An S &C report in collaboration with Frost & Sullivan

 
An S &C report in collaboration with Frost & Sullivan
S&C’s 2018
State of Commercial & Industrial
Power Reliability Report

                        An S &C report in collaboration
                             with Frost & Sullivan
An S &C report in collaboration with Frost & Sullivan
TABLE OF CONTENTS
Introduction............................................................................................................................................. 3

I. Outage Audits: The Truth about C&I Power Reliability............................................................. 4

II. Drivers of Satisfaction and Dissatisfaction.................................................................................... 9

III. C&I Customers are Looking for Better Reliability.................................................................... 15

Research Background and Methodology........................................................................................... 23
An S &C report in collaboration with Frost & Sullivan
State of U.S. Commercial and Industrial Power Reliability

  INTRODUCTION
  In S&C Electric Company’s first “State of Commercial & Industrial Power Reliability” report, conducted
  in collaboration with Frost & Sullivan, facilities and energy managers of commercial and industrial (C&I)
  businesses across the United States were surveyed regarding their perspectives on power reliability
  and future energy needs.
  Averaging $4 billion in revenue, these companies comprise the majority of the metered revenue for the
  utilities serving them. Respondents’ opinions authentically portray the industry’s current conditions,
  and their long-term needs heavily influence the future grid.
  These respondents are the key decision-makers who select electricity commodity suppliers across
  the Manufacturing, Data Center, Healthcare, Small Franchise, and Education sectors. They were
  screened and selected according to their relevance and authority to make power-related decisions
  and, consequently, 76% come from facilities management, corporate management, or operations. Their
  companies represent a balance in size, with their monthly energy consumption ranging from 10 MWh
  to more than 50 MWh. In total, the 251 survey respondents were pulled equally from the four census
  regions of the United States, and along with their targeted job function, they make up a statistically
  significant sample size that depicts the true state of C&I reliability.

THE RESEARCH SET OUT TO ASSESS THE FOLLOWING:
    • What has been their experience with power outages, and do outages matter?

    • What are the costs and business impacts of outages?

    • To what degree do C&I companies accept the existing state of power reliability?

    • How receptive are C&I companies to raising the bar for reliability?

    • Are C&I companies acting on their own to improve their reliability?

This report discusses findings in detail, particularly the differences observed within five distinct
industry categories and by geographic region. Regional breakdowns include:

    • Northeast: Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, New York,
      Pennsylvania, and New Jersey

    • Midwest: Wisconsin, Michigan, Illinois, Indiana, Ohio, North Dakota, South Dakota, Minnesota, Iowa,
      Kansas, and Missouri

    • South: Alabama, Kentucky, Mississippi, Tennessee, Arkansas, Louisiana, Oklahoma, Texas, West
      Virginia, Virginia, District of Columbia, Maryland, Delaware, North Carolina, South Carolina, and
      Florida

    • Pacific: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico, Washington,
      Oregon, California, Hawaii, and Alaska

                                                                                                              3
An S &C report in collaboration with Frost & Sullivan
State of U.S. Commercial and Industrial Power Reliability

    I. OUTAGE AUDITS: THE TRUTH ABOUT C&I
       POWER RELIABILITY
                           Chart 1: U.S. C&I Average Duration Outage, 2017

                                                                                   Total Sample
                                                                                   Total  Sample

                                            41%

                    26%
                                                                       21%
                                                                                                      12%

             One hour and more        5 to 59 minutes           Less than 5 minutes           Never/Don't know
                                                                                                                         n = 251
                                                                             A9n. On average, how long do your power outages last?

    To create a backdrop for the findings in this report, the survey asked respondents about the average
    duration of their outages. More than a quarter of respondents experienced outages that lasted an hour
    or more. See Chart 1.

                              Chart 2: U.S. C&I Outage Frequency, 2017

                                                                                   Total Sample

                                                         49%

                                   21%                                                                  18%
                                                                                9%
                 3%
             Once a week      Once a month            Once a year          Once every 2         Never/Don't know
              or more           or more                or more             years or more
                                                                                                                           n = 251
                                                                                             A6a. How frequently do you lose power?

