by Stephen Lacey, Nicholas Rinaldi
September 29, 2017

Customer engagement. It's the phrase du jour in the utility industry. But few agree on exactly what it means.

That's because it could mean many different things. And perhaps that's not such a bad thing -- as long as it results in a more efficient, dynamic, customer-centric system. That's the hope, anyway. Or the hype.

In this year's GTM Squared survey on mastering the utility sales cycle, we saw a noticeable increase in the emphasis on customer engagement among utilities. In two areas -- where utilities plan to invest and where utilities think they can improve -- customer engagement came out on top. It was the third-most important choice for power providers in last year's survey.

Source: Mastering the Utility Sales Cycle, The Future of Global Electricity Systems

So what's the increase all about?

It's definitely not a surprise that customer engagement tops the priority list. It's easy to say. In an on-demand world, every executive has customer-centricity drilled into their heads at leadership training seminars. And there are probably as many white papers on customer engagement as there are customers themselves.

But make no mistake: This really does represent a meaningful shift in thinking. 

Not long ago, customers were "ratepayers." Today, they are people (or commercial entities) with needs, wants and desires. Or they're a threat.

In this year's survey, utilities told us that customer demand was a top driver for investments in grid-edge technologies. In contrast, non-utilities put customer engagement in third place. There's clearly a growing emphasis on this term within utility culture.

Source: Mastering the Utility Sales CycleThe Future of Global Electricity Systems

That still doesn't answer the full question. What exactly does customer engagement mean?

It came up a lot at this week's NY REV Future conference. That's also not a major surprise, given that the state is framing its entire market transformation around the customer-centric grid.

But it does tell us something else: Utilities are responding to the regulatory guidelines being set by leading states. In the chart above, notice that state regulation and policy are tied with customer engagement as a top driver of investment? That's not a coincidence. They go hand in hand.

If you want a full account of everything that was discussed at REV, read Jeff St. John's column this week.

Here, we pull together some of the top insights from the discussions on the trend toward customer-centricity.

On providing value prop to homeowners with demand response: More than money

Many assume that homeowners must have a financial incentive to enroll in demand response. But according to Pravin Bhagat, director of program marketing at Itron, money isn't everything. He said 10 to 15 percent of the population will "do it for nothing."

"There will be customer who signs up for demand response programs with no incentives. We have tested in different markets," said Bhagat.

That doesn't work for everyone, however. Customers enrolled in smart thermostat programs need some kind of visual cue, said David Oberholzer, the vice president of business development at Whisker Labs.

"The consumer didn't value [the service] because it was running in the background. We added a number of engagement features to highlight the values," he said.

And when money does enter the equation, consumers are looking for something to complement financial savings, explained Oberholzer.

"Once you actually present the dollar amount, it's not that much money. If you go to a New Yorker and say you're going to save them $5, that's not going to mean much to them. We do see that consumers react to the concept of waste. Those kind of things are very aggressive. That's what we try to steer our messaging toward."

So how many consumers actually want messaging around waste or their environmental impact? Patty Durand, president of the Smart Grid Consumer Collaborative, put an exact number on it: "About 40 percent of U.S. residential customers care about waste or sustainability."

On regulation and the potential of utilities

Regulation is important for creating customer demand. But it can't be too heavy-handed, said Oberholzer. "Regulators get in trouble when they hand down specific technologies. [...] They should focus on the results, not how you get there." 

Instead, regulators should be focused on setting technology-neutral prices that can boost innovation, he explained. "A lot of the challenges the electric utility faces is the result of consumers having flat-rate pricing for decades, really. The sooner we shift to reflecting the variable price of electricity, the closer we get to good stuff."

In Durand's eyes, regulators are central to empowering utilities to be the arbiters of customer choice: "Utilities are the trusted energy adviser to the consumer. They have the opportunity to expand that role if the regulator will allow it."

C&I engagement

Residential customer engagement is only one piece of the puzzle. Many utilities are focusing on commercial and industrial customers, which are starting to procure renewable power on their own. That's worrisome to traditional power providers.

As a result, the top utilities are building "kitchen-sink" businesses to serve those C&I customers with distributed resources.

But as Ben Kellison, director of GTM's grid research practice, explained, utilities have a lot of experimentation and learning left to do in this area. 

"Most utilities are not used to selling products. Most utilities are not used to selling services to their C&I customers beyond the incentives they have to distribute. A digital utility that has a marketplace is not a silver bullet. Key account managers are going to be more and more important as time goes on," he said.

So what will incentivize utilities to provide better programs to large customers? Better relationships with regulators, said Kellison.

"The most important incentive mechanism comes from the relationship between public utility commissions and utilities. In New York, we've seen a 'return on equity adder,' which essentially is a percentage added onto the return utilities receive based on performance. Depending on how much cost is saved, you can get an extra 100 basis points on your investment."

Listen to the podcast, go deeper

On this week's Interchange podcast, we talked extensively about this trend. We also looked at some of the other factors that impact utility sales cycles. Listen to the show for a deeper debate on what's driving utilities to invest in distributed resources, and what's causing them to hesitate.