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Winning over customerschaLLenGeS of GrowInG onLIne bILL paymenT

by wILLIam opaLka

A comPAny cAn sAve 50 cents on A common transaction. By itself, that may not seem

like a big deal. Suppose it could be repeated a few times a year. Then suppose it could be repeated hundreds of thousands of times, perhaps millions of times, over the course of a year. That could get some manager’s attention in a hurry.

This scenario is not some myth but a tangible result of a company’s move into the work of electronic commerce. That’s what American Electric Power is doing every time it signs up a customer to its electronic billing and payment platforms. And with operating units in 11 states with a total of 4 million customers, it’s not hard to see the advantages.

With costs for postage, paper, printing, customer service representatives handling calls and other expenses, electronic transactions have taken on added importance for utilities. While the industry as a whole

has been relatively slow to embrace the practice, there is growing evidence that reluctance is changing, from a combination of consumer demand, different manage-ment philosophies or aggressive moves by vendors who provide services to billers.

While AEP currently has about 6 percent of its consumer bills handled electronically, at about the industry average and nothing really to brag about, it has seen a doubling of participation, from 3 percent, in about three years. Much of that growth is in urban areas with higher penetration rates than the industry average. And it expects that participation to more than triple over the next three years, approaching 20 percent.

“If we doubled, from 3 to 6 percent in three years, then it’s not hard to see it tripling in the next three years to nearly 20 percent because the growth more recently has been exponential,” said Bill Crawford, AEP’s manager of

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credit policy and payment administration. AEP is more heavily promoting the option on its websites. It also has seen some success by touting the practice on the back of its payment return envelopes, driving customer interest.

The payment option is through a third-party vendor that essentially works like a debit card with the custom-ers’ checking account. This automated clearinghouse is AEP’s only payment option. AEP currently does not offer its customers a credit card payment option, though Crawford said the company continually reviews its practices.

There are two components to the electronic commerce options. For several years utilities have offered payment methods through their websites, either via a credit card or through a debit through a checking account. These can

be either one-time or recurring payments.What’s relatively new is the electronic bill,

with monthly usage sent via e-mail or through the website in a paperless operation. Customers can still opt for a paper bill, even if paying electronically, under this method.

E-mail biller Striata said there are four main reasons why companies offer elec-tronic bill presentment and payment. They are cost take-out, instant delivery, quicker recipient response and improved market-ing capability. Added to these motives in more recent months or years is the desire to be “green.” Consumers are demanding environmental awareness on the part of vendors across all areas of business, which has extended to utilities’ desires to be responsive by offering paperless solutions to the consumer waste stream.

Changing demographics is also another factor driving utilities to more readily accept electronic payments. Younger and more tech-savvy customers increasingly see the convenience of electronic pay-ments, so much so that paper checks are losing market share quite dramatically. The automated clearinghouse payment method – deductions from a checking account – has been popular over the past 25 years or so. According to recent research done for Fort Knox National Co., all utilities still receive payment by paper check from half their customers, the highest among those companies that receive recurring payments.

“Bill payment electronically for utilities has overlapped generally with payments like insurance companies and other providers.

There has been more of an effort in the last 10 years or so, especially with utilities. Providing the service has been a market challenge,” said Steve Carnevale, MasterCard Worldwide’s vice president of U.S. commer-cial development.

One impediment for online credit card billing has been the convenience fee assessed to customers, usually around $4 for a transaction. There’s also the challenge of whether the utility is working in a regulated or deregu-lated environment and whether a convenience fee is allowed. For obvious reasons, companies are reluctant to absorb that cost.

Utilities were not always willing to sign up to pay a commission the way a store or the travel industry might. So MasterCard began a special utilities program in

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October 2006, essentially waiving the percentage fee and charging a flat 75 cents per transaction.

Pressure also comes from consumers who want to use their cards to earn dividend miles or other benefits and see the utility bill as a vehicle for that. “Like any other retailer, it’s seen as offering the highest level of customer service,” Carnevale said.

The Ascent Group has found companies, including participants in its research, are now offer-ing fully featured websites that allow customers to view bills, access billing and payment history, as well as accept electronic bill payment. “Several companies in this year’s study have also added options to securely deliver bills and offer payment options via e-mail, hoping to expand eBill participa-tion. While e-mail bill presentation has been around for a while, it was pushed to the back burner in the rush to deliver electronic billing presentation and payment via the web,” said Christine Kozlosky, principal of The Ascent Group.

UTIlITIESaREGIvINGITaFREShlOOk

“We’re a large company with 4 million bills sent a month, so we do have some economies of scale on the paper and printing side. But those econo-mies are less than for a smaller company with the consideration of postage,” said AEP’s Crawford.

