In a constantly plugged-in world, people rely on always available and uninterrupted electricity, now more than ever. While the electric industry has invested significantly to meet customers’ demand on the grid, utilities increasingly turn to their customers to provide reliable, cost-effective grid services with customer-sited distributed energy resources (DERs) like energy storage and demand response. Utilities can leverage three levers to increase customer adoption and utilization of DERs: programs, procurement, and pricing.
Programs can provide rebates for customers to install devices, such as smart thermostats, and incentives to allow utilities to control device operation during periods of high demand. Procurement allows utilities to outsource load flexibility to third-party aggregators to supply flexible demand on a pay-for-performance basis. Pricing sends price signals that encourage customers to shift load away from on-peak periods. Utilities should leverage all three “Ps” to source the load flexibility necessary to help decarbonize the electricity grid.
The third “P”–pricing–has been around for decades in the form of time of use (TOU) rates and other rates that vary over time. In response to current and future expected strain on the grid, and in order to reduce the variability in energy demand without bringing new power plants online, many utilities are trying to shift demand to better match supply. One way to do this is by transitioning customers to TOU rate plans. TOU rates charge different amounts during peak vs. non-peak hours and encourage consumers to modify their times of energy use (Figure 1) to take advantage of lower pricing. However, the design of pricing programs has been the focus of intensive academic and regulatory scrutiny and, despite utility experience with pricing, residential customer awareness of TOU rates still remains low while adoption of TOU rates is even lower.
Depending on the program, customers who opt in to a TOU plan save between 5% and 15% off of their electricity bill. Recent data shows residential electricity rates were 15.8% higher in August 2022 than the previous year, with even higher inflation rates in New England (19.5%) and the South (18.4%). Saving money has massive potential to incentivize customers to enroll in TOU plans and offset much of these increases, but those customers that have either opted in or been defaulted onto TOU rates don’t always understand the rate or feel motivated to shift load in response to TOU price signals. Utilities can design the perfect TOU rate, but if customers don’t understand the rate, don’t see value in participating in the rate, or don’t respond to the TOU price signals, the TOU program will not succeed.
To create a successful TOU program, utilities must overcome the customer engagement gap by: building TOU awareness with personalized insights, inspiring confidence that customers can save on a new rate, and continuing customer engagement after TOU adoption to help customers adopt energy shifting behaviors. Gaps in customer engagement limit the success of TOU rate rollouts, create dissatisfied customers, and do not solve the problem of the overexerted grid. By following these three steps, utilities can solve the TOU rollout puzzle while maintaining a happy customer base.
Build TOU Awareness with Personalized Insights
Utilities must move beyond generic content to fuel TOU rate education. Illustrations showing on- and off-peak periods and associated TOU price bands are important to help customers understand how TOU rates work, but they communicate little about how TOU rates will impact a customer’s electricity bill. One example of the personalized insights utilities can offer is shadow billing (Figure 2). Shadow billing is a technique where actual household consumption is used to create personalized bill comparisons among available rate options. Under this method of billing, customers get a utility bill with two sections: one part of the bill that shows what they currently owe, and a second that’s for informational purposes only—showing what the customer would have paid for the same electricity usage under a different rate structure, such as a TOU rate or critical peak rate. This allows them to evaluate whether a TOU rate, and the changes in electricity usage involved, would be worth the savings.
Regardless of method—such as digital communications, a customer web portal, or paper billing—proactive communications should focus on educating customers on how TOU rates can save them money by directly comparing TOU rates with their current rate. By customizing outreach to each individual and their bill, customers can see the difference in their own bill and be more inclined to choose the best TOU rate plan for their own household.
Inspire Confidence that Customers Can Save on a New Rate
To reduce churn and to satisfy customers, utilities need to engage them in all stages of their rate transition journey. Doing so, with proactive communications, can inspire confidence that customers will save by switching to a new rate. Utilities should offer web tools that allow customers to compare their predicted bills under different rate offerings, as well as “what-if” modifiers that simulate the incremental savings and bill control achievable by taking simple and customer-appropriate load shifting actions, like installing a smart thermostat or deferring the use of large appliances until off-peak periods. Not all customers will save money automatically by switching to TOU rates, but with a little practice and adopting simple load shifting behaviors, customers can unlock significant bill savings and control.
Giving customers the tips they need to successfully save money during the day, like unplugging chargers when they’re not in use, programming thermostats, and only running the dishwasher overnight when it’s completely full, can help energy consumers feel better about their TOU rate. Utilities must ensure customers are taking advantage of energy and budget management tools, like high usage alerts, which can help them avoid the surprise of a higher-than-expected energy bill. Messaging to help with this can include impending high-usage alerts designed to drive immediate behavioral changes, communication prior to peak usage season to prepare the customer for a higher-than-normal bill, and providing pool owners with a rebate towards a variable-speed pool pump. No matter the subject, the optimal communication frequency and content must be personalized to the customer according to their individual preferences, account history, and bill impact.
Continue Customer Engagement After TOU Adoption to Help Customers Adopt Energy-Shifting Behaviors
ustomer engagement should not stop after enrollment; utilities must ensure customers are aware of changes at any point in time. While welcome emails are important to orient customers to their new TOU rate, provide tips for behavioral load shifting, and connect customers to offers for devices that help automate load shift—such as smart thermostats or EV chargers—periodic emails should be sent to all customers in order to provide ongoing insights. Periodic rate coach emails provide mid-bill and end-of-period insights into trends in on-peak usage that may be driving changes to customer bills. These rate coach emails are instrumental in customer engagement and ensure customers continue to adopt energy-saving practices. Additionally, end-use disaggregation insights can show which devices use the most during peak periods and may highlight opportunities for bill savings through targeted load shift. Digital communications on the next best recommendations that promote offers for enabling devices and programs can help customers deepen their savings while maintaining household comfort and bill control.
Utility providers must stay engaged with their customers through ongoing, customized communication that enables them to make educated choices that are better for both their bill and the grid. With an effective plan, utility providers can make recommendations and savings estimates based on actual consumption data, allowing customers to learn more and visualize the impacts on their bill if they consume energy during off-peak times under available rate plans. A personalized and thoughtfully designed customer engagement strategy can help utilities overcome persistent barriers to TOU rate adoption and unlock the key to pricing as a tool to drive intelligent DER proliferation.
— Alex Lopez is Senior Product Marketing Manager at Uplight.