Deregulation Utility Relationship

Prior to deregulation, it would’ve hard to find someone who’d define the electric industry as “consumer-friendly.”  Due to the lack of competition, utilities had become giant monopolies, some raising rates and making unreasonable changes during times of high or peak demand.

Deregulation allowed Retail Electric Providers (REPs) to form and establish themselves as an alternate way to receive the supply of electricity for homes and businesses. While utilities continued to provide delivery and outage services, REPs needed to figure out how to develop different business practices in order to stand out from the pack. Since deregulation opened up the market to competition, REPs needed to make sure every element of their business, from pricing to plans, and products to customer service catered to their customer’s needs and level of satisfaction.

Over the past few years, the success of REPs in these deregulated areas has forced existing archaic monopoly utilities to update, upgrade and simply offer better products and services. These companies have spent the last decade or so playing ‘catch up’ with REPs, and they are only starting to see the success that the REPs have achieved.

The Old Model

A monopoly is a situation where one or a few companies or groups own most of or all of a particular market. Common examples of monopolies include the telecommunications industry, and utility services such as, water, and natural gas. Before energy deregulation became law in many areas of the U.S, this was absolutely true of the electricity industry as well.

The main problem with a monopolized market is that there isn’t any competition. There isn’t any need for the company ‘in charge’ to provide low or reasonable rates, nor is there a drive for them to provide the best products. Customers dealing with these monopoly companies don’t have any options to choose from except for one single company. It generates frustration, and leads consumers to use less. When it comes to electricity, this causes a shift in the balance of supply and demand, which can eventually lead to an insufficient distribution in resources.

In addition, a utility’s business culture is typically built around its engineering capabilities. The business as a whole is more concerned about how many miles of wires they own, or their kW capacity. Utilities are very system driven. This means that although the frequency and duration of power outages they experience might seem fine based on their statistics, the industries and businesses that rely on that power for financial reasons aren’t as impressed.

When it comes to residential users, for utilities, they are a relatively untapped market. The old model of business had these companies very interested in gaining services from large industries like steel mills, factory manufacturers, convention centers and shopping malls. Today’s millennial generation is using power more often and in different ways than before. Common examples of this include the fact that people can use a tablet device while watching TV or, use a cellphone and their laptop at the same time.

It is estimated that on average, a millennial will switch devices 27 times within an hour. This is a generation that expects to have information readily available at all times. Making sure that the power is available for these devices that provide information has become a significant change and challenge in the industry.

While this old model worked for utilities for years, deregulation caused a ripple effect in these companies across the board. As mentioned above, deregulation gives customers the option to choose their energy supplier based on rate, plans, customer service and more. If a customer isn’t happy with this service, they can simply switch to another supplier. REPs work hard to ensure that their customers are satisfied because their business relies so heavily on providing the best of everything.

So, while energy consumers in deregulated areas have become increasingly satisfied with how their electricity is delivered to their homes and businesses, utilities are forced to face the fact that they are loosing business or have not targeted the best markets.

Today, utilities still maintain control over electricity delivery, maintenance and outages. However without making changes to support customer satisfaction and compete with established REPs, these companies recognized the fact that they needed to make some changes – and fast! Otherwise they run the risk of being left in the past along with their old ways of doing business.

J.D. Power Studies

Utility Business Customer Satisfaction

Evidence of the shift in the way utilities are approaching their customers is found in a recent study conducted by J.D. Power – a global market research company based out of the United States. This particular study measures customer satisfaction in 102 utilities that each provide services to over 25,000 business customers (for a combined total of over 12 million customers).

The study looked at utility companies across four regions within the United States including, East, Midwest, South and West. They measure customer satisfaction across 6 areas:

  1. Power quality & reliability
  2. Corporate citizenship
  3. Price
  4. Billing & payment
  5. Communication
  6. Customer service

This study is conducted annually for many reasons that help utilities understand more about their current business practices. The study also helps utilities to evaluate important businesses elements that determine overall customer satisfaction as well as helps to indicate common strengths and weaknesses year over year.

The Results

By calculating customer satisfaction on a 1000 point scale, it was discovered that in 2016, satisfaction within utility business customers scored an average of 704. This is a significant increase from 2015, which held a score of 677, and is the highest score in 8 years.

A big reason behind this significant improvement is based on an increased focus from the utilities on areas of communication and corporate citizenship.

When it comes to communication, utilities are making an effort to communicate with their business customers regularly, in addition to times when the power goes out, in order to keep them informed of new energy programs. Utilities also use these opportunities to gather valuable customer feedback. Corporate citizenship scores showed that utilities are striving to become more active in the community they service. Customers typically enjoy the fact that their providers support local charities and organizations. They also appreciate economic development initiatives through the creation of new job opportunities.

Additional Findings

In addition to improved communication and corporate citizenship scores, the study revealed several other key findings.