    In analyzing how frequently C&I customers lose power, nearly half of C&I customers experienced a
    power outage at least once a year, and 21% had an outage at least once a month. See Chart 2.

4
An S &C report in collaboration with Frost & Sullivan
State of U.S. Commercial and Industrial Power Reliability

                    Chart 3: U.S. C&I Outage Frequency, by Region, 2017
                                       Northeast
                                       Northeast      Midwest
                                                      Midwest          South
                                                                       South      Pacific
                                                                                  Pacific

                                                           42%

                                                           54%

                                 24%                       46%                                                     25%

                                 20%                                                                               13%
   2%                                                                                                              19%
                                 18%                                                   7%
   5%                                                      48%                         8%
   2%                                                                                                              24%
                                 22%                                                  15%
   2%                                                                                  4%
    Once
    Once a week          Once
                         Once a month
                                month                Once
                                                     Once aa year
                                                             year              Once every
                                                                                    every22years
                                                                                             or                 Never/
     or
      or more
         more              or
                           or more                    or
                                                       ormore
                                                         more                    more  years
                                                                                   or more                     Don’t
                                                                                                               Don't know
                                                                                                                     know
                                                                                                                           n = 251
                                                                                            A6a . How frequently do you lose power?

For outages once a month or more, this frequency was fairly even regionally across the entire United
States, with each region hovering around 20%. See Chart 3. This even split holds true for once-a-year
outages or more, but with the South coming in slightly higher and crossing into the majority at 54%.
While weekly outages are much less common, this view shows that 5% of C&I customers in the South
reported outages on a weekly basis.
                    Chart
                   Chart 4: 1:U.S.
                               U.S.C&I
                                    C&IOutage
                                       Outage Frequency,
                                              Frequency, by
                                                          byIndustry,
                                                             Industry,2017
                                                                        2017
               Manufacturing        Data Centers         Health Care       Small Franchise           Education

                                                          37%

                                                          62%

                                                          45%
                                                                                                         30%
                                    11%
         7%                         12%                   48%                                            22%
                                    18%                                   15%
         4%                                                                0%                            22%
         3%                         19%                                   12%
         5%                                               49%              5%                            23%
                                    26%                                    9%                            14%
         2%
           Once a week         Once a month           Once a year        Once every 2 or             Never/
            or more              or more               or more             more years               Don't know
                                                                                                                          n = 251
                                                                                            A6a. How frequently do you lose power?

                                                                                                                                      5
An S &C report in collaboration with Frost & Sullivan
State of U.S. Commercial and Industrial Power Reliability

    By industry, Education experiences the most in terms of outage frequency, with 7% of that sector
    encountering an outage once a week. See Chart 4 on page 5. More than a quarter of the Manufacturing
    industry deals with an outage at least once a month, and Data Centers and the Healthcare industries
    are not far behind at 19% and 18% respectively.
    The majority of Small Franchises are affected by outages once a year, and almost half of the
    Manufacturing, Data Center, and Healthcare industries are as well.
    With this baseline, the survey explored extreme cases, and the results follow.

               Chart 5: U.S. C&I Worst Power Outage in the Past 12 Months, 2017

                                                                                TotalSample
                                                                                Total Sample

                      50%

                                               23%
                                                                                                        16%
                                                                            11%

                1 1hour
                    hour or
                         or more
                            more          55to
                                             to 59 min
                                                59 min              Less
                                                                     Lessthan
                                                                          than 55 min
                                                                                  min            Never/Don’t
                                                                                                  Never/Don't know
                                                                                                              know
                                                                                                                                 n = 251
                                         A7. What was the duration of the worst power outage that you experienced in the past 12 months?

    In 2017, 50% of C&I customers surveyed reported experiencing a power outage that lasted more
    than 1 hour. See Chart 5. In the previous 12 months, 84% of respondents recalled some form of
    power interruption.

