Building an Effective Outsourcing Relationship Stephen Prince Vice

Building an Effective Outsourcing Relationship Stephen Prince Vice President Strategy, Innovation & Product Development Alliance Data Systems, Inc.

Discussion Topics Building an Effective Outsource Relationship: 1 – Kinder Morgan 2 – Optimizing the Customer Relationship 3 - Regulators, Rate Cases & The Customer

Alliance Data Systems Leading provider of transaction, billing, and business process services to Fortune 500 utilities, petroleum, retail, and financial service providers. Calgary, Alberta Montreal, Quebec Seattle, WA Toronto, Ontario Bend, OR Scottsbluff, NEBuffalo Grove, IL Philadelphia, PA Columbus, OH Westminster, Cincinnati, OH CO Voorhees, Gahanna, OH Lenexa, KS Denver, CO NJ Johnson City, TN Tulsa, OK Kennesaw, GA 7000 employees in more than 27 locations. Serving over 300 clients and 50 utilities through: • 5 Data centers • 15 US call centers • 3 Billing statement facilities Dallas, TX San Antonio, TX Atlanta, GA

Building An Effective Outsourcing Relationship: 1 Kinder Morgan

Kinder Morgan: Kinder Morgan outsources customer care including: q One of the largest q CIS management midstream energy q Billing companies in America q Bill distribution q Provides retail natural gas q Call center services to 240, 000 q Remittance processing customers in Colorado, q Collections Nebraska, & Wyoming q Market cap of $20 billion

Customer Lifecycle In outsourcing billing and customer Care, Kinder Morgan has a partner that understands its customer relationships, resulting in: q q q Streamlining and automating of business processes, making customer service easier & more cost effective. Analytical tools that leverage business intelligence for competitive advantage. Lifecycle management expertise that often results in more satisfied customers.

Kinder Morgan: Process Notification Through re-engineering process notification activities in the collections process, Kinder Morgan captured: q q q 60% reduction of open service orders (after interval date) 90% reduction in order errors 75% reduction in service disconnect costs 50% improvement in debt recovery Annual savings of $700, 000 (on a cost of $42 K per year)

Kinder Morgan: Bill Tech Productivity Through automating bill set up and rate validation processes, Kinder Morgan’s billing productivity increased 15% while it reduced labor costs by one FTE.

Kinder Morgan: Automated Enrollment An automated gas choice enrollment program allows Kinder Morgan to offer gas supply via the web or through an automated phone system. KM’s web-based customer care allows customers to service their account online which: q Significantly lowers KM’s bill print and mailing costs. q Speeds business processing by lowering the amount of calls into Kinder Morgan’s call center q Helps eliminate errors and improve customer satisfaction Online Customer Care

Building An Effective Outsourcing Relationship: 2 Optimizing the Customer Relationship

Optimizing the Customer Relationship 1. Customer Lifecycle: Definition: Each function in the revenue cycle from meter read to collections. Customer Lifecycle Management: Streamlining and automating of business processes through best practices, methodologies, and project management. Each lifecycle component is interdependent and many are human capital intensive.

Optimizing the Customer Relationship 2. Enterprise Performance Management: • QA Models: Using multiple quality models allows the provider to manage billing & customer care to a comprehensive set of performance metrics. • Demand & Variance Management: Managing work volume and variation ensures consistent and ever-improving performance. • Continuous Improvement: Continuous re-evaluation ensures enhancements in the effectiveness and efficiency of business processes.

Optimizing the Customer Relationship 3. Customer Equity Tools: 1. 2. 2. 3. Customer Analytics – Know: - Who are my “best” customers? - What do they value? - What is my ROI? Frequency Marketing – Communicate with or change customer behavior through personalized statements Loyalty Programs – Reward customer behavior with compelling incentives

Optimizing the Customer Relationship 4. Return on Equity: Managing the customer lifecycle, continuously improving business processes, and incenting loyalty may result in: • Higher Customer Satisfaction • Regulator & Wall St. Influence • Shareholder Equity

Building An Effective Outsourcing Relationship: 3 Regulators, Rate Cases, & Customers

The Outsourcing Myth: Rate Cases “Utilities can’t outsource billing and customer care because of…” Sunk CIS Costs Performance Based Rates Outsourcing Constraints High Fuel Costs Reliability Needs Capital Constraints

What Really Matters: The Customer q When outsourcing billing and customer care, all solutions are not created equal. q q You’re not solving for lower cost; you’re solving for revenue, earnings, analyst perception, and shareholder value. This changes the way you serve customers. q Yet for many utilities, customers aren’t in this equation (really). Utilities have little control over the commodity. The control is in the customer relationship. Flip it! Put your customers first!

Customers as a Strategic Asset q Satisfied customers are an asset that utilities don’t effectively leverage for increased revenue or margins – beyond the commodity service. q q q Yet, utilities are often a customer’s most trusted provider. Being highly rated in customer satisfaction, against all other utilities, plays well with regulators. Regulators may allow rate cases for infrastructure needs if utilities demonstrate higher customer satisfaction scores.

Effective Outsourcing Relationships as a Strategic Tool 1. Learn what your customers perceive to be “fair or reasonable” service levels – and will pay more for – then provide them. 2. Partner with a outsource provider that understands the utility / customer relationships and has the tools and experience to increase customer satisfaction. 3. Proactively use your customer performance to influence: q q q Rate cases Wall Street analysts Shareholders Public opinion Your customers Source: Energy Markets: EEI Strategic Issues 2004

Take Aways: Four Simple Ideas about Customer Satisfaction 1. 2. 3. 4. Customer satisfaction is driven by delivered value. Business processes create delivered value. Sustaining success requires the utility to continuously improve the value it delivers. To achieve this, many utilities are enlisting the help of competent billing and customer care providers to: • • Define business process needs Measure the processes Analyzing the results Implement the improvements