Technology + Energy Markets

n e w s l e t t e r

Volume 25/Number 1

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Revitalizing the Utility-Customer RelationshipRapid Industry Changes Call for New Communications Strategies

StrategiesPublished by Makovsky + Company

For utility customers, the energy marketplace has a dizzying array of new buzzwords and acronyms. Smart grid, RPS, ADR, AMI, EV, HAN, IHD, TOU, CPP and self-healing grid to name but a few. And for utilities, keeping up with growing energy demand has never been harder — whether through building new transmission lines, upgrading and automating distribution or implementing smart meter replacements in the face of rising generation costs. Today’s environment speaks to a changing dynamic between utilities and customers, with the latter being called upon to adopt new programs and change the way they interact with energy.

As if this isn’t enough, the Federal Energy Regulatory Commission just issued Order 745, which essentially enables customers to receive market prices during demand response events — in other words, customers aren’t just customers anymore; they may also be your new supplier and receive payment from utilities. Demand response holds great

promise to alleviate transmission constraints, peak period generation costs and play an important role in the ongoing challenge to balance the grid. To maximize its potential, utilities need new communication strategies.

Knowledge is PowerStudy after study confirms that, for the most part, Americans are not energy literate. Long viewing electricity as their flick-of-the-switch inalienable right, few understand what goes on behind the switch. According to a 2010 survey by GE Energy, more than three-quarters of consumers in the U.S. (79%) are not familiar with the term “smart grid;” only four percent have heard of a smart grid and have a good understanding of what it is. And, 69 percent of those familiar with the smart grid aren’t even sure if they’re already connected to one. Indeed, it is tempting to see this lack of energy awareness, which has fed misperception and fostered mistrust, as the root of the utility industry’s customer relationship challenge today.

Communication, therefore, is a crucial priority. Many studies suggest that consumers, while wary about utilities’ motives, are generally open to a changed relationship with their power company — provided they are approached correctly. Therein lies the challenge. Below are a few strategic reflections on how to effectively engage with customers.

• Suiting the Message to the Market: When most utilities dissect their markets, they do so based on traditional criteria — age, education, income or sector (e.g., residential, commercial or industrial). Utilities are just beginning to adopt more productive market segmenting techniques, which define consumer groups based on shared behaviors, beliefs and motivations. While some customers are savvy communicating via Droids and Twitter, others prefer more traditional channels. Many of the authorities referenced in the Smart Grid Consumer Collaborative’s 2011 State of the Consumer Report confirm market

Contact: Matt Wolfrom, EVPTechnology + Energy Markets212.508.9621 • @wolfrommwolfrom@makovsky.com

segmentation is key to reaching consumers based on their interests and needs, and thus is ideally suited to engaging their interest in demand response activities.

• The Forest and the Trees: When it comes to demand response, it is vital that customers understand the big picture — the larger context of and justification for smart grid deployments. This is especially important because most of the long-term economic benefit of demand response could come not from reduced utility bills but from mitigated rate increases due to the inevitable, long-term rise in the costs of generation.

• Keep It Simple: A study of successful demand response pilots in Illinois showed that one major problem was the utilities’ inability to communicate about demand response in simple and clear language. Jargon and unnecessary acronyms are rampant in the industry, and ultimately breed confusion, suspicion and mistrust. It is important to remove these barriers. Ontario-based Hydro One, for example, has done a strong job in using digital animation and Internet-based graphics to clearly illustrate how demand response works and what its benefits are. Finally, the industry may need to explore simplifying how it presents its own program offerings and branding to the retail marketplace.

• The Power of Collaboration: According to a study by Accenture, consumers trust third-parties more than utilities for information on optimizing electricity consumption by a margin of 49 percent to 29 percent. Although often outflanked by pro-consumer advocacy groups, some power companies are reaching out to friendly third parties. This has proven an effective educational strategy. For example, the Natural Resources Council of Maine lent its support to Central Maine Power’s smart meter roll-out. Schneider Electric partnered with the Lawrence Berkeley National Laboratory, Skipping Stone and the US Green Building Council to refine its demand response program. As the State of the Consumer Report notes: “maintaining an authentic tone and delivering realistic messages through credible spokespeople will be the key to successful consumer engagement.”

• Embracing New Media: Ultimately, endorsements from friends and peers are the most effective way to spur adaptation of radical technological change posed by demand response. And there is no better way to encourage this today than through social networks such as Facebook and Twitter. Virginia-based OPower has noted that, through its use of online communities, engaged and enthusiastic demand response users, who make up just five percent of its customer base, are spurring adaptation from the other 95 percent. Innovative utilities understand that since social networks represent a powerful channel for in-depth engagement with many residential users; they should play a prominent role in the industry’s educational outreach.

Public Utilities Fortnightly calls demand response a “disruptive technology” that demands “disruptive change.” Not the least of these changes involves the communication patterns most utilities employ with external audiences today. Addressing this issue could be a key factor in determining who the winners, losers, innovators and laggards are, as we move forward.

About Makovsky + CompanyFounded in 1979, Makovsky + Company (www.makovsky.com) is today one of the nation’s leading independent global public relations and investor relations consultancies. The firm attributes its success to its original vision: that the Power of Specialized Thinking™ is the best way to build reputation, sales and fair valuation for a client. Based in New York City, the firm has agency partners in more than 25 countries and in 37 U.S. cities through IPREX, the second largest worldwide public relations agency partnership, of which Makovsky is a founder. Makovsky is also co-founder of Interraction, a consortium of experts working together to address the risks and opportunities presented by climate change.

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Translation, Please?Smart grid is a nickname for an ever widening palette of utility applications that enhance and automate the monitoring and control of electrical distribution.

RPS = Renewable Portfolio Standards establish requirements for electric utilities and other retail electric providers to serve a specified minimum percentage (or absolute amount) of customer load with eligible sources of renewable electricity.

ADR = Automatic Demand Response is a way for buildings and homes to temporarily lower electricity use — without human intervention — when the electricity grid is nearing capacity.

AMI = Advanced Metering Infrastructure are systems that measure, collect and analyze energy usage, and communicate with metering devices such as electricity meters either on request or on a schedule.

E V = Electric Vehicle uses one or more electric motors for propulsion.

HAN = Home Area Networks and Demand Response (DR) are an extension of the smart grid and smart metering into the home, providing utilities and their customers with the information and control to make intelligent energy and water consumption decisions.

IHD = In-Home Displays enable utilities and energy consumers to receive the information they need to make better decisions on energy consumption.

TOU = Time of Use rate is pricing of electricity based on several time blocks per 24-hour period (e.g., on-peak, mid-peak, off-peak, etc.) and on seasons of the year (e.g., summer and winter).

CPP = Critical Peak Pricing: time-of-use prices are in effect except for certain peak days, when prices may reflect the costs of generating and/or purchasing electricity at the wholesale level.

Self-Healing Grid refers to a design concept that enables problematic elements of an electrical system to be identified, isolated, and restored, with little or no manual intervention, so as to minimize interruptions of service.