         Chart 6: U.S. C&I Worst Power Outage in the Past 12 Months by Region, 2017
                                          Northeast         Midwest        South       Pacific

                     40%

                     62%

                                               29%
                     46%
                                                                                                             25%
                                               21%
                                                                      6%                                     11%
                                               20%                    6%
                     44%                                                      14%                            20%
                                               24%
                                                                              16%                            16%
               11 hour or more
                  hour or more           5 5toto
                                               5959 min
                                                  minutes            Lessthan
                                                                    Less   than 5 min
                                                                              5 minutes            Never/Don’t know
                                                                                                   Never/Don't know
                                                                                                                                  n = 25
                                         A7. What was the duration of the worst power outage that you experienced in the past 12 months?

6
An S &C report in collaboration with Frost & Sullivan
State of U.S. Commercial and Industrial Power Reliability

Regional details of the responses show the South endures the longest power outages, with 62% of
respondents affected by an outage lasting more than an hour. See Chart 6 on page 6. Close to a
majority of C&I customers in the Midwest also dealt with these long power interruptions. The rest of
country registered their outage duration as slightly lower, but still in excess of 40% of customers.

Aging infrastructure and weather-related issues can partially be blamed for these interruptions, as seen
later in the report.

    Chart 7: U.S. C&I Worst Power Outage in the Past 12 Months by Industry, 2017
               Manufacturing       Data Centers           Health Care           Small Franchise          Education

                34%

                50%

                36%

                                           15%
                52%
                                           31%

                                                                                                        44%
                                           24%
                58%                                                        7%                           7%
                                           25%                            12%                           19%

                                                                         21%                            18%
                                           23%                           5%
                                                                          8%                            11%

         1 1hour
             houror
                  ormore
                    more            5 5toto5959
                                              minutes
                                                min             Less
                                                                 Lessthan
                                                                       than5 minutes
                                                                             5 min             Never/Don't know
                                                                                               Never/Don’t know
                                                                                                                             n = 251
                                     A7. What was the duration of the worst power outage that you experienced in the past 12 months?

From an industry-segment perspective, long-duration outages were seen most often within the
Manufacturing industry in 2017, with 58% reporting an outage of an hour or greater. See Chart 7.
Close behind were Data Centers and Small Franchises, the majority of which also experienced outages
lasting an hour or more.

                                                                                                                                       7
State of U.S. Commercial and Industrial Power Reliability

    At the other end of the spectrum, 44% of C&I customers in Education either were not aware of or
    reported zero outages.
    These interruptions are part of a foundation for strong interest in improving weather resilience and
    minimizing power interruptions detailed by respondents later in the report.

                Chart 8: U.S. C&I Financial Impact of the Worst Power Outage, 2017

                                                                  INDUSTRY                                                                 REGION

                           Total Sample   Manufacturing   Data Centers    Healthcare   Small Franchise     Education    Northeast    Midwest        South     Pacific

               $100K+     18%             21%               29%                12%         12%           -0%             28%        14%        17%          13%

         $51K to $100K    19%              21%             24%                 12%         12%           22%           12%           23%       19%          20%

         Less than $50K     28%              29%           24%           18%              46% *          22%             24%          29%           32%      24%

                 None     26%             18%              23%             39% *        30%                41% *         26%         21%       24%            36%

            Don’t know       9%               11%         -0%            19%           -0%                     15%     10%          13%        8%            7%

                                                                                                                                                            n = 251
                                                                                     A8. What was the financial impact to your business because of this single event?
                                                                                                                       * Significantly larger at 95% confidence level

    Power outages affect businesses in many ways, and most involve unplanned expenses or other costs.
    Some additional costs remain hidden or otherwise unrepresented in the responses in Chart 8, but
    the figures serve as a baseline for additional analysis. In examining the resulting costs of outages on
    businesses, 18% of C&I customers suffered a financial impact of $100,000 or more. For another 19%,
    outages inflicted costs of $50,000 or more.
    Of the industries and regions with the costliest outages, 29% of Data Centers and 28% of the
    respondents from the Northeast lost more than $100,000. On the other hand, 41% of Education and
    49% of Healthcare, as well as 36% of those from the Pacific region, did not encounter any financial loss
    as a result of an outage.
    While this survey did not directly correlate costs to cause, typically financial loss falls in line with the
    industries’ or regions’ duration and frequency of outages. For the industries and regions with little or
    no financial impact, these categories have a tendency to prepare their facilities and systems in the event
    of an outage, as is explored later in this report.

