The Smart Meter Opportunity, Threat

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by Stuart Ravens, Ovum

The utilities industry faces challenges and pressure from all sides. Concern about carbon dioxide emissions is high, billions must be invested in infrastructure and resources are becoming scarce.

Rising fuel prices are forcing utilities to drive down operating costs, and their work force is aging rapidly, meaning they are held back by old skills and working practices and are losing critical knowledge through retirements. In addition, they are experiencing more payment defaults because of the economic downturn.

Smart meters have been hailed as a potential solution to many utility problems. They reduce customer service overheads, decrease total demand and CO2 emissions from generation and shift demand from peak periods. Smart meters will reduce customer service costs by ending the need for manual meter reading, estimation of bills and the call center staff to handle inaccurate bill complaints.

Smart meters' ability to reduce customer service and other utility costs has made them attractive. The global market is expected to grow enormously as a result.

According to Datamonitor research, the global smart metering market for residential customers will reach $5.7 billion by 2015, a 350 percent increase from 2009. Smart metering is gaining unstoppable momentum. More than 60 million residential smart meters will ship in 2015, a four-fold increase on 2009.

Datamonitor forecasts the value of the U.S. residential electricity smart metering market will be $1 billion in 2015. This includes the market for residential smart electric meters and all related infrastructure from communications modules to smart thermostats and meter data management software.

 

The market is growing quickly, but will smart meters cut customer service costs? There is a strong argument that smart meters will reduce overall cost to serve for residential customers.

Given that smart metering removes the need for bill estimation and that the principal cause of customer queries and complaints is billing inaccuracy, it follows that the call center workloads (and billing management costs) will fall. Nevertheless, other issues must be considered for this potential to be realized.

Addressing the Customer Relationship

Smart meter and grid investments are the cornerstones of the technology solutions for many utility sector woes.

To maximize their potential to solve these issues, however, utilities also must invest in other technologies that address the customer relationship, such as billing engines and customer relationship management (CRM) systems.

Legacy utility billing systems were not designed to cope with the time-of-use tariffs that smart meters enable. No billing system exists that can cope with the mass deployment of electric vehicles, which require roaming billing and vehicle-to-grid export functionalities. Utilities must invest in new billing systems that can cope with smart energy.

The disruptive nature of smart meters means that many utility business processes will change, requiring significant investment in the technology that underpins these processes. For instance, the call center work flow infrastructure supporting utilities' CRM systems will be drastically different once smart meters go live.

Only if utilities ensure that smart meter technology can manage billing and customer relationships will smart meters reduce customer service costs.

Without this investment, smart meters could increase customer service costs.

The Risk of Increased Customer Service Costs

Many customers will struggle to understand the new dynamics of smart meters and the additional information on smart-metered bills, particularly in the first year.

The complexity of smart metering might increase rather than decrease cost to serve in call centers in the long term. By investing in customer service technology and training, utilities will mitigate against long-term, cost-to-serve issues.

A switch to time-of-use billing might sound simple, but customers and contact center agents must get used to complex new tariffs and more detailed consumption data.

In addition, regulators might force utilities to publish consumption data and energy-saving tips on their bills, which might confuse customers more. While the number of inbound calls to contact centers regarding estimated bills will decrease as smart meters are rolled out, the complexity of calls regarding smart meters will increase.

The result will be longer calls to staff members, whom will need specialist training to guide customers through these new services, which likely will have a detrimental effect on expected savings in the call center.

Consumer Engagement is Key to Smart Meter Success

The level of consumer engagement will determine the success or failure of many smart meter projects. Utilities must work closely with customers when deploying smart meters to ensure the meters deliver the benefits at both ends of the value chain.

U.S. events have shown that if consumers are not fully engaged from the beginning, there is a serious threat of a backlash.

The most reported example in which a lack of customer engagement has cost a utility is in the case of Pacific Gas & Electric Co. (PG&E) in California.

PG&E did not plan its customer advocacy program well, which led to many complaints including the accuracy of meters, fears of overcharging, concerns regarding data privacy, the security of smart meters and even health concerns about radio frequency transmitters.

Significant and well-organized protests followed, including calls for a government moratorium on PG&E's smart meter deployment until the issues were addressed.

To date the utility has spent about $4 per meter on consumer engagement. In more successful projects, however, customer spend can be as low as $1 to $1.50 per meter. Education need not be an expensive exercise, just well-targeted, with early and sensitive implementation and sustained messaging.

This example should warn other markets that utilities must be on the front foot with consumers when deploying smart meters to prevent a backlash from destroying potential cash savings.

The Future

Despite negative press about smart meters in 2010, utilities can ensure a positive outlook for 2011 by gaining public support through proper customer relationship management.

The potential benefits smart meters bring are wide-ranging, but to realize it, utilities must be prepared to invest in technology that will enable smooth customer service and ensure costs go down and potential problems are kept to a minimum.

Author

Stuart Ravens is principal analyst in energy and sustainability team at Ovum, part of the Datamonitor group. Reach him at stuart.ravens@ovum.com. 

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