Utilities face rising cost to serve. This is due in part to aging water, gas and electric infrastructure. Utilities need to spend money as efficiently as possible to improve infrastructure and still improve customer satisfaction.
Gas, water and electric utilities face a rising cost to serve. For instance, a recent article in Scientific American analyzed years of data from US Federal Energy Regulatory Commission (FERC) and the Edison Electric Institute (EEI) found the cost to serve the customer is rising at 6% on average and is currently hovering around 9% of total cost to do business. Though situations vary widely, and it is not necessarily easy to compare utilities, it is true for many.
Rates are rising faster than the Consumer Price Index. And utilities are thinking about future funding and how they will justify rate increases should they become necessary.
August 2018 date from the US Bureau of Labor and Statistics show that energy is the largest CPI increase.
Image Credit: US Bureau of Labor Statistics, “12-month percentage change, Consumer Price Index, selected categories.”
Water rates are increasing faster than the CPI at many utilities
Image credit: Environmental Finance Center at the University of North Carolina, Chapel Hill and Raftelis Financial Consultants, Inc. “Cumulative Bill Increases for Water or Combined Water and Wastewater in 1,961 Utilities in Six States Compared to CPI by Region.”
Utilities express concern about justifying the increased rates to customers. For example, four fifths of participants in the American Water Works Association’s 2018 State of the Water Industry Report felt that their utility could not cover costs at current rates. “The percentage of respondents who felt their utilities were currently fully able to cover the cost of providing services through rates and fees was 21%, which is the same reported in 2017 and 2016.”
Concerns about funding and justifying rate increases dominated the list of major concerns at water utilities. More than two fifths (42%) of respondents ranked reported that, “Justifying R&R programs to ratepayers,” was a critically important challenge. This was second only to "infrastructure reliability" (50%) and tied with "access to funding" (also at 42%) in water utility rankings of the challenges they face.
Cost to serve is one of many reasons that utilities need to improve their customer experience. It allows them to cut expenses while they improve: efficiency, customer satisfaction, customer loyalty and customer service. A good digital customer experience has several important advantages over the current call-center-and-paper-bill approach — even if the utility also has a website for some of these functions.
Utilities benefit when they meet customer expectations. Customers expect a comprehensive service with multiple points of contact: website, email, text message, online bill pay, and mobile app. This type of comprehensive, custom, digital, realtime customer experience:
By focusing on customer experience, utilities can reduce cost to serve or at least minimize the increase, gain the information necessary to make better investments in infrastructure, and build a relationship that allows them to continue to provide reliable service. They can better prioritize infrastructure investments based on customer data.
Another expense-saving result of providing an engaging, customized customer experience is additional efficiency. Wherever utilities can improve efficiency it helps to limit the extent and urgency of infrastructure upgrades.
Customers must bear with utilities through infrastructure maintenance and upgrades. This can mean planned outages and other expenses and inconveniences. A varying, but significant, percentage of what customers pay is expenses, and most utilities do not feel that current rates and fees can cover the expenses associated with infrastructure upgrades.
Procrastination is not a strategy. Where utilities wait to make upgrade infrastructure too long, the loss of reliability will erode utilities’ customer satisfaction and support.
At Brilliency, we help utilities provide the customer experience that most people expect in the twenty-first century. This can help utilities reduce the cost to serve with convenient billing, proactive communications about service, behavioral efficiency improvements and by informing infrastructure investment decisions with detailed customer usage data. See how it works.