8
State of U.S. Commercial and Industrial Power Reliability

Section Comments on the Outage Audit
The outage audit of C&I customers’ frequency and duration of outages sets a baseline for utility
producers’ ability to deliver their product: energy. Many of the industries represented in this
survey hold a better position, electrically, within the natural hierarchy on a typical utility grid.
Their physical location on the grid tends to result in a better service level than an average
residential tract. In that light, half of companies experienced a power outage lasting more than one
hour, and a quarter of them experienced a power outage at least once a month. The impact of this
plays out in subsequent responses.
Disruptions to any process, industrial or in commercial transactions, will cause loss. Indeed, losses ran
the entire spectrum, but 18% of the respondents experienced financial loss greater than $100,000.

II. DRIVERS OF SATISFACTION AND
    DISSATISFACTION
Although this survey sought statistically to determine the drivers of customer satisfaction and
dissatisfaction, the impacts of reliability and costs naturally materialized.

           Chart 9: U.S. C&I Customer Satisfaction with Power Reliability, 2017
                    Total Sample                       48%                                              52%
                    Manufacturing                      47%                                             53%
                            Data
                          Centers                      48%                                              52%
                       Healthcare
                                                 36%                                             64%
        INDUSTRY
                   Small Franchise
                                                             58%                                             42%
                        Education
                                                           56%                                               44%
                       Northeast                   40%                                             60%
                         Midwest                       48%                                              52%
         REGION
                           South                         54%                                             46%
                           Pacific                   44%                                               56%

                                                             Very Satisfied      Not Fully Satisfied
                                                                                                                                       n = 251
                                         A4_1. How would you rate your power provider in terms of the following? - Overall Reliability of Power

Asked about their level of satisfaction with their power providers’ reliability, 52% of C&I customers
stated they are not fully satisfied. See Chart 9. These findings suggest an unmet need or greater
expectation of their current service provider.

                                                                                                                                                  9
State of U.S. Commercial and Industrial Power Reliability

 The analysis also shows variation in responses by region and industry, which is not entirely reflective
 of their actual experience with power outages. For instance, customers in the Healthcare sector
 surprisingly jumps up the list in terms of being less fully satisfied with their power reliability, even
 though other industries, especially Manufacturing and Data Centers, report longer and more frequent
 outages. Similarly, customers from Small Franchises and those from the South appear more content
 with their power reliability, even though they typically have longer and more frequent outages, as seen
 in the previous charts.

       Chart 10: U.S. C&I Power Provider Attributes that Drive Overall Satisfaction, 2017
                                           Ability to support the                   Outage duration also          Cost matters but is less
                                         business is most important                      matters                        important

                                     1                                2                       3                                4

                                 Capability to           Responsiveness to the       Reliability-Ability to
                             generate power to           needs of commercial,           minimize the                   Cost of Power
                            support our business          industrial, and other      duration of outages
                             in the next 5 years         corporate customers          when they occur

                        The model explains 35% of                 Overall Satisfaction with the               -   Relative impact on
                        variance in over satisfaction          Experience with the Power Provider                 overall satisfaction

                                                                                                                                                   n = 251
     The model is the result of a step-wise linear regression to check the impact of various power provider attributes in A4 on the A1 Overall satisfaction
       with company’s experience with power provider in the past 12 months. Scores above are the relative impact on overall satisfaction based on the
                                                                            standardized beta coefficients of the predictors derived from linear regression.

