Turbo-charging demand response through customer engagement

Consumers may have heard about 'energy vampires', appliances that run 24/7, sucking electricity even when you’re sleeping. What scares utility executives into cold sweats at night are the twin horrors of surging demand and growing prices.

With a universal mandate to provide service, both forces are making public utilities’ jobs frighteningly challenging, with no letup in sight. Since 2022, US residential electricity prices have risen 13% on average, according to the Energy Information Administration. In the year that ended in August residential prices sparked up 6.1%, EIA reports, also noting that natural gas prices also rose 47.4%, despite a 5.6% drop in consumption.

This outpaces inflation, and it’s impacting every region. Rates are currently rising in 41 states. Smart utility leaders are leaning into demand response as a relatively low-cost way to:

1. Reduce usage, particularly during peak demand hours when the price of service is highest; and
2. Help customers lower their costs – all while typically offering a rebate for electric load 'shaved' during these peak hours.

The problem is that far too few customers engage in their utility’s demand response events. Without enough participation the growing pressures – from more extreme weather, 'beneficial electrification' and AI data centres, to name a few factors – will push companies and grid operators to build costly new sources of production and invest money into upgrading ageing transmission and distribution systems to handle the new load. 

All of this adds burdens to already stressed households to pay their utility bills.

There is another way. Simple low cost changes to utility billing programmes, such as the optional prepay service, help customers pay more attention to their daily usage habits, and reduce both regular consumption and peak demand. All while raising customer satisfaction and lowering utility operating costs.

Invoking demand response

Demand response events are typically invoked a few times a summer – more and more, however, as temperatures climb – and last for a few hours in the late afternoon. One model allows the utility to control a household’s A/C 'smart' thermostat, with a few opt-outs allowed, to accommodate a customer’s awkwardly timed dinner party or a neighbourhood Sunday afternoon football game.

The other model relies on customers to voluntarily reduce their usage during the peak hours.

In both cases utilities incentivise behaviour change by offering rebates for every kWh avoided in comparison with normal usage. These rebates are often paid weeks or months later, sometimes as a (little noticed) bill credit, or as a gift card (laden with expenses and transactional burdens).

Great in theory, but in practice utilities are struggling to get customers’ attention and engagement in these programmes. Parks Associates recently reported that only 16% of all 'internet households' owns a smart thermostat, and of those only 1 in 5 is enrolled in their utility’s demand response programme.

The top reason given for why customers don’t enroll? “Don’t want someone controlling my stuff", followed by “hadn’t heard of the programme", “don’t think it’s offered" and “don’t have the right thermostat".

All of those problems are addressed by prepay service. It doesn’t rely on a smart thermostat or involuntary control of the air conditioning. Instead, prepay gives customers the option to pay in advance, before they use the utility service, just like paying for gas in your car and watching your rate of consumption as the gas gauge moves toward zero.  

Regular alerts show customers how their behaviours translate into cost – or savings – and the days remaining before the account needs to be 'topped up'.

“This creates immediate feedback on their energy use, which influences behaviour and decision-making in turn,” the energy information firm ICF reported in a recent white paper.

Turbo-charged engagement

The hundreds of utilities that offer prepay service see their customers engaged up to ten times more often than other customers. They use between 5% and 14% less energy – making the service more affordable. And several studies have shown that demand reduction follows. 

Salt River Project in Phoenix, Arizona runs the oldest and largest prepay programme in the US, called M-Power. SRP reports that the 15% of its customers enrolled in prepay generate 55% of overall demand reduction. And that demand shaving can happen without costly rebates, or if connected to demand response events utilities can reward customers immediately with more days of service.

Also, by paying ahead prepay customers guarantee never to get behind on their bills, saving themselves and their utilities millions in collections expenses and preventing the spiralling miseries of extended utility disconnections. 

SRP and others also have tracked higher Customer Satisfaction Scores (CSAT) among prepay households – as well as a 'knock on' boost in CSAT among non-participants, who seem happy to see their utility make the extra effort on their behalf.

As utilities lean in to meet growing demand and address affordability concerns, they need to empower their customers to actively participate in reducing consumption. Prepay programmes are a proven, quick-to-implement method that leverages turbo-charged engagement to produce immediate and lasting results.

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