May 2018, Vo. 245, No. 5
Features
Natural Gas Utilities Securing the Future
By Timothy Alan Simon, former Commissioner, California Public Utility Commission
Natural gas utilities in the U.S. are in the midst of perhaps the most exciting and challenging time in their long history. Although natural gas prices are low and seemingly stable, geographic sources of natural gas have changed and electric utilities are using significantly more gas for power production than just a short time ago.
That puts increasing pressure on an often-aging pipeline infrastructure that is under increased scrutiny by regulators in terms of public safety. Environmental questions have been raised about the technology used in achieving this new supply abundance. In addition, consumers are more conservation-oriented and this, combined with technology improvements in appliance efficiency, has continued the long decline in gas usage per customer.
As a result, natural gas utilities must compete for customers in an increasingly savvy digital world, where information is instantly served via social media and a myriad of service options are provided via an app on a smart phone. With so much available at the touch of a button, that same audience also expects more from service providers, and natural gas utilities can benefit by integrating into that model.
Partnering with innovative companies that can provide additional value-added products and services that customers now expect can help forward-thinking natural gas utilities increase their customer satisfaction scores – leading to higher return on equity (ROE). With happy customers comes happy regulators and an environment in which natural gas utilities can prosper.
Threats, Opportunities
The landscape facing natural gas utilities is constantly changing. Domestically, the ongoing shale boom has oil and natural gas production levels near their peak, contributing to dramatically lower commodity prices.
In addition, one of the more familiar challenges is the long-term trend of declining usage per customer. According to a report published by the Energy Information Administration (EIA), residential usage declined by 22% over the 19-year period ending in 2009.
Nationally, population shifts to warmer climates, energy-efficient housing construction, increased appliance efficiency and a rising trend of natural gas customers who do not use natural gas as their primary heating fuel have contributed to this significant reduction in usage. Further, declining usage can translate into a lost customer, as customers who switch individual appliances to electric can eventually shift from being a natural-gas-and-electric household to one served only by electricity.
Trusted Partners
The chief way to attract and retain customers is to make customer satisfaction the center of the utility’s mission.
According to an Accenture Global Consumer Trends Survey, in 2013, 51% of consumers in the U.S. switched brands or businesses due to poor customer service, and 81% of those who switched said the company could have done something to stop them.
Further, in a 2014 report titled “The Future of Customer Service,” compiled by TrendWatching, 63% of consumers tested said they felt their heart rates increase when they thought about receiving great customer service. The lesson learned is clear: when it comes to delivering a great customer service experience, it’s not about what consumers think, it’s about how they feel.
But can a utility expect customers to have a warm and fuzzy feeling about the pipes bringing natural gas into their homes or the appliances that use the fuel? The perhaps surprising answer is yes, as customer satisfaction ratings from the top-performing utilities show.
According to a J.D. Power report on customer satisfaction with natural gas utilities, overall customer satisfaction with residential gas utilities increased by 27 points in 2015, buoyed by improvement in satisfaction regarding price (up 30 points) and corporate citizenship (up 31 points).
Interestingly, the report noted “stable low pricing and familiarity with conservation programs help drive satisfaction with price. In the corporate citizenship factor, satisfaction is driven by customer awareness of their utility’s efforts to support economic development in local communities, improve the impact on the environment, and foster public safety.”
The value doesn’t end there. A December 2015 study of the electric utility industry, published jointly by McGraw Hill Financial and J.D. Power, found increases in customer satisfaction are associated with increases in ROE, identifying a measurable link between satisfaction and a key financial metric for regulated utilities. In general, utility brands in the top two quartiles of customer satisfaction scores realize higher approved rates of ROE than those in the lower two quartiles.
A clear correlation between customer satisfaction and ROE, and between customer satisfaction and retention, makes it imperative that natural gas utilities chart a course toward improved customer satisfaction that moves beyond simply the traditional bill. To achieve this, forward-thinking utilities must become a trusted partner in their customers’ eyes.
