Utility Communications: Don’t Play Word Games on Price Increases
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“You say ‘po-TA-to,’ I say ‘po TAH-to.’ You say ‘to-MA-to,’ I say ‘to-MAH-to.’ ”
That’s the kind of word game more and more utilities are playing these days. It’s a game I expect most will lose, mainly because utilities and their customers are not using a common vocabulary.
Changes in prices — mainly increases but sometimes decreases — will be one of the biggest utility communications challenges this year, according to EEC’s soon-to-be-released Juggling Chainsaws: 2017 Survey of Utility Communicators and Marketers.
On the primacy of price-related communications, the 2017 survey results mirror the results of the 2015 EEC survey, Budgets, Gadgets & Price Increases. Given the large investments utilities are making in infrastructure, environmental cleanup and other matters, we expect this trend will continue for the next several years.
Four Tips for Communicating Prices (Not Rates)
When I write, speak or consult on utility communications, specifically pricing communications, I strongly recommend:
1. Use the word, “prices,” not “rates,” to describe the cost of electricity or gas.
2. Don’t get caught up in the specific price per kilowatt-hour or therm, which few people really understand.
3. Clearly state the dollars and cents impact of a price change to the monthly bill.
4. Include messaging about how customers could offset some or all of the per-unit price increase. For example, “The price of electricity is going up 5% in 2017, about $6.00 per month for the average residential customer, but customers can reduce or offset the impact to their bill by enrolling in one or more of our energy-efficiency programs.”
It’s been a hard slog convincing utilities to use a customer-friendly term like “prices” instead of “rates.” At least one public power general manager is all too personally aware of the dangers of using the wrong word in the wrong setting. We detail his unfortunate missteps below.
There is a distinction with an important difference between “prices” and rates.” “Prices” are the fully delivered cost of a good or service. The price includes all cost inputs: raw materials, transportation, processing, packaging, overhead, and so on. For example, milk costs $2.99 per gallon. The label contains no detailed break out of the input costs: the costs to feed, raise and maintain the cow, milk it, package the milk, transport it to market, refrigerate it, and so on. And honestly, would you care if it did?
Utility communications have long compartmentalized their price-related language. On the one hand is “rates” (or “base rates”), and the other is “fuel” or “purchased power.” Rarely do the two meet, either mentally or in a communications piece.
Communications Tip of the Month: In discussing the per-unit cost of your utility service, don’t be disingenuous. Don’t hide behind industry jargon. Use words your customers understand. Customers deserve to know the all-in cost of your service, not just your base rates.
“Rates” refers to one set of input costs, the cost of operating and maintaining the network of meters, pipes, poles, wires, and other costs necessary to serve customers. “Rates” are something a utility can control, which is one reason why utilities prefer to speak about “rates” when discussing prices.
Utility Communications: Message vs. Meaning
But beside infrastructure costs, there is another cluster of costs, typically not under a utility’s control, that drive the price of their service. These other inputs include fuel, purchased power, energy-efficiency riders, taxes, fees and the like. Basically, these other inputs are variable costs that more or less track usage, but over which a utility has no control. They typically don’t own sources of fuel and they typically are not large enough to exert significant control over wholesale power prices.
haven’t raised rates
for 15 years.”
running a tight
In discussing price communications with utility media relations representatives, I often hear some variant of, “We haven’t raised rates in 15 years.” The implied meaning of that statement is, “We’re really good stewards of our customers’ money. We’re running a tight ship.”
All well and good. So say that! Don’t speak in code and hide behind industry jargon and nomenclature.
But in those conversations, when I ask about the cost of purchased power, or fuel, I am more likely than not to hear, “Well, that floats with the market. We can’t do anything about those costs. They get passed through, with no markup.”
To return to our milk example, above, how would you as a consumer feel if the price on the milk container only included the transportation costs involved in getting the milk from the dairy to the grocery store (i.e., “rates,” in our analogy), but omitted the actual cost of the milk (i.e., fuel/purchased power, in our analogy)? Chances are, you’d feel misled.
Focusing on the factors you can control but ignoring those you can’t seems a little disingenuous. The per-unit price you charge customers is a function of both factors. When factors outside your control cause the price of your service to increase, you should say that clearly. And, since customers have to contend with the total price of your service, not just your base rates, I recommend offering customers options so they can lower their out-of-pocket costs if they wish to do so.
