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Customer analytics sheds light on diversified needs of commercial and industrial customers of energy efficiency programs

Noel Stevens-smallIncreasing energy efficiency savings goals associated with utility sponsored energy efficiency programs create an incentive for investor owned utilities to turn to customer analytics to better understand customer needs in an effort to find opportunities for deeper savings.

Stores, offices, banks, hotels, and hospitals will always need the lights and heat to come on.  This causes what economists call “perfectly in-elastic demand.” In layman’s terms that means, no matter how much it costs, I still need it. Consequently, the price of power transportation services is highly regulated. As regulated monopolies, investor owned utilities (IOUs) historically faced minimal competitive pressures and had little justification for incurring costs associated with developing the well-defined customer analytical, segmentation, and marketing capabilities of retail marketing, financial services, and manufacturing firms.

In Massachusetts, IOUs are required by law to reduce the demand for power, which they do through the marketing and installation of energy efficient solutions to customers.  Customer marketing for utilities has historically focused on the largest customers for whom energy is a sizable cost consideration. On the other hand, energy savings solutions for small customers require less customer intelligence and marketing, as these firms can be served through commoditized prescriptive solutions. However, mid-size customers have more complex needs than small customers, but energy is not such a critical cost consideration as large customers. While these customers need energy, they do not necessarily need energy savings. This situation has created competitive pressures on IOUs to increase customer intelligence to better serve the needs of mid-size customers.

In 2013, DNV GL (formerly DNV KEMA) undertook a needs assessment of the mid-size customer market in Massachusetts. The primary purpose of the joint-Massachusetts Program Administrators (PA) and Energy Efficiency Advisory Council (EEAC) study was to understand the extent to which current energy efficiency program offerings effectively served the needs of mid-sized customers. Our study mined the consumption and program savings databases of 7 IOUs to investigate participation and savings ratios of customers within various customer segments. We then conducted in-depth interviews with various market actors and surveys with more than 800 program participants and non-participants to develop hypotheses to explain identified gaps in savings for certain groups of customers. Finally, we used survey research to provide supporting or refuting evidence of these hypotheses.

Our analysis showed that small customers, participate infrequently, but they achieve relatively high percentage savings when they do participate. On the other hand, large customers participate more frequently, but achieve relatively low percentage savings when they participate. Mid-sized customers achieve neither the high participation rates of large customers, nor the high savings rates of small customers. Effectively servicing mid-size customers requires use of specialized engineering firms trained in comprehensive energy solutions, further segmentation of mid-size customers by industry and annual consumption levels, and use of internal sales representatives to engage larger mid-size customers directly, provided the number of accounts is sufficiently small for internal staff to handle.

The final report is available for download on the Massachusetts Energy Efficiency Advisory Council’s website.

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