The new age of customers, including millennials, want more. Millennials are budget conscious, environmentally and socially aware, and use social media extensively. They want value for their total dollar and a partner that is innovative and provides value beyond traditional utility services.
Utilities need to explore nontraditional services in order to strengthen customer relationships. Utilities don’t need to do this alone; there are innovative companies with which to partner to offer services that enhance the customer experience.
One area of innovation that could be useful in engaging this audience, among others, is the increased use of vehicles powered by compressed natural gas (CNG). CNG is an alternative to gasoline that’s made by compressing natural gas to less than 1% of its volume at standard atmospheric pressure and can be drawn from domestically drilled natural gas wells or in conjunction with crude oil production.
While most are accustomed to seeing these vehicles as part of a corporate or industrial fleet, there is some movement in the consumer market in the U.S. Analysts believe one way to increase adoption is to expand the number of CNG fueling stations. Investment in such infrastructure seems sound for the long term, as a large study of U.S. natural gas production supply “far exceeds government forecasts – and storage levels assure reasonable prices for the foreseeable future.” The report concludes, “It’s clean, affordable, abundant and American.”
Home Repair Solutions
More than 37 million households report a heating, plumbing or electrical problem every year. Most of these involve a repair that is not covered by homeowners insurance or the utility, meaning the homeowner must pay for and arrange the repair themselves. And over 60% of Americans don’t have $500 in savings to pay for these repairs.
Home repair service providers can offer homeowners an affordable and timely solution. Unique to the gas utility is the fact that many customers still call the gas utility for help when experiencing a problem with gas appliances. Partnering with a provider who can provide those services is a great way to build trust. This area is a straightforward opportunity for a utility to partner with an industry leader to perform essential repair services for its customers.
Mobile Applications
Mobile applications are available to utilities that can simplify customer dialogue and enhance the customer experience. A recent briefing published by TrendWatching indicated what we all know – customers are becoming increasingly impatient when it comes to ineffective customer assistance via web or phone. Partners can offer a mobile app that allows the customer to track their repair experience. Increasingly, customers want mobile and face-to-face interactions.
Whatever combination of partnerships is chosen, it is critical to continually assess how the programs are working and whether they are truly serving the needs of the customer. Opening a dialogue with customers via surveys, customer service interactions and the use of social technologies, will ensure the partnership is delivering. The utility needs to emphasize to the customer its role as a trusted partner, crystallizing how that role translates into added value.
Utilities that meet and exceed customer expectations by improving communications and providing nontraditional services will see improvements in customer satisfaction, resulting in improved financial performance.
Conclusions
Natural gas utilities in the U.S. are in the midst of perhaps the most exciting and challenging time in their long history, and these pressures are not expected to diminish. Nevertheless, it can be the most successful period in their history.
The proactive natural gas utility can overcome these challenges by successfully engaging the customer through a combination of smart, timely communications and the introduction of nontraditional products and services that position them as a trusted partner to their customers.
Exceeding customers’ expectations leads to higher customer satisfaction, and higher customer satisfaction leads to increased ROE. Further, customers today have been conditioned by other forward-looking companies, such as Amazon and Google, to expect digital engagement that delivers information at the touch of a button.
Natural gas utilities can be part of this customer experience evolution by engaging with industry-leading partners to provide digital access, as well as nontraditional products and services. In this way, a utility can position itself solidly for future success. P&GJ
Author:
Timothy Alan Simon was appointed to the California Public Utilities Commission (CPUC), ending a six-year term in December of 2012. He served as a member of the National Association of Regulatory Utility Commissioners (NARUC) Board of Directors, chair of NARUC‘s Gas Committee and is a current member of the National Petroleum Council. He received a bachelor’s degree in economics from the University of San Francisco and a juris doctorate from U.C. Hastings College of Law.
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