 Conversations with these customers sought to determine the key drivers for satisfaction with their
 power provider. The two prevailing attributes were (1) the power providers’ ability to support their
 business in both the long and short term through their capability to generate adequate power over
 the next five years and (2) their responsiveness to commercial and industrial needs. See Chart 10.
 Subsequent were power reliability itself and cost of power.

10
State of U.S. Commercial and Industrial Power Reliability

While steady and cost-effective power are logical drivers for C&I customers’ satisfaction with their
power provider, this reveals that customers value even more highly their power providers’ attention
to C&I priorities and their ability to evolve alongside their industries.

          Chart 11: U.S. C&I Response excerpts about Overall Satisfaction, 2017

    Areas of
                                               Responses from Customers
  Improvement
                           “Enhance smart automation of power and renewable energy”
                           “Better reliability in bad weather, quicker response to outages”
 1. Infrastructural        “The biggest issue in my area is power outages, I would hope they would make
    Improvement             their services more reliable.”
    and Reliable           “More fleets to better manage weather-related issues”
    Service                “More reliable generator during hurricane season”
                           “More money into infrastructure and storm preparedness and better tech to
                            manage usage and savings”

                           “Pricing could be better. It’s reasonable, but it could always be better. Their
                            profits are probably more than they need to be.”

 2. Billing and Cost       “Less pricing tiers and less differential between peak and off peak tiers”
                           “Lower cost”
                           “Lower the cost and make it easier to pay”

                           “Sustainable solutions, enhancing power and energy”
 3. Sustainable            “Better efficiency and utilization of renewable resources to be the greatest
    and Renewable           extent with sustainable and environmental friendly technologies”
    Options                “I would expect our power provider to focus on using solar power and
                            providing it to customers.”

                           “More centric notification during power interruptions”
 4. Customer
                           “Faster fix time; notification of possible downtime; lower prices for heavy
    Service
                            users”

Even among those respondents who expressed they were very satisfied, C&I customers recognize key
areas of improvement needed from their power providers. Asked to relay their observations, common
themes included infrastructure improvements, faster and more transparent customer service, better
pricing, and broader sustainability options. See Chart 11.

                                                                                                             11
State of U.S. Commercial and Industrial Power Reliability

 As C&I customers plan for future growth, they are seeking long-term partnerships with their power
 provider to ensure continuity in operations. C&I customers’ needs require their power provider to
 grow with them and adapt to change, necessitating a collaborative and proactive approach to demand
 that leverages technologies needed to keep pace with rapidly changing industries.
 Hence, C&I customers value providers with clear, long-term strategies to modernize their
 infrastructure and are looking for reassurance and visibility into infrastructure upgrades and
 power capacity enhancement. As a result, power providers’ investments into grid hardening and
 modernization will help solidify customer retention and improve satisfaction.

          Chart 12: U.S. C&I Satisfaction Level with Power Service Provider, 2017
                                                                                  Good company/no problems/satisfied
                                                                                  Company is reliable/dependable
                                                                                  Good service/customer service
                                                                                  Good services (unspecified)
                                                                                  Easy to work with/deal with
                                                                                  Good communication
                                                                                  Long relationship with the company

                     Satisfaction with power provider                                                   39%   No/few power
                                                                                                              outages/disruptions/downtime
                                                                                                              Outages corrected quickly
                      Satisfaction with power delivery                                            35%         Service/power is
                                                                                                              reliable/dependable
                                                                                                              Efficient power supply
                      Satisfaction with financial impact                    16%
                                                                            Good/low/reasonable rates/cost
                 Miscellaneous sources of satisfaction     2%               Good/reasonable value/cost-effective
                                                                            Consistent rates/few increases
                                               Neutral           8%

                   Dissatisfaction with financial impact                12%    Expensive
                                                                               Rates keep increasing
                   Dissatisfaction with power delivery               9%       Has power outages/disruptions/downtime
                                                                              Service/power is not reliable/dependable
                  Dissatisfaction with power provider           6%            Outages took too long to correct

                                                                     Poor service/customer service
               Miscellaneous sources of dissatisfaction    1%        