Utility Loyalty Programs-Part of the New Business Model

An increasing number of utilities are adopting loyalty programs as part of their new business plan to offset demand on the grid.
Published: Fri 14 Mar 2014

Loyalty programs are being increasingly adopted into utilities’ new business plans. The programs are all about kilowatt hours saved and energy conserved.

Utilities are starting to see the value of rewarding consumers with cash back or points when they take steps towards conserving energy and thereby cutting their electricity bills. This route seems to be more popular than the usual rebate programs for purchasing energy-efficient appliances, explains Bernard Neenan, a technical executive at the Electric Power Research Institute.

Loyalty programs and smart meters can complement each other

Turning energy savings into a reward-earning challenge can play a part in the adoption of smart meters. The meters allow for real-time feedback and action. For instance, a spike due to air-conditioner usage can prompt the consumer to adjust the thermostat in order to keep the utility bill down.

Currently, 30% of US households use smart meters. This figure will grow to 75% by 2016, according to NPD In-Stat.

Reward programs are plentiful and vary

Utilities have implemented various types of reward programs. Southern California Edison, DTE Energy in Detroit, Commonwealth Edison in Chicago, and Northeast Utilities signed on with software provider Efficiency 2.0, which compares users' energy bills year over year and awards two points per unit of energy saved. Participants can earn an average of US$160 in rewards each year. They can use these rewards towards various retail and restaurant deals.

Others, like Midwest and Mid-Atlantic utility Dominion, trade cash in exchange for permission to lower electric use during peak-demand days. Dominion paid out US$40 each for 43,000 Virginia homes that enrolled last year, and is expanding eligibility to all residential customers in Virginia and North Carolina.

Energy Plus offers rewards in partner programs with hotels, airlines and the retail sector.

Utility rewards may not offer the best deal

While the extra savings may be attractive to the consumer, utility rewards may not always offer the best deal.

For instance, EnergyPlus has variable rates that shift with energy prices. Rates may be higher or lower than the existing utility at any point in time, explains Paul Frantz, the firm’s chief marketing officer. He says that it is not easy to determine where rates will go.

Dominion customers may find US$40 a poor trade if the summer’s temperatures are peaking.Since the program allows the utility to cycle off air-conditioning power in the late afternoon to early evening on weekdays only, it may be best for those who work during the day.

Privacy and trust

As a general rule, utilities don't share any data about a customer's energy usage without their consent. However, consumers may still be concerned about their privacy.

When signing up for a rewards program, a great deal of usage data is analyzed by a third party. This may not sit well with many since the analysis can be rather detailed and sensitive.

It is up to the customer to read the terms and conditions before signing up to see how that data will be used and shared.

Since security is critical when working with big data, utilities need to adopt appropriate security measures and communicate this with their customers in order to gain trust. In our article, Changing the Customer’s Mindset, we discuss how the development of robust utility-customer relationship and consistent communication helps to build trust.

Before innovative approaches such as gamification and loyalty programs are implemented, it is essential for the utility to really understand its customer base. We discuss this critical relationship-building in our article, Utilities: Focus More on Consumer Practices. Without this knowledge, these programs can prove to be fruitless.