While it may seem that the use of electronic billing may deepen the customer relation-ship, perhaps even alerting them to additional products and benefits the utility may offer, anecdotal evidence at AEP indicates that isn’t quite correct. According to Crawford, custom-ers visiting the company’s websites looking for consumer information often see the billing and payment options and investigate further, signing up for the service.

Other benefits include personalized market-ing opportunity. Due to the very nature of this billing medium, billers are able to store a range of marketing messages and apply these to the delivered electronic bill. These targeted pitches are directed to customers.

“But while the larger investor-owned utilities are eyeing direct credit and debit card acceptance more openly than in years past, this doesn’t mean consum-ers will be able to write in their credit card numbers when they mail the bill stub. Rather, recurring payments via an electronic presentment and payment offering appear to be the wave of the future,” a state-ment in a study by Chartwell Inc. reads.

Allegheny Power reported that customers expect diverse payment options. Allegheny inves-tigated third-party providers of more cost-effective solutions and began offering electronic payments in 2002. Its volume of phone and Internet pay-ments has increased dramatically over the past several years, growing from 233,000 payments in 2002 to nearly 800,000 payments in 2006.

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Utility Bloggersnew commUnIcaTIonS TooLS

by joe GImeneZ

the Blogging Phenomenon hAs swept America, with some 15 million actively managed

blogs comprising the blogosphere, an online network of corporate or individual commentaries on news, events, public policies, products or just about anything under the sun. Major corporations across virtually every industry vertical are using blogs to have discussions with their customers and clients, or communicate internally among project teams. Boeing, Coca-Cola, Dell, General Motors, Google, Microsoft and countless other companies all have blogs.

North American utility companies are conspicuously absent from the ranks of corporate bloggers. None of the top-10 investor-owned utilities operates a consumer-oriented blog on the front page of their website. An informal survey for this article confirmed that none have any definite plans for doing so.

So why aren’t utility companies blogging?Ellen Raines, FirstEnergy’s director of public relations,

offered the typical response: “We have not really given blog-ging any serious consideration, so I can’t say that there is a reason we don’t – other than we haven’t seen a need for it.”

Larry Comstock, with Dominion Resources Internet & Corporate Communications Technology department, echoed Raines: “We have evaluated blogs at Dominion, but have made no decision to develop one at this point. Although blogs offer some additional possibilities, our current communica-tions vehicles are working quite well for us.”

Matthew Joyce, a manager at the utility research organiza-tion E Source, said he studied utility blogging in 2006 and observed that staid, conservative utilities aren’t rushing into blogging because their corporate cultures aren’t really wired for adopting communications channels that can sometimes border on the unruly and unmanageable. And, Joyce asked, compared to cars, electronics or air travel, what topic would a utility blog about that would have widespread consumer appeal?

Energy production is “a low-interest category, somewhere around soap flakes. Maybe people are more interested about having clean laundry,” Joyce said.

Meanwhile, for companies selling products and services into the industry, blogs have become dynamic marketing platforms that push ideas and differentiating statements about products and services to potential customers. Utility industry software companies – like NeuCo, SunGard, and the ROME Corp. – have enabled robust blog discussions. Indeed, blogs are more engaging sales tools than static websites and they enable continual contact with customers.

Curt Lefebrvre, the CEO of optimization software company NeuCo, said his skepticism about blogs changed when he realized his company’s three-day users summit wasn’t long enough to share ideas about upcoming challenges. Now NeuCo is operating a blog to change that.

“We hope that our blog will give customers and others in the industry an outlet for sharing ideas, which in turn will help us to better understand their needs and feed our product development efforts,” Lefebrvre said.

Blogs are also being used to shape public discussions of energy issues. The Nuclear Energy Institute has been operat-ing the NEI Notes blog since 2005. Its 19 contributors have logged nearly 3,000 entries about the prospects for nuclear energy development in North America. Typical entries take reporters and activists to task for furthering misconceptions about nuclear energy. Or they report on deals that are bringing more nuclear power online and anything else surrounding the continuation and increase of nuclear power in North America.

Blogging is infinitely versatile, limited only to the communications objectives of its authors. Joyce said utility companies are known for being “prudent, careful cautious and conser-vative and blogging is none of those things,” squelching their willingness to adopt blogs.

Nonetheless, there are tangential uses for the posting and commenting software, Joyce said.

David Hagelin, principal communications consultant at American Electric Power said AEP’s Internet strategy manager maintains two blogs on its AEP Now intranet. The “Public Image” blog features comments about AEP from its customers, news media and the general public. The other blog offers a behind-the-scenes look at the AEP intranet.

