The 4 Universal Truths of a Successful TOU Rate Transition
Having been part of the most successful TOU implementations, we’ve learned a few best practices worth sharing.
Time-of-use (TOU) and other complex rate structures are critical to managing an increasingly complex grid, achieving decarbonization goals and integrating distributed energy resources. Not to mention, if people get on the right one, they can actually reduce energy bills. So why aren’t more of us on them? According to EIA data, while TOU rates are available to 62% of U.S. residential customers, only 7.3% are enrolled in these plans.
That’s a disconnect we need to address. Through our work helping utilities like SMUD, PG&E, SCE, PSEG LI and Consumers Energy successfully roll out TOU rates, we’ve landed on some universal truths that, if applied, will not only get more customers on time varying rates, they will help them save money and contribute to utility decarbonization goals.
Universal truth #1 – People don’t know what a kWh is
The Smart Energy Consumer Collaborative (SECC) found that a vast majority of residential customers are interested in energy technology. A key driver of this interest is lowering their electricity bill.
TOU rates can help all customers, not just high energy users, reduce cost by shifting energy consumption to off-peak hours at lower rates. Everyone should be clamoring for these plans but remain confused about how they work and the cost implications.
It’s imperative we do a better job using consistent messaging and insights to communicate what their options are and the impact each has on their bill in dollars and cents. Providing general insights in the form of units, which are hard to relate to, won’t move the needle.
Universal truth #2 – Close enough isn’t enough
As an industry, we’ve done an admirable job delivering insights that get people thinking about how they use energy. And, up until recently, changes in usage very often translated to similar changes in customers’ bills. With the rapid rollout of new time varying rates, demand response and other customer programs, the relationship between changes in energy use and changes in bills is much more complicated.
In fact, as utilities aggressively pursue decarbonization goals, one of their primary methods to achieve the goals is to get their customers to enroll in these new rates and programs. But most customers want to understand the impact on their bill if they do so.
This is an incredible moment to capture the trust of customers and add real value. Providing easy to understand and well explained rate comparisons and rate analysis is crucial to creating customer adoption. The key to making this process successful, however, is accurate and personalized calculations.
The last thing utilities want to do is to provide analysis to customers that tells them to enroll in a rate or program that increases their bills. To ensure the accuracy of these hypothetical rate comparisons, utilities should ensure that the system providing the calculations is calibrated with its existing billing system or Customer Information System (CIS).
Through calibration (sometimes referred to as shadow billing), the utility can measure whether the rate engine producing the rate comparisons is able to match, with penny-level precision and across the whole customer population, the calculations produced by its CIS. If this level of accuracy and fidelity can be achieved, then the utility will have the greatest confidence that the hypothetical rate comparisons and analyses are as accurate as possible too, leading to a great customer experience and increased satisfaction and trust in the utility.
Universal truth #3 – Your CIS wasn’t built for this
The ability to use smart meter data to perform actual and hypothetical billing across all rates and tariffs, for every utility customer in the country, is incredibly difficult.
While the CIS is obviously very important to the utility, essentially serving as their cash register, they can’t analyze the impact of different rates on a customer’s bill with the accuracy and sophistication demanded (even if they claim to be able to).
The CIS was configured to calculate the customer’s bill only once a month. Providing energy customers with bill forecasts and simulations based on multiple rate plans and scenarios (load shift, EV, solar as examples) is so much more data intensive.
Consider the utility has between 720 and 2,880 meter reads per customer per month. Each customer bill may have 10 line items. The most complete rate analysis needs to be done over a minimum of 12 months. For a utility with one million meters, this can equate to trillions of calculations to compare bills for the utility’s entire customer population across multiple rate plans. CIS systems just do not possess the necessary computing power…and utilities don’t want to put the nightly billing process at risk.
The number and complexity of calculations required to get to penny-level accuracy is incredibly difficult. Don’t assume that having a CIS is synonymous with being able to do complex rate analytics. You need an enterprise rate platform for that.
Universal truth #4 – Seeing is believing
Rate plan marketing requires a multi-faceted approach. Consistent messaging must be communicated across a range of channels, like direct mail, bill inserts, digital marketing, social promotions, TV and radio ads. These all play an important role in educating the customer on the value of TOU rates. But there is another important tool in increasing adoption of complex programs and technologies.
We are big believers in comparison tools. Southern California Edison (SCE) used one during their TOU transition (and it’s still available today), leading to some pretty awesome results. For their default pilot that started in March 2018, only 12% of the 400,000 customers opted out of the TOU rates prior to the transition. Since then, only 2% switched back to the tiered rate.
The rate comparison tool also led to increased customer awareness and satisfaction. Specifically, they saw a 400% increase in customers using the tool. And among those who say they are on a TOU rate, the proportion who believe it is the best rate for them rose significantly from 66% to 82% in fall 2019.
Providing cost analyses via rate tools with detailed impacts for the complete bill helps utilities enhance customer engagement, satisfaction and trust when implementing TOU rates. But again, make sure those projections are accurate because the last thing you want is to set an expectation that the bill doesn’t deliver on.
To achieve clean energy and decarbonization goals, we need to create widespread adoption of time varying rates and other programs. These universal truths, which we’ve derived from several successful implementations across the country, are a great place to start.
Only when we get customers’ highly accurate cost information delivered in a way that gets them comfortable with making the switch, will we be successful.
Expert Insights: Considerations When Implementing and Driving Adoption of TOU Rates