Leap-Frogging to Smart Grid Success: Lessons from the Telecommunications Industry

By Bob Lento

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Having done it the hard way (learning from our own mistakes), we highly recommend the easy way (learning from the mistakes of others). In that regard, the telecommunications industry may be one of the best places to look for best practices in how utilities can use the Smart Grid’s real-time information from millions of devices like smart meters. By mimicking what telecommunications does today to manage peak loads and help with low credit score customers, we can leap past decades of learning experiences.

The Wisdom of Telcos

Seconds after you hung up from your early morning conference call, your cell phone carrier had already adjusted your bill. They calculated the duration of the call, fees based on long-distance, and your rate based on your calling plan. And if you like, they’ll send you a text message to let you know how much the call costs.

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For cell phone carriers, this kind of instant billing is a natural fit. Cell phones are already plugged into a national communications network. They host over 650 billion information transactions a year and process about 500 events per user, per month. Smartphones with data charges and content downloads only make it that much more complicated.

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With interconnected smart meters in millions of homes across the U.S., our electric grid promises to rival telecommunications in size and complexity. The Smart Grid offers utilities the opportunity to change once-monthly measurement of energy use to measurements every 5-15 minutes.

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But now that we have the technology, how can we use it best to improve profitibility? The telecommunications industry offers decades of collective wisdom on how utilities can use their newly found real-time data. Here are just two of the lessons to be learned:

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1. Reward Customers for Reducing the Peak

The biggest untold secret in telecommunications is that “free nights and weekends” isn’t just a special deal for customers – it’s a way to get talkative customers to hold their tongue until the peak hours have passed.

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By charging a slightly larger monthly fee, but offering cheaper (free) rates during certain hours, users are financially motivated to help reduce peak loads. Cell phone carriers earn slightly less from each customer, but net a substantial gain in profits by reducing infrastructure costs related to supporting peak loads. All while offering a deal customers love.

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For utility companies, reducing peak usage is crucial. The cost of producing a Kilowatt during peak hours can be more than five-fold that during the trough. And energy use during the peak is rising to up to double the pace of average use. The increasing use of electricity during peak hours is accelerating the need for new plants to support peak use. New plants cause more emissions and increase the cost of supporting the distribution network.

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Making electricity use more stable can save utilities 25-45 percent of their infrastructure costs, while providing a positive environmental benefit.

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Unfortunately, utilities can hardly offer a crisp message like “free nights and weekends” because peak hours vary based on weather, season, location, and more. Some emerging variable billing rates being offered are too complex for customers to keep top of mind. Having a plan that is difficult to digest makes it unlikely to substantially influence behavior.

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To influence consumer behavior and capture the cost savings, utilities will need to foster constant, automated, communication with their customers on their latest rate and use information, so people (or their automated software) can watch it like a stock ticker graph.

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2. Take Advantage of Prepayment Opportunities

Utility companies have always struggled with customers with poor credit who cannot afford a $200 deposit, but need electricity. More people have joined this category in the last couple years since the housing bust and the following economic recession.

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Cellular carriers answered the problem years ago with pre-paid cards. Some European dorm rooms also offer an interesting model with quarter machines setup to prepay for electricity.

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Utility companies have a lot of options. You can let customers buy pre-paid cards like gift cards in standard $20, $50, or $200 purchases or have an online account with money transfers.

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But don’t forget: You can only have a prepaid system if you have the capability to immediately notify both the supplier and the consumer when their pre-paid limit is approaching or expired. The Smart Grid will give utilities just that.

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Leap-Frog to Success

The telecommunications industry had plenty of bumps in the road over the decades. Here at Convergys, we lived through all those learning experiences right beside them. With a brand new system coming into place, utility companies have an opportunity to skip decades of learning and incremental costs by leap-frogging directly to the best practices that were learned the hard way.

Bob Lento is president of Global Information Management at Convergys Corporation, a global leader in relationship management. He is responsible for delivering innovative Smart BSS Solutions to support convergent services for Convergys clients in the telecommunications, cable/broadband, and utility industries. Bob has been with Convergys since 1998.  He is a graduate of the State University of New York at Albany.