Conceivably, Joyce said, utility companies might consider publicly blogging their advice on energy efficiency, to create a record of their concern for cutting utility bills and offer that to public utility commissions during rate hearings. Or, he added, a utility’s key account managers could collectively create a blog that addresses technical or service issues that would be of interest to all of the company’s top customers.

Meanwhile, blogs are spreading throughout corporate America. In December a number of corporations joined the Blog Council, a group dedicated to discussing best practices for corporate blogging. Whether utilities will join the discus-sion remains to be seen.

Joe Gimenez is president of the Austin-based G3 Public Relations.

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Billing And customer cAre just became a whole lot more complex for utilities.

Customer relationship management may become a nightmare within 10 years.

The problem is that customers – who were mostly som-nolent through deregulation – likely will realize over the next 10 years that all their assumptions about electricity will have to change. A lot of them may not be too happy about it and utilities – rather than those really responsible for the changes — probably will have to deal with the fallout.

Most utility executives and those who track the industry are well aware of the energy act of 2007 and its implications. Joe Q. Customer and his wife and children aren’t. They never have paid a lot of attention to what to them would be arcane workings of how electricity, water and natural gas get to their homes. They just sign up for service, expect it to be there, and expect to receive and pay a bill every month – most of them.

The energy act envisions a major overhaul of this 100-year tradition of paying for service with all the convolu-tions of how that service is provided being opaque to them. Title XIX seeks to change that through the following goals and mandates:

Increased use of digital information and controls tech-nology to improve reliability, security, and efficiency of the electric grid.

Dynamic optimization of grid operations and resources, with full cyber-security.

Deployment and integration of distributed resources and generation, including renewable resources.

Development and incorporation of demand response, demand-side resources, and energy-efficiency resources.

Deployment of smart, real-time, automated, interactive technologies that optimize the physical operation of appliances and consumer devices — for metering, communications concerning grid operations and status and distribution automation.

Integration of smart appliances and consumer devices.

Deployment and integration of advanced electricity storage and peak-shaving technologies, including plug-in electric and hybrid electric vehicles, and thermal-storage air conditioning.

Provision to consumers of timely information and control options.

Development of standards for communication and interoperability of appliances and equipment con-nected to the electric grid, including the infrastructure serving the grid.

Identification and lowering of unreasonable or unnec-essary barriers to adoption of smart grid technologies, practices and services.

All of these items eventually will have an impact on utility cus-tomer care and billing, some of them more rapidly than others.

Deployment and integration of distributed resources and generation, including renewable resources, could be problematic. The vast majority of residential consumers aren’t going to be building windmills in their backyards, putting solar panels on their roofs or installing their own generators. However, a lot of them will. Utilities are going to have to be able to provide for two-way flows of electric-ity, net-billing between what was used and what was provided to the grid. The calculations and adjustments are going to be complex. Utility software will have to be able to handle all this – seamlessly. If it isn’t seamless, a consumer who owns a plug-in vehicle that feeds power back to the grid at times will be up in arms. There won’t be that many of them, but there will be an increasing number each year and they are likely to be the most well-heeled who can afford these devices at luxury prices.

Development and incorporation of demand response, demand-side resources, and energy-efficiency resources could create difficulties. This is the one that has the potential to be very much a very large time bomb among members of the general public. Demand-side resources is a polite way of saying rationing. Reducing consumption is not a resource. From the consumer’s perspective, it is a reduction in supply. In other words, it is a violation of that 100-year-old compact of “You provide, I pay.”

Calling demand response a resource is a deliberate,

Getting complicatedTrendS In bILLInG and cUSTomer care

by warren caUSey

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politically inspired effort to obfuscate the obvious. As long as “demand response” is “voluntary” the public probably will put up with parts of it. However current trends in the industry indicate that utilities may not be able to generate enough electricity to meet demand within that 10-year window. Virtually all conventional forms of electric genera-tion are under attack and are being blocked by global warming concerns. The number of coal-fired generating plants cancelled because of claims about the harm caused by CO2 emissions escalates each month. Coal generates 50 percent of the U.S. electric supply.

If there isn’t a sufficient electricity supply – and federal government estimates indicate there won’t be – where is the shortfall going to be made up? Demand response, of course. The issue for utilities then becomes tracking who voluntarily reduced load, what incentives have to be paid and what adjustments must be made to bills.

If demand response becomes mandatory at the residen-tial level, then you can move the whole issue from customer care and billing to the more challenging task of customer relationship management.

