In a constantly wired world, people depend more than ever on always-on, uninterrupted electricity. While the electricity industry has invested heavily to meet customer demand on the grid, utilities are increasingly looking to their customers to provide reliable and cost-effective grid services with distributed energy resources ( DER) on-site such as energy storage and demand response. Utilities can leverage three levers to increase customer adoption and use of DERs: programs, procurement, and pricing.
Programs may offer customer rebates for installing appliances, such as smart thermostats, and incentives for utilities to control appliance operation during peak demand periods. Supply allows utilities to outsource load flexibility to third-party aggregators to meet flexible demand on a pay-for-performance basis. Pricing sends price signals that encourage customers to shift load off peak times. Utilities should leverage the three “Ps” to achieve the load flexibility needed to help decarbonize the power grid.
The third “P” – pricing – has been around for decades in the form of time-of-use (TOU) rates and other rates that vary over time. In response to current and expected future strains on the grid, and in order to reduce energy demand variability without bringing new power plants online, many utilities are attempting to shift demand to better match supply. One way to do this is to switch customers to TOU rate plans. TOU tariffs charge different amounts during peak hours compared to off-peak hours and encourage consumers to vary their energy consumption hours (Figure 1) to take advantage of lower prices. However, the design of pricing programs has been subject to intense academic and regulatory scrutiny and, despite utility pricing experience, residential customer awareness of TOU tariffs still remains low, while the Adoption of TOU tariffs is even lower.
Depending on the program, customers who opt for a TOU plan save between 5% and 15% on their electricity bill. Recent data shows that residential electricity rates were 15.8% higher in August 2022 than the previous year, with even higher inflation rates in New England (19.5%) and the South (18.4%). Saving money has huge potential to entice customers to sign up for TOU plans and offset much of those increases, but customers who have opted into TOU tariffs or who have defaulted on TOU tariffs don’t always understand the rate or feel motivated to move the load in response to TOU price signals. Utilities can design the perfect TOU tariff, but if customers don’t understand the tariff, don’t see the value of participating in the tariff, or don’t respond to TOU price signals, the TOU program will not succeed.
To create a successful TOU program, utilities must overcome the customer engagement gap by: building customer awareness of TOU with personalized information, instilling confidence that customers can save on a new tariff, and continuing client engagement after adopting TOUs to help clients adopt energy-changing behaviors. Gaps in customer engagement limit the success of TOU tariff deployments, create dissatisfied customers, and do not solve the overloaded network problem. By following these three steps, utilities can solve the TOU deployment puzzle while maintaining a happy customer base.
Build TOU Awareness with Personalized Information
Utilities need to go beyond generic content to fuel education on TOU tariffs. Illustrations showing peak and off-peak periods and the associated TOU price ranges are important to help customers understand how TOU tariffs work, but they convey little about the impact of TOU tariffs on the utility’s electricity bill. a customer. An example of the personalized information that utilities can offer is pro forma billing (Figure 2). Pro forma billing is a technique where actual household consumption is used to create personalized bill comparisons from available tariff options. Under this billing method, customers receive a two-part utility bill: one part of the bill showing what they currently owe and a second part for informational purposes only, showing what the customer would have paid for the same electricity consumption under a different tariff structure, such as a TOU tariff or a critical peak tariff. This allows them to assess whether a TOU tariff, and the changes in electricity consumption involved, are worth the savings.
Regardless of the method, such as digital communications, a web-based customer portal, or paper-based billing, proactive communications should focus on educating customers on how TOU rates can save them money by comparing the TOU tariffs directly with their current tariff. By customizing each individual’s scope and bill, customers can see the difference on their own bill and be more likely to choose the best TOU rate plan for their own household.
Inspire confidence that customers can save on a new rate
To reduce churn and keep customers happy, utilities need to involve them at every stage of their rate transition journey. This, along with proactive communications, can inspire confidence that customers will save by switching to a new rate. Utilities should offer web-based tools that allow customers to compare their projected bills under different tariff packages, as well as “what-if” modifiers that simulate the additional savings and bill control achievable by taking load shifting actions simple and adapted to the customer, such as the installation of a smart thermostat or by postponing the use of large household appliances until off-peak periods. Not all customers will automatically save money by switching to TOU tariffs, but with a little practice and adopting simple load-shifting behaviors, customers can unlock significant savings and control over their bills.
Giving customers the tips they need to successfully save money during the day, such as unplugging chargers when not in use, programming thermostats, and only running the dishwasher at night when it’s is completely full, can help energy consumers feel better about their TOU tariff. Utilities should ensure customers take advantage of energy and budget management tools, like high usage alerts, which can help them avoid the surprise of a higher-than-expected energy bill . Messaging to help with this can include impending high usage alerts designed to drive immediate behavior changes, communication ahead of the peak usage season to prepare the customer for a higher than normal bill, and offer homeowners pumps a discount toward a variable speed pool pump. Regardless of the topic, the optimal frequency and content of communication should be personalized for the customer based on their individual preferences, account history and impact on their bill.
customer engagement doesn’t have to stop after registration; Utilities should ensure that customers are informed of changes at all times. While welcome emails are important for directing customers to their new TOU rate, providing guidance for behavioral charge shifting, and connecting customers to deals for devices that help automate charge shifting, such as smart thermostats or EV chargers, periodic emails should be sent to all customers. in order to provide continuous information. Periodic rate coach emails provide mid-bill and end-of-period information on peak-hour usage trends that may result in changes to customer bills. These rate coach emails are instrumental in customer engagement and ensure customers continue to adopt energy-saving practices. Additionally, end-use disaggregation information can show which devices are used the most during peak periods and can highlight opportunities for bill savings through targeted load shifting. Digital communications about next best recommendations that promote device deals and enabling programs can help customers deepen their savings while maintaining household comfort and bill control.
Utility providers need to stay connected with their customers through ongoing, personalized communication that allows them to make informed choices that are better for their bill and the system. With an effective plan, utility providers can make recommendations and savings estimates based on actual consumption data, allowing customers to learn more and visualize the impacts on their bill if they consume electricity. energy during off-peak hours within the framework of the available tariff plans. A tailored and carefully crafted customer engagement strategy can help utilities overcome persistent barriers to TOU tariff adoption and unlock the key to pricing as a tool to drive smart DER proliferation.
— Alex Lopez is Senior Product Marketing Manager at Uplight.