas may help utilities bring their customers along a shared journey.
Education and Outreach
The single best option to help all customers better understand how new rates will impact them is through education. This is particularly true for vulnerable populations, such as elderly and low-income residents. Education, especially if delivered through trusted channels, such as community partners, will yield the highest positive return.
Education can take many forms. To be effective and impactful, electricity service providers will need to carefully craft an outreach plan that identifies audiences, strategies and tactics, touchpoints and delivery channels, and concise messaging content. Explaining the “why” in rate changes – such as grid stabilization and the deferment or avoidance of costly infrastructure investments – can be especially useful in enlisting customers to support the change.
Many utilities already offer customers levelized billing programs based on usage. As they begin to roll out new rates, these programs can be modified to ensure a similar level of billing predictability for customers, especially those who are on limited or fixed incomes.
By offering temporary bill protection, utilities can help prepare customers for the transition to a new rate without the threat of “sticker shock.” Under a new demand rate, for example, protection could take the form of a cap or a shadow bill that highlights the differences in kW and kWh billing. During this time, utilities can step up their education and outreach efforts to help reinforce new behaviors.
Offering a discounted rate option is the most direct way utilities can mitigate blowback from vulnerable customers, such as low-income and elderly residents, under a new demand rate scenario. Rate solutions are typically more challenging, however, due to regulatory approval requirements or constraints in internal governance.
Do you have questions or suggestions of your own? We’d love to hear from you.