Utility communications tend to take place in two realms: internally, where shorthand is used to quickly cover a complex concept, and externally, to customers and other external stakeholders. But external audiences are not conversant (or interested) in the nuances, distinctions and details of the utility’s internal language.
Below is an anecdote that shows the danger utilities court when they use internal concepts and frames of reference when communicating with an external audience. The danger is particularly acute when utilities change their prices.
The Pursuit of Precision …
Each month, the general manager of a large public power utility provided updates to his city council, which functioned as the utility’s regulator. The utility was one of many city departments that updated the city council: police, fire, parks & recreation, streets & public works, libraries and so on.
The typical dialogue usually went something like this:
General Manager: “That concludes my prepared remarks. I’d be happy to take your questions.”
Member of City Council: “Thank you. Here’s my question: Do you plan to raise rates?”
General Manager: “No.”
Member of City Council: “Good. Thank you. Next we’ll hear from the Police Chief.”
This kind of exchange went on quite some time. Elected officials, like most consumers, tended to be interested in the utility only when it was changing its prices.
Although the general manager was technically correct in saying the utility was not planning on increasing its “rates,” when he used that word, he, like so many utility executives, used it in a narrow and specific way: the cost of operating and maintaining the infrastructure. In other words, he used his internal shorthand to communicate with an external audience.
… Created a Really Big Problem
This utility, like many others, had a separate line item to recover the cost of purchased power. And the utility was a huge buyer of other utilities’ excess electricity — something like $25 million or more per month, on average. Recovering these costs did not happen automatically — the utility had to file a request with the city council, and the council needed to consider and rule on the application.
So the utility went along for more than a year, paying for, but not recovering, its outlays for purchased power. After a while, the bond-rating agencies (Moody’s, S&P and Fitch) noticed a large and growing financial imbalance on the utility’s financial statements. They expressed their concern to the utility’s leadership. Briefly stated, it went something like this: Recover these outlays promptly, or we’re going to downgrade your bond ratings.
That got the attention of the utility’s leadership team. For utilities, a bond rating is their financial lifeline. Good ratings mean you can borrow money cheaply. Bad ones mean you pay more to borrow the same amount of money. Utilities — even distribution utilities — require a lot of capital to operate. A bond-rating downgrade is something utilities want to avoid at all costs.
So the next time the general manager went before the city council, he said, once again, there were no planned rate hikes. But, he added, there was a rather pressing need to recover a huge amount of uncollected purchased power outlays. And that needed to happen, like, yesterday. Maybe next week at the latest. Otherwise, the bond-rating agencies would lower the utility’s ratings, and future capital projects would cost more.
Don’t Have Your Words Mangle Your Message
Like many utility leaders, this general manager had compartmentalized costs into two distinct mental buckets: “rates” and “purchased power.” He, and everyone in the utility, adhered to this strict separation. His mistake was in thinking that the general public understood the distinction and shorthand he used when speaking to internal audiences.
Needless to say, the general manager’s surprise announcement created a contentious series of exchanges between the utility and its regulator. Long story short, the general manager was fired because he had lost the confidence of the city council. Future general managers — and there were several of them — would have to labor in the shadow of that loss of trust. For that reason, their tenures were uncharacteristically short.
Price increases are an opportunity to engage your customers and discuss your business, as some utilities are doing proactively. You’re going to have to have those conversations anyway, eventually. Why not be intentional and strategic about it? In the court of public opinion, electric and gas providers lose by playing defense.
Utility communications should be as simple and accessible as possible. Sometimes analogies can help. Microsoft Word also has tools you can use to make your copy more readable and accessible to the general public. This extract from a recent talk offers some specific ideas.
“Any fool can make something complicated,” legendary folksinger Woody Guthrie (left) once said. “It takes a genius to make it simple.”
Best Practices in Complex Issue Messaging
“Flue gas desulfurization units” may be a term that easily rolls off YOUR tongue, but it means nothing to the rest of the planet, including your customers. Utility issues are getting more and more complex, which means communicators and marketers need to work even harder to make complicated issues simple. If you can’t explain to your customers what you are doing and why, how can you expect them to trust and support you?
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