Businesses that had an account manager assigned to their account had a satisfaction score that was more than 100 points higher compared to those who did not have an assigned account manager. Businesses that received a billing or payment alert from the utility provider had an average satisfaction of 776, a number that reaches 798 when they also receive confirmation of payment receipt. Businesses that did not receive these kinds of notifications had a satisfaction score of 708.

The study also revealed that twice as many business customer reach out to their utility twice as much as residential customers, however their problem resolution rate is lower than residential customers. To break this down even further, it means that 48% of business customers call their utility with a problem, whereas only 23% of residential customers do the same, but only 67% of business customers problems are resolved, whereas 71% of residential customers get their problems resolved.

One of the most significant findings showed that the more products and services the utilities customers know about, the higher their overall satisfaction. Customers who know about at least 10 products or services had an average score of 768. For customers who only know about 5 or less products scored at 704, and customers who didn’t know about any product or service offerings scored at 603.

Utility Rankings – Business

The study revealed that 53 of the 102 utilities attained an overall satisfaction score higher than 700 compared to only 4 utilities in 2014. The utilities that scored the highest within each region entered in the study include,

  • Con Edison
  • Omaha Public Power District
  • Entergy Arkansas
  • Met-Ed
  • Ameren Missouri
  • SMUD
  • SRP
  • JEA

For a complete list of all award eligible utilities, click here.

Utility Residential Customer

In 2015 J.D Power conducted a study to measure residential customer satisfaction with their utility. This study was based on 6 factors:

  1. Power quality & reliability
  2. Price
  3. Billing & payment
  4. Corporate citizenship
  5. Communication
  6. Customer service

Similar to the business customer study, the scores are based on a 1000 point scale. The results revealed that overall customer satisfaction averaged in at 668. This is a 9 point improvement from the 2015 utility business customer results.

The Results

It was found that utilities were making strides to keep service interruptions to a minimum as well as to improve communications with their customers. Despite this, the results still suggested that utilities needed to improve their communication efforts during power outages. In fact, power quality and reliability satisfaction is much higher for customers (777) who get emails, texts or phone calls during outages compared to customers who don’t receive any communication (683).

Overall, it was determined that while utilities know and understand that effective communication is key to customer satisfaction, they weren’t moving quickly enough to put solutions into place for their residential customers.

Additional Findings

The study also provided some insightful information for utilities to use to improve their residential customer’s satisfaction.

There were 48 states included in the study. In Georgia, Utah and Arizona, customer satisfaction was the highest, whereas it was the lowest in Connecticut, West Virginia and Massachusetts. Most customers are experienced an increase in satisfaction when they receive information about their utility’s infrastructure instead of pricing or rate change information. Also, Customers who get alerts about their bill are more satisfied than customers who don’t receive any alerts.

Utility Rankings – Residential

Similar to the study done on utility business customer satisfaction, this study was broken down over several U.S regions: West, South, Midwest and East and included midsize to large companies. The top scoring utilities for both midsize and large include,

  • PPL Electric Utilities
  • Southern Maryland Electric Cooperative
  • MidAmerican Energy
  • Connexus Energy
  • Otter Tail Power Company
  • OG&E
  • SECO Energy
  • SRP
  • Clark Public Utilities

Retail Energy Providers

J.D Power also conduced a customer satisfaction study for REPs in 2015, based on similar criteria including,

  1. Price
  2. Communications
  3. Corporate citizenship
  4. Enrolment & renewal
  5. Customer service
  6. Billing & payment (Texas only)

In only its 3rd year of study, it involved 83 REPs with residential customers in 9 states. Satisfaction is also measured on a 1000 point scale and the study revealed that REPs who provided outstanding customer experience generated an increased likelihood of retention and recommendation. This means that 57% of customers who gave scores of 900 or higher stated that they “definitely will” continue (or will renew) their current contract, while 67% of customers said they “definitely will” tell their friends about their REP.

The main challenge REPs face is slightly different than utilities. They need to constantly find different way to make their customer experience different from their competitors, especially in areas of communication and enrollment.

The highest ranking REPs by state includes:

  • Connecticut – Ambit Energy
  • Illinois – AEP Energy, Liberty Power
  • Massachusetts – Viridian Energy
  • New Jersey – New Jersey Gas & Electric, Ambit Energy, North American Power
  • New York – Green Mountain Energy
  • Ohio – IGS Energy
  • Pennsylvania – ConEdison Solutions, Ambit Energy
  • Texas – Champion Energy Services

What Does This Mean For Electricity Customers?

While utilities still have a ways to go to catch up to REPs in terms of customer satisfaction, it is clear that they are making strides to provide an improved customer experience. The studies also show that utilities are working hard to implement better communication and customer service practices in order to improve on their current customer’s level of satisfaction.

While utilities still mange the delivery and maintenance of electricity, it is worth investigating REPs in states where deregulation offers customers the opportunity to pick their suppliers. For quick reference, these states include:

Ultimately, competition is almost always a good thing.  It causes companies, organizations, and establishments that have dominated markets for years to innovate — lower costs for consumers — and offer better products and services.

Consumers are always the winner.