Utility Leaders in a Pinch to Find Cost Saving Measures
What happens when you’re caught between making necessary business investments and keeping customer prices affordable? It’s a dilemma that many U.S. utility providers currently face as the country moves to cleaner forms of energy while dealing with an aging power grid. Much of the grid is over 25 years old and will need to be updated and expanded. But if the Great Electrification of America is coming, the question is, ‘who will pay the bill?’ Will some of that cost be borne by consumers, and how well will it be received when one in six Americans already struggle to pay their rising utility bills? Streamlining operations could be the answer for utility leaders in a pinch to find cost-saving measures and outsourcing some services could be the ideal solution for keeping customers loyal and consumer rates affordable.
The Need for a Better Electrical Grid
Much of the U.S.’s electrical grid was built in the 1960s and 70s, and industry analysts estimate that almost 70% of power lines are 25 years or older, well into their average 50–year life span, and will soon need to be replaced.
The current grid was also not designed to withstand the extreme weather events now striking the U.S. From the severe heat in California to the record-setting frozen temperatures in 2021 that engulfed the entire state of Texas, the average U.S. electricity customer was without power seven more hours than average in 2021, mainly due to major weather events such as hurricanes, snowstorms, and wildfires.
Additionally, the U.S.’s aging grid could prove to be an obstacle in the country’s drive to adopt cleaner forms of energy, such as wind and solar. The current grid can’t support the long-distance, high-voltage transmission and distribution systems needed to reach the Biden administration’s goal of 100% clean electricity and net zero-emissions by 2050.
As more people drive electric cars and heat their homes with electric heat pumps, demand for electricity could more than triple by 2050. While clean energy will drastically reduce harmful greenhouse gas emissions and could supply the power surplus needed, estimates say that to move power from ideal locations for generating solar and wind to distant cities and towns will require an expansion of over 200,000 miles of transmission lines over the next ten years.
That’s why, in 2022, the Biden government announced the “Building a Better Grid” initiative, which will commence the largest investment in electrical infrastructure since the Second World War. Yet, this massive upgrade is likely to cost an estimated $10 billion a year and who will bear the brunt of this expense?
Who Will Pay for Infrastructure Investments
Though the Inflation Reduction Act could jumpstart new power line deployment through $3 billion in transmission funding and $2 billion in added funding for projects of national interest, it’s not simply a matter of replacing aging power lines. Aging equipment will need to be upgraded, and investments will need to be made in emerging technologies, such as hydrogen-fueled combustion turbines for seasonal storage of renewable energy. According to projections, a grid revitalization of this magnitude could cost anywhere from $330 billion to $2.4 trillion, and some of that cost will inevitably pass onto energy consumers in the form of higher rate prices.
In fact, to reach Biden’s decarbonization goals, 81% of utility customers in the U.S. will be impacted in some way or another, either through higher taxes or higher electricity rates. While the overall cost of electricity will lower as more power is generated and systems become more energy efficient, it’s a difficult ask for energy consumers who are already stretched thin financially.
Nationwide, customers are facing historic levels of inflation and rising utility bills. In 2022, U.S. consumers paid 14.3% more for electricity and the cost of heating homes is expected to cost 10.2% more this winter, which could add up to $1,359 more per customer this season. As Americans struggle to keep pace with inflation, one in six say they are behind on their energy bills.
While the Inflation Reduction Act can help fund energy efficiency improvements, many critics say it’s still heavily tax incentive-focused, and many improvements can only be made by homeowners, which may make it inaccessible to lower income customers or renters.
And people have a reason to fear the potential bump in prices if utility providers must fund most of their infrastructure upgrades. One example is a resident of Stockton, California who typically pays $300 a month to power her 1,100-square-foot house, a rate that is triple the national average. According to the Utility Reform Network, the higher rate is mostly due to spending on power lines to increase safety after severe California droughts caused the utility’s equipment to ignite a series of damaging wildfires. Though necessary, the part of the customer’s bill that goes towards such safety improvements has risen as much as 411% since 2006.
A Better Way to Boost Customer Satisfaction While Cost Saving
Utilities clearly don’t want to cause undue hardship to their customers and are trying to reduce the impact of inflation and rising global energy prices that, unfortunately, are often out of their control. But what about the cost of the Great Electrification of America? How can utility companies balance the need for grid investment with the need to keep consumer prices affordable and customers happy, especially in competitive unregulated markets where customers can shop around for the best rates.
The reality is that utility providers can’t afford to cut back on quality of service or raise prices too drastically, as customers are already frustrated. More than half of U.S. businesses have noticed significant utility rate increases, which has already caused a 12-point decline in business customer satisfaction, and a 17-point drop in residential customer satisfaction, according to J.D. Power’s 2022 survey. Much of that is due to insufficient communication around rate increases and payment assistance programs.
Yet, rising rates do not have to result in lower customer satisfaction. The right customer engagement strategy could change affordability perceptions. J.D. Power’s study shows that frequent communication about ways to improve energy efficiency, conservation tips, as well as financial aid programs can increase overall satisfaction by as much as 72 points.
The right CX partner can deliver the message in a way that enhances brand loyalty and customers’ overall perception of service and value. While outsourcing customer care, sales, and collections can result in lower operating costs, which may free up capital for infrastructure improvements, while minimizing the need to raise consumer rates. And the nearshore, with its competitive pricing, excellent English-language proficiency, proximity to the U.S. and strong cultural affinity, make outsourcing easy, efficient, and cost effective.
As utility leaders see themselves in a pinch to find cost-saving measures, outsourcing to BPO (Business Process Outsourcing) companies may offer the best solution, with the nearshore as an ideal destination for quality service at the right price.
Read more about our flexible and customizable CX services made for the Energy sector.