A new report out from the American Customer Satisfaction Index finds growing unhappiness with electric utilities, but following a second harsh winter in a row and rising power prices, that may come as little surprise. Customers in many parts of the country were forced to ramp up their energy use when cold weather hit this year, and were not happy when it came time to pay the bill.

“Assuming every time you turn the switch the lights come on, it becomes a very price-sensitive commodity for households,” said ACSI Managing Director David VanAmburg.

The report, based on email surveys of more than 9,000 utility customers across the nation, was performed between October and February, capturing customer responses in the heart of a tough winter.

Customer satisfaction with gas and electric service providers is down 2.7% to an ACSI score of 74.3 out of a possible 100. Satisfaction with investor-owned utilities dropped 1.3% to 74. Smaller municipal utilities were harder hit, with satisfaction scores around 73.

That's not unexpected, considering the report finds residential electric rates rose 3.1% in 2014, making it the highest annual growth since 2008. And according to estimates from the Bureau of Labor Statistics last year was the most expensive year ever for electricity bills. Considering the Consumer Price Index, a key measure of inflation, rose just 0.8%, power costs are significantly outpacing price increases acorss the broader economy.

Utilities can control costs in the long term through resource planning, and have in shorter time frames can invest to increase efficiency and implement demand side managment programs to decrease load. But, in the short term, their price points are often dictated more by weather than anything they can control directly.

“A colder winter means usage is up in a lot of parts of the country. Fair or unfair, it's not the fault of the utility, but they're still going to bear some of the ire when people see that their utility prices are higher,”  VanAmburg said.

Reliability: The second big factor

Customer satisfaction is not totally driven by price, however. Reliability is the second large component, and one where utilities can start to wield significant control. 

“What we're seeing among those that have perennially lower satisfaction rates, really these are the utilities that are most in need of updating the grid, of upgrading their infrastructure,” VanAmburg said. “These are the utilities that wind up really getting hit when there are outages, and they are perceived as too slow to get the grid up and running.”

Northeast Utilities, rebranded as Eversource, wound up on the bottom of the ASCI list after it was hit hard by winter storms and saw its satisfaction score fall 7% to 66. Pepco has had issues with reliability, VanAmburg noted, and Pepco Holdings is in the process of merging with Exelon (which saw its own score drop 8%). As the two companies have negotiated with stakeholders in several states, the pair have been agreeing to spend millions to enchance grid reliability.

“Everybody has these weather events, and yes, granted, there are parts of the country which are going to get slammed worse than others, but there are also utilities that have had that negative reputation for some time now of not being able to restore power reliability quickly enough,” VanAmburg said. “They need to invest more in updating and upgrading their grids, invest in the workforce, that really seems to be the biggest thing."

“Ultimately, what separates the best from the worst, so to speak, really comes down power reliability.”

What else can utilities control?

If price drives satisfaction and reliability requires investment over many years, it would appear that utilities are in a tough spot to increase customer satisfaction in the short term. But VanAmburg said improved customer service, personalized communications and efficiency measures are still on the table – and customers often respond quite postively.

“Admittedly it's a little more around the margins, because ultimately reliability and the price of power are the biggest drivers of satisfaction,” he said. “There are limitations to what they can control, so what can utilities do? They can at least do a good job providing information, and some of the best utilities have made some headway at doing just that."

“They can't control the weather and they can't always control rates. But one thing they do have in their control is customer service, and particularly the flow of information," he said.

VanAmburg said the better utilities in recent years have been investing in customer service, improved web portals, mobile applications, efficiency offerings, high-bill alerts and outage updates.

That focus echoes a Utility Dive survey of industry executives released earlier this year, which found the customer relationship to be among the biggest growth opportunity ahead. And last year a J.D. Power study found improvements in customer satisfaction was largely being driven by better communication and corporate citizenship.

“Better utilities are investing more and paying more attention to, in recent years, the ways in which they can interact with consumers,” VanAmburg said.

Be it outage updates or efficiency tips, utilities need to “manage the expectations of customers and put better information into their hands when outages occur, information about energy efficiency, how to lower their bills,” VanAmburg said. "There is lots of good information that utilities can cook up now and put into the hands of consumers, to help them better understand how their energy use relates to cost.”

Energy efficiency, and profiting in a declining-use market

The push to reduce energy use through efficiency is both an opportunity and challenge for utilities.

“It's good stewardship,” VanAmburg said. "There's a big initiative now to have the utilities out there teaching how we can use less energy, how to be more efficient and cut down on usage. And customers are looking at that favorably."

But that cuts directly into an older utility business model. Utilities' are struggling to adapt to the new energy environment, but there are chances to expand offerings and bundle services to profit utilities. A Navigant white paper on the “Energy Cloud” noted utilities have “expressed legitimate concerns about declining revenue,” but said the changing market was also creating opportunities even as power providers encourage customers to use less.

“From a business model perspective, it is interesting because there's less money involved, in theory, for them. However if you're raising rates you can counteract that," VanAmburg  said. "If everyone uses 10% less energy but rates are up 10% across the board, then basically the utilities are making the same amount of money.”

Up to a point, customers will pay more for better service, VanAmburg said. And so the key becomes balancing rising rates against improved offerings. “Insofar as one is able to, and within reason, the idea is tried and true: Quality always wins out," he said. "It's worth a certain amount of dollars for that better experience. It's very hard to stay in business based on price.”

Plenty of businesses do thrive on being the lowest-cost provider — VanAmburg pointed to WalMart, McDonalds and Spirit Air — but those businesses are vulnerable to an improving economy or similarly-priced competition.

“When you really bank on price and almost only price, if other competitors out there can even come close to matching on the price side but also do a better job of providing service you're going to start losing market share pretty quickly,” VanAmburg said.