For the sixth consecutive year, the utility industry in the U.S. improved its overall customer satisfaction scores, according to last year’s J.D. Power Electric Utility Residential Customer Satisfaction Study. Overall customer satisfaction for utilities averaged 719 (on a 1,000-point scale) in 2017, a 39-point improvement from 2016.

As J.D. Power points out, much of this improvement can be attributed to utilities’ burgeoning efforts to provide their customers with more timely and useful information, particularly alerts and restoration estimates during power outages, as well as a better understanding of rates and costs through the billing process.

Nevertheless, utilities continue to lag behind other industries – banking, retail, airlines, brokerage firms, even auto insurance – that have successfully executed their digital transformation strategies. For example, according to J.D. Power’s Centric Digital DIMENSIONSTM Score, which evaluates “digital proficiency,” the utility industry scores 571 on a 1,000-point scale. The retail sector, by contrast, scores 771. In other words, industries that must compete for customers every day are moving at a transformational pace while most utilities are still moving at an incremental pace.

Whether it’s customers generating more and more of their own power or embracing new market entrants to better manage energy consumption and increase energy efficiency, utilities are facing the challenge of staying relevant to the consumer in an increasingly distributed and competitive energy marketplace.

In this brave new world, utilities face three key business challenges:

  • Running a reliable, efficient and safe power grid, maximizing the return on those asset investments even as the traditional funding source erodes due to flat or declining energy sales.
  • Accommodating increasing amounts of intermittent and distributed energy resources into a power grid that was built to support one-way power flows from central station generation.
  • Delivering greater value to their customers whose expectations, based on their experience in other industries, are on the rise and who want more from their utility than just a monthly bill.

The upshot is that these business challenges are not mutually exclusive but rather highly interconnected. Moreover, executing a digital strategy to transform the customer experience with a combination of IoT, cloud computing, analytics, and a robust customer engagement platform will deliver significant dividends in each of these three vital areas.

For example, one of the challenges presented by distributed generation – particularly solar and wind – is the fact that peak production is not co-incident with peak power demand. In 2016, according to figures provided by the California ISO, California wasted or “curtailed” more than 300,000 MWh of renewable production because there was not enough demand during the late mornings and afternoons. That’s enough electricity to power nearly 50,000 homes for a year. The proliferation of rooftop solar also increases voltage fluctuations and the likelihood that grid assets, such as distribution transformers, can be overloaded from the load side during times of peak production.

These dynamics can be seen as a competitive threat or simply a problem to manage. Or they can be seen as an opportunity for utilities to innovate and deliver new services to customers while also addressing grid management challenges presented by increasing distributed generation. With IoT sensing, a combination of cloud and edge computing, analytics, and integrated control and customer engagement platforms, the utility is ideally positioned to manage and optimize these distributed assets as a revenue generating service to customers.

That means creating local power pools running on a blockchain so that surplus rooftop solar generation can be intelligently directed to storage, EV charging or to a neighbor on the cul-de-sac who wants to dry their clothes with discounted power. This is just one example of how utilities can partner with and empower “prosumers” to ensure a stable and reliable grid, deliver more clean energy and create happy customers.

In deregulated retail electricity markets, such as Texas, Illinois, and several states in the Northeast, energy retailers that compete for customers every day are innovating both with technology and the business model to offer new services to their expectant customers. From clean energy packages to time-of-use rates to free nights and weekends, these retailers are using data and analytics to discern customer needs – both stated and unstated, to build loyalty and drive revenue growth. And many regulated utilities are taking notice.

These opportunities extend to water and natural gas utilities as well. By combining smart meter data and analytics, water utilities can proactively alert their customers to leaks behind the meter, avoiding high bills or expensive property damage. Similarly, gas utilities can deploy IoT sensing technology and analytics to improve the safety and integrity of their distribution pipelines by ubiquitously monitoring temperature, pressure and cathodic protection sensors at the edge of their networks, identifying gas leaks or potential safety issues before they become a problem.

But how do utilities move from incremental to transformational? Employing a “bimodal” strategy (as Gartner refers to it), where a utility supports two coherent styles of work – one focused on predictability and continuity, the other on exploration and innovation – is the sensible approach when managed effectively and reinforced by a unifying vision. Choosing a partner that can bridge informational and operational technologies, while bringing to the table both utility subject matter expertise and lessons from other industries is also critical.

A remarkable transformation is well underway in the energy and utility market space. Technology is creating a marketplace that is much more distributed, horizontal and inclusive. Customers want more value and have more choices. And there is much to be learned from other industries that have embarked on their digital journeys.

Utilities can either leverage their incumbency to seize this new ground and stay relevant, or fail to do so at their own peril. But the upside is that in the course of creating happier customers, they’ll also gain a leg up on addressing some of their other most pressing business challenges.

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