Can Water Utilities Fix Aging Infrastructure Without Destroying Customer Satisfaction?

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By Andrew Heath

It’s no secret that the United States is facing a water infrastructure crisis of epic proportions. The Environmental Protection Agency (EPA) estimates that $473 billion in drinking water infrastructure investment will be needed over the next 20 years as aging pipes and storage facilities require upgrades and replacements.

This reality presents a thorny set of issues for water utilities. For one, they have to find a way to pay for it. There will be rate cases, public hearings, contentious media coverage and no shortage of political wrangling as those budgets are sorted. But, that’s just half the battle. Once funded, water authorities will also need to oversee massive construction projects that will absolutely disrupt the lives of their customers. All to improve a product that most consumers take for granted.

Within that volatile set of variables, how can water utilities possibly hope to fix their aging infrastructure without completely destroying the good will of their customers?

It is a tricky balancing act, but new research into customer perceptions of water utilities and drinking water quality and safety show that major infrastructure projects actually present a unique opportunity for utilities to strengthen their relationships with customers.

The Talking Cure

It all comes down to this fascinating finding from our recent Water Utility Residential Customer Satisfaction Study. As anyone would expect, water quality issues and service interruptions have a significant negative effect on water utility customer satisfaction. Water quality issues, such as low pressure or bad taste, are associated with a 104-point decline (on a 1,000-point scale) in customer satisfaction scores, while service interruptions are associated with a 50-point decline in customer satisfaction.

However, there is an antidote to the anger. Specifically, customer awareness initiatives focused on infrastructure investments can significantly offset the declines in customer satisfaction that come from service interruptions and water quality issues. Satisfaction scores among customers who are aware of utility efforts to replace old water infrastructure are 48 points higher, on average, than among those who are unaware of such efforts. Additionally, satisfaction among customers who say their water utility does a good job maintaining current infrastructure are 248 points higher, on average, than among those who are unaware of utility infrastructure investments.

The key is communication. In fact, we also found that overall satisfaction scores are 84 points higher when customers recall receiving a proactive communication from their utility (e.g., phone call, e-mail, text message, social media message) than when customers do not recall a proactive communication.

Put simply, when utilities do a good job of managing customer expectations for upcoming infrastructure improvement projects or possible service interruptions – and make it clear that those inconveniences are focused on trying to make their water supply safer and better – customers understand. Ultimately, that understanding forges tighter bonds between the consumer and the utility.

Work to Be Done on Customer Communications

Unfortunately, despite the powerful effect proactive communication has on customer satisfaction, our data shows that just 28 percent of water utility customers recall receiving any communications from their utility.

That’s a problem. In terms of quantifiable impact of customer communications, customers in our study who did not recall receiving any communications from their water utility in the last year had an average satisfaction score of 644. Those who recall receiving four or more communications had an average satisfaction score of 779. Far more customers recall zero communications than those who recall four or more (see chart below).

So, we know the problem. We know the solution. How can water utilities go about improving their customer communications in a way that connects?

The communications that resonate most clearly with customers are proactive. That means the utility is going out of its way to reach out directly to the customer, either via phone call, e-mail, text message or via its social media site. When customers recall a proactive communication from their utility, overall satisfaction scores increase by more than 80 points.

Other means of customer communications that are more passive, but produce a strong bump in customer satisfaction when they are recalled are posts on the utility’s blog, billboards and radio spots. The charts below illustrate the overall impact of proactive communications on customer satisfaction and the specific forms of communication that drive the highest recall and customer satisfaction.

Making the Business Case

All of this may sound like a strange proposition for utility executives staring down potentially billions in infrastructure redevelopment and technology upgrades. After all, how can they possibly worry about improving customer satisfaction at a time when they are so capacity-constrained? Because their rate cases and future price increase depend on it.

When customers feel good about their utilities, rate cases are approved and price increases become much easier to digest. When they feel slighted, the outcome is much less certain. These dynamics apply to both public- or member-owned utilities and investor-owned utilities.

Perhaps not surprisingly, then, the surest path to an approved rate case or a smooth transition to price increases is having a customer base that is delighted with the service a utility provides. J.D. Power proved this phenomenon in a study we conducted a few years ago, which found that higher levels of customer satisfaction one year prior to a rate case are associated with higher levels of return on equity for a regulated utility.

Accordingly, many utilities are investing heavily in technology systems upgrades that will allow them to instantly text customer alerts, allow customers to manage their usage and billing, and interact with customer support digitally.

But, with current water utility customers recalling communications from their utilities at a rate of just 28 percent, more is going to need to be done quickly if utilities hope to benefit from the goodwill that can come from good communications.

These are not the kinds of initiatives that can be implemented overnight. Major infrastructure, technology, and safety initiatives like these can take decades to fully develop. But taking initial steps now to increase customer communications, clearly convey goals and direction, and reporting steady, incremental progress toward those goals is key to setting the stage for an engaged relationship with customers that will pay dividends in the future.

Andrew Heath is senior director of utilities intelligence at J.D. Power, responsible for the company’s water, natural gas and electric customer satisfaction studies in the United States and Canada, as well as the firm’s Utility Digital Experience Study.

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