Utilities will also face the challenge of deploying smart tech-nologies. Consumers may say, “You’re going to install what in my home so you can turn power off to which appliances when you want to?” They may also complain about time-of-day price changes. And they will probably resist buying a new television, refrigerator and toaster that can communicate with sophisti-cated devices placed in the home by their utility.

To say billing and customer care for the vast majority of Americans is about to become more complex may be an understatement. Can existing billing and customer relationship management software handle it? The answer according to experts knowledgeable in the field is no.

“The fact is that most systems are not going to be able to handle all this,” says Guerry Waters, vice president for strategy and marketing with Oracle Corp. “All this will require much greater granularity of data, more data through advanced metering infrastructure, and very complex calculations against that data. Most systems that are out there today at utilities can’t do that.”

Waters points out another likely aspect of the CRM issue. If utilities – required by regulation and legisla-tion to do it – are going to ask more of their residential consumers, those consumers are going to require more from them in terms of customer service. If some of those gadgets they were required to install to accomplish all this don’t work, they aren’t likely to be patient. When they don’t work correctly, the billing issues will get even more complex.

About the only good news out of all this is for CIS vendors, which have been in something of a slump since the turn of the century. Many utilities still have legacy CIS systems that will be in no way capable of handling this brave new world. There likely will be a boom in CIS replacements – if utilities have any money left to spend after dealing with all their other problems.

58 EnErgyBiz March/April 2008

Successful implementation of NYISO’s new billing and settlements system is a key milestone in its overall long-term settlements process strategy. One of the strategic visions instilled by NYISO’s board of directors at market inception was for the system operator to eventually settle its markets on a near real-time basis. However, it was recognized early on that this could not be achieved before NYISO accom-plished numerous milestones such as improvements in settlement processing capabilities and stakeholder confidence in settlement result accuracy. NYISO’s new billing and settlements system goes a long way in meeting these two milestones by providing the architectural framework and computing power to process settlements on a near real-time basis as well as building stakeholder confidence that settlement results comply with NYISO-administered tariffs.

“The speed and accuracy of NYISO’s new billing and settlement system is one of the fastest settlements engines in use among ISOs nationwide,” said Randy Bowers, NYISO principal settlements, process and controls.

“The system allows NYISO to process same-day re-settlements and to take the next step toward its ultimate settlements goal — to calculate settlements in near real time,” Bowers said.

“ISOs have always struggled with the data-intensive, highly complicated problem of calculating settlements,” explained Rich Dewey, director of NYISO product and project management. “The New York settlements problem is more intricate than other ISOs. The fact that

we were able to deliver the product on schedule utilizing a rules-based calculation engine, cutting-edge technol-ogy that all ISOs are striving for, makes the deployment even more impressive.”

The successful implementation of NYISO’s new billing and settlements system certainly shows how far NYISO has come since 1999, when its settlement system often took as long as eight to nine hours to produce a daily settlement. “There were days back in the early going

Streamlining BillingnyISo hITS mILeSTone

by mIchaeL S. kramek

designing And oPerAting A Billing And settlements system with the ability to calculate daily settlements quickly and correctly has been a New York Independent System Operator goal

almost since the organization’s inception in 1999. NYISO accomplished this long-standing goal in August 2007 with the implementation of its settlement system replacement project, a software release with a specialized settlements rules engine that allows NYISO to process a daily settlement run in about 30 minutes. NYISO’s previous billing and settlement system would take up to two hours or longer to complete a daily settlement run, leaving little time to identify data anoma-lies and process same-day re-settlements.

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where we wouldn’t even post a daily settlement for three or four days,” Dewey said.

To foster market participant confidence the system operator contracted with PA Consulting, an international technology consulting group based in Los Angeles, to certify that the new billing and settlements system oper-ates in strict compliance with NYISO’s market services and open access transmission tariffs for energy and ancil-lary services in its day-ahead and real-time markets.

NYISO’s next focus area in its overall settlements cycle strategy is to enhance its invoice processing capability to enable invoicing on a basis more frequent than monthly. Shortening the invoicing cycle would not only improve market cash flow, but also overall market efficiency. Further, invoicing and clearing its markets more frequently than monthly would allow NYISO to reduce collateral required from certain market participants by as much as 70 percent.

In February 2005, NYISO became the first wholesale market operator to co-optimize energy and ancillary markets at a five-minute level. In 2003, NYISO rolled out a data warehouse that provides market participants Web-based access to their settlement information within 36 hours of a trade day. The new billing and settlements system adds another success story to NYISO’s list of information technology innovations.

Michael S. Kramek is New York Independent System Operator information technology supervisor, financial systems products.

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