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Customer futures workshopLCNI conference 12 October 2016

Paul BirchamCommercial Strategy and Support Director

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Agenda

Engineering Recommendation P2/6

Steve CoxEngineering and

Technical Director

Gerard BoydCommercial and

Innovation Manager

Distribution System Operator Strategy

Project

Michael BrainchResearch Director

Value of Lost Load & Avatar Projects

3

The Value of Lost Load project

Tracey KennellyInnovation customer lead, Electricity North West

Michael BrainchResearch Director, Impact Research

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What is the value of lost load (VoLL)?

Ofgem used ~£16k/MWh for incentives in RIIO ED1

The mechanism used by the electricity industry to attribute a value on the financial and social cost of supply interruptions to customers in £ per kWh

Provides a price signal about the adequate level of supply security in GB

VoLL has existed since 1990 2013 - London Economics ~£17k/MWh

average value (excluding I&C)

VoLL varies considerably for domestic and SME customers

The existing single VoLL is aggregated to provide an overall estimate of the lost value

5

Objectives of the VoLL project

A better understanding of customer impact by segment Allows network services to be tailored to customer need

How each segment is best served eg better communications & resilience

Key output:A model by customer segment showing relative value

Demonstrate how segmented values would help DNOs improve planning models & guide investment strategiesMore targeted decisions, driven by customer need

Guidance on optimum customer strategies

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Application of a revised VoLL matrix

More targeted investment decisions based on a network’s composite VoLL Customer segmentation using standard industry data

Efficient use of resources driven by customer needs

X 5X 54 X 4

£ VoLL ?

£

X 10X 18X 2

X 27

X 2

7

4 ECP panels of domestic and

SME customers*

20 depth interviews

Statistically robust & representative researchto establish VoLL by key customer segments now and in the future

VoLL overview

Interviews with key stakeholders to guide research

approach

6,000 interviews across GB with domestic and SME customers

Engagement with industry

Revised VoLL model

Recommendation to Ofgem

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Why we need a reliable measure of VoLL

The Value of Lost Load (VoLL) is a critical component of infrastructure investment decision making

It needs to be:

Accurate – a realistic and robust quantification in £/MWh

Representative – covering a range of values across customer groups

The objective of this study is to establish robust measures of VoLL across the full spectrum of customers

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VoLL methodology

Extensive qualitative customer research

Literature review to understand the problem &

previous researchConsultation with key

stakeholders with a vested interest in the study

Extensive quantitative customer survey

Revised VoLL matrix

Final report and recommendations to Ofgem

Phase 1 Phase 2 Phase 3

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The key questions

How do customers measure & value lost load?1

What is the financial impact in £ per MWh?2

How will VoLL change in the future?3Five key questions

How can DNOs mitigate the cost of lost load to customers?5

How does this vary by customer segment?4

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Perception of reliability

Reliability means constant availabilityPerception characterised by frequency & duration

Uniform VoLL Consumers believe a single VoLL is no longer appropriateWant more granular matrix, reflecting needs of specific groups

Financial & social impacts

SMEs place greater emphasis on financial impact of lost load Domestic customers more concerned with non-financial impact

Mitigating the impact

Achievable with: Better information and improved channels of communication

Expectations of reliability

Rural & worst-served have lower expectations but greater tolerance & resilience than urban customers

How customers measure & value lost load? What they told us:

Opinions on investment

Rural & worst served - Expect more investment in worst networks for parity in service - but don't want bills to increaseUrban & SMEs wont pay more to improve reliability for others

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Service attributes appraised by customers

Type of power cut Advance warning Frequency of

power cuts

Duration of the power cut Time of day Day of week

Assistance for customers

vulnerable during the power cut

Proactive information

about the power cut

Quality of information

provided

The one-off payment you pay to avoid this happening/ The one-off amount you receive for this happening

How do customers measure & value lost load?1

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Advance warning

Frequency of power cuts

Duration of the power cut

Time of day

Day of week

Assistance for customers vulnerable during the power cut

Proactive information about the power cut

Quality of information provided

One-off payment to avoid this happening

Additional support payment

The one-off amount you receive for this happening

Additional amount received with support

High priorities:Cost, duration, frequency & information

Advance warning

Frequency of power cuts

Duration of the power cut

Time of day

Day of week

Assistance for customers vulnerable during the power cut

Proactive information about the power cut

Quality of information provided

The one-off payment you pay to avoid this happening

Additional support payment

The one-off amount you receive for this happening

Additional amount received with supportIm

port

ance

Low

High

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How do customers measure VoLL

1 2-3 4-6 7-14 15DomesticLinear (Domestic)SME

Up to 3 mins

Up to 1 hour

Up to 4 hours

Up to 8 hours

Up to 12 hours

12 to 24

hours

Two to three days

Duration of the power cut Frequency of power cuts

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£2,000 £13,500

Willingness to pay £/MWh

£3,700 £35,700

Willingness to accept £/MWh

As expected WTA estimates are much larger than the comparable WTP estimates

What is the financial impact in £ per MWh?

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£2,000 £2,000

Willingness to pay £/MWh

£3,700 £12,000

Willingness to accept £/MWh

VoLL 2016

The one-off payment expected by customers to accept the base case is significantly higher in the LE study, a reflection of the frequency of interruptions in that study being set at once every 12 years

London Economics

2013

What is the financial impact in £ per MWh for domestic customers?

VoLL 2016

London Economics

2013

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Imagining a future LCT context

Future? Future?

Future? Future?

£2,000 £13,500

Willingness to pay £/MWh

£3,700 £35,700

Willingness to accept £/MWh

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£3,500WTA

£2,000WTP

FUTURE SCENARIOS Electric Vehicles

Slightly higher

Slightly higher

Electric Heat Pumps

Slightly lower

Slightly higher

PV No difference

No difference

EHP future scenario

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WTP WTAAll domestic £3,700£2,000

Domestic LCT users x4-

Domestic PV users x2-

Domestic - high usage x1.5x1.2

Imagined future LCT users --

Current LCT users have a higher WTA than imagined users

Current behaviour

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Understanding VoLL by segment

Low VoLL High VoLL

VoLL has significantly different values across the various segments of the customer base; for example, rural customers compared to urban

Older Younger

Less affluent More affluent

Urban Rural

Not Vulnerable Vulnerable

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WTPAll Domestic (n=669) £1,956Impact of power cut - Low (n=239) 127High usage (n=54) 123Dissatisfied (n=100) 121Medically Dependant (n=60) 119Want to improve worse served (n=157) 113Want to improve reliability (n=67) 110Want to keep reliability (n=198) 104Medium usage (n=336) 100Power cuts (n=358) 100Low usage (n=277) 97Satisfied (n=536) 96No power cuts (n=283) 95Want to keep bills constant (n=247) 88Impact of power cut - Medium (n=81) 79Impact of power cut - High (n=60) 58

WTAAll Domestic (n=669) £3,709Impact of power cut - Low (n=239) 245Want to improve supply (n=67) 181Low usage (n=277) 143Want to keep reliability (n=198) 136High usage (n=54) 131Want to improve worse served (n=157) 117No power cuts (n=283) 116Satisfied (n=536) 100Medically Dependant (n=60) 97Dissatisfied (n=100) 90Power cuts (n=358) 88Medium usage (n=336) 76Want to keep bills constant (n=247) 69Impact of power cut - Medium (n=81) 52Impact of power cut - High (n=60) 21

Customer impacted most by power cuts have the lowest WTP/WTAHigh energy users have the highest

WTA & WTP value index (domestic)

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Relative importance of service

Phone call(s) made directly to your mobile or landline x 3Accurate information about when the power is expected to be restored x 3Short message service (SMS) sent to your mobile phone x 3Automated text-to-speech message x 3A justified reason for the power cut x 3A Welfare Pack to help you cope with the power cut x 3Confirmation that your electricity is back on x 3Sending a mobile catering van to provide hot food and drinks x 2Advice on what to do during a power cut x 2Public address/tannoy system x 2Sending a mobile unit that allows you to charge mobile phones/ tablet devices x 2Nominated friend, family member or colleague who can be sent updates instead of, or in addition to us contacting you x 2Home visits to offer help and advice at any stage x 2Social media (Twitter, Facebook etc.) x 1

Mitigating VOLL - most important support element Providing information by phone

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WTA & WTP value index (domestic)

WTPAll Domestic (n=669) 10018 – 29 (n=126) 115Vulnerable (n=379) 106AB (n=165) 106Off-gas (n=126) 106Rural (n=68) 105C2 (n=123) 10430 – 44 (n=138) 104Female (n=119) 103Urban (n=138) 101Male (n=98) 9845 – 59 (n=175) 97C1 (n=209) 96DE (n=170) 9660+ (n=230) 94Fuel poverty (n=39) 93

WTAAll Domestic (n=669) 100Fuel poverty (n=39) 195AB (n=165) 17018 – 29 (n=126) 13830 – 44 (n=138) 126Rural (n=68) 126Vulnerable (n=379) 118Female (n=119) 108C2 (n=123) 100Male (n=98) 9560+ (n=230) 94C1 (n=209) 8845 – 59 (n=175) 81Urban (n=138) 81Off-gas (n=126) 81DE (n=170) 80

Customers in fuel poverty have lowest propensity to pay more for additional support and the greatest expectation of compensation

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Recap the survey method & key findings

Visit our stand and see a short video

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Early indications

The VoLL methodology is robust

The VoLL model quantifies variations across segments

VoLL is not linear

Some segments support a strong VoLL, hence potentially higher investment

Early adopters of LCT are indicative of a future VoLL

Enhanced support and information is valued highly

We are confident of producing a reliable segmentation model

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Next steps

Refine survey instrument

Winter survey

December 2016 -

February 2017

Publish interim

analysis from model by

October 2017

Lessons learned from

the pilot survey

(including peer review)

Final survey report

including lessons

learned by January 2018

Summer survey

July 2017 to August 2017

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RESULTS

6

RESULTS

4321

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We need you help

Help us capture the views of customers to ensure VoLL reflects all key customer

segments across GB

Share the VoLL methodology with

stakeholders for comment, before customer survey in

December 2016

We would value your input into the evaluation, findings, proposed application of the

revised matrix and its implications

Intermediary Validate recommendationsValidate approach

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Introducing Project Avatar

LCNI 12 October 2016

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Avatar – the problem

The customer service landscape is changingPolitical, economic, social, demographic and technological factors are accelerating a

shift in customers’ needs and expectations

DNOs need to understand and predict customers’ current and future needs to improve the service provided

Continuous investment is required in the right technologies and techniques to best meet the needs of different customers

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Avatar – project objectives

Understand customers future needs

How will these vary by segment

How will we meet the specific needs of each of these segments

A blueprint for implementing bespoke customer service solutions

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Looking back is the best way of imagining the changes that could occur in the future

. Oasis and Blur were at the height of their popularity * Wonderwall released in October 1995 * The Spice Girls were less than a year away

John Major was prime minister of the UK (1990 to 1997)

Only one per cent of the UK population had Internet access in 1995 – unthinkable 21 years on.

The Motorola StarTAC was the first ever flip mobile phone and among the first mobile to gain widespread consumer adoption with

approximately 60 million sold in 1996

Our Commercial Strategy and Support Director, Paul was no more than a mere lad

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The questions we will answer

What are current and future customer service needs?

Which range of innovative solutions will best meetcustomers increased servicing expectations?

How should these solutions be tailored for use by DNOs?

What is the optimal strategy for customer communication that will leverage higher levels for customer satisfaction?

Customer service in the future

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Exploratory literature

review

Expert thinking

Exploratory research

Meeting customer

needs

Pilot study Quantifying customer

needs

Customer and stakeholder engagement

2 3 65

A comprehensive understanding of the future of customer service

1 4

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Challenge

Evolution of personal assistants

Getting customers to imagine future scenarios & technological advances

1985 2015 2035

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What solutions already exist?

Avatars, chat-bots, and virtual assistants are likely to become more prominent. Available 24/7 for simple query resolution

Drawing on best practice for current (and future) customer service from other industry sectors

Initial research has identified some key trends expected to impact customer service

Contact channels will continue to expand in number, allowing customers to mix and match communication platforms to

meet their own needs.

Consultation with technical experts

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Avatar will disseminate important new learning

• Quantifying how needs and expectations are

likely to change in 2020 and beyond

Understanding how customer service needs

vary by different customer segments and

touch-points

Informing optimal communication with

customers and methods of disseminating

information

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Refining solutions based on customer feedback

Combine customer feedback and input

from frontline customer service

employees

Engaging with technical experts to

produce bespoke service solutions

Assessing customer appeal and acceptability of solutions (by customer group)

Creation of bespoke customer service solutions

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Objective

Identify the optimal technologies & techniques to best meet the needs of different customers now and in the future

A blueprint for bespoke customer service solutions to assist DNOs in planning customer investment strategy

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Next steps

Expert thinking and employee engagement

Co-creation workshop by September

2017

Engaged customer panel

Depth interviews by

June 2018

Extensive customer

survey by June 2019

Customer engagement plan

Data privacy statement

Methodology statement by June

2017

Customer service

blueprint delivered by

December 2019

Pilot survey

Lessons learned by December

2018

6

RESULTS

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Customer Engagement Plan

2 4 5

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&QUESTIONSDISCUSSION

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For more information

Please contact us if you have any questions or would like to arrange a one-to-one briefing about our innovation projects

www.enwl.co.uk/thefuture

futurenetworks@enwl.co.uk

0800 195 4141

@ElecNW_News

linkedin.com/company/electricity-north-west

facebook.com/ElectricityNorthWest

youtube.com/ElectricityNorthWest

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