Subscription pricing models that use data, analytics, and behavioral research to find the right balance between customer needs, preferences, and price have found a foothold in the consumer retail space. Consumers can purchase subscriptions for digital content, ride-sharing, clothing, and wine among a few examples.
"By converting transactions into long-term relationships, utilities have a path toward sustained revenue streams that do not require ever-increasing load growth"
It is time for utilities to embrace the subscription model with energy service subscription plans. It takes some imagination to envision a world where—instead of impersonal commodity-based transactions—utilities concentrate on customer satisfaction, comfort, and convenience with a focus on quality outcomes rather than volumetric pricing. Such a business model would have significant ramifications on how utilities engage with their customers and how services are priced. If pursued, Navigant believes that an electricity pricing platform based on fixed-priced subscriptions will become common place, similar to other sectors of the economy where subscription models are booming. Navigant refers to this as Energy Service Subscription Plans (ESSPs).
For a utility, ESSPs are custom-priced (from historical and projected load), offer more choices, and can have longer fixed-price terms for consumers. By converting transactions into long-term relationships, utilities have a path toward sustained revenue streams that do not require ever-increasing load growth. Moreover, it allows utilities to incorporate new customer-cited technologies like energy storage and operate the technologies to reduce price risk and respond to complicated grid signals. All that a customer sees is a predictable fixed-price subscription.
Utilities Stand to Reap Major Benefits
While customers will benefit, utility customer operations and customer IT/applications support also stand to gain major benefits from ESSP. Consider how much money Netflix spends on call center and back office operations. With pressure on utilities to reduce distribution operations and maintenance (O&M) spend, ESSP could be a key driver to reduce O&M while improving customer satisfaction. The complexity of rates and billing engines keep growing with the advent of advanced metering infrastructure (AMI), desire for time-of-use (TOU) rates and dynamic pricing. Smart meters register interval data processing and more complex rates and billing calculations have created a need for more robust customer information system (CIS) and meter data management (MDM) solutions. Billing exceptions have not disappeared with AMI. AMI integrations have created a different kind of strain on IT and customer operations with increasing meter reading data granularity, the process of calculating billing determinants, maintaining complex rates, syncing CIS and MDM, and communications network issues. Every degree of added complexity in meter-to-cash processes creates more opportunities for errors, more and more customer inquiries, and additional regulatory oversight.
ESSP would simplify meter-to-cash processes by taking away complexity from billing determinants and measurement. Interval data would be used for tracking actual demand and usage to analyze the load and set/reset rates and execute demand response (DR) events. However, there would be no need to have complex billing and invoicing processes, and billing exceptions (high/low thresholds, zero consumption, various register errors) would go away. ESSP would simplify the enterprise architecture and would significantly reduce back office operations. Front office operations are expected to experience something similar, as billing inquiry contacts today range 30 percent-50 percent of all contacts. ESSP would have a positive effect on the ability to budget energy costs for those customers who are more sensitive to energy bills and cannot tolerate seasonal variances. In turn, utilities would improve accounts receivables performance (AR), reduce net bad debt, and avoid additional payment arrangements and collections handling—another significant contributor of work in front office and back office.
Pairing ESSP and Storage for Greater Gains
The opportunity ESSPs bring to the utility do not stop at the operational level. Emerging energy technologies such as smart thermostats, battery storage, and Level 2 EV chargers for the home give electric utilities an opportunity to reach into a space previously off-limits to the retail business. Instead of delivering electrons for a fee, emerging technology opens opportunities for electric utilities to provide hardware, services, and data analytics to customers. Navigant helped design a program offered by Liberty Utilities in New Hampshire that provides customers with Tesla’s home energy storage units for backup power at a fixed monthly price. The fixed monthly price is much lower than spreading out payments for an outright purchase of a battery because behind the scenes, the utility is using the storage to respond to rare but high cost grid events. The savings generated from responding to these events reduces the monthly fee. ESSP creates opportunities for this type of win-win outcome. From the utility’s perspective, incorporating energy storage into the subscription model will act as a hedge against the price risk associated with a fixed subscription because the storage can be used to reduce the customer’s capacity tag. Since energy prices are low and becoming more stable due to large-scale renewable energy, energy risk can be hedged through the market and through energy efficiency measures deployed at the customer’s home.
Pairing ESSP with storage will transform the utility-customer relationship, improve customer satisfaction, and lower operating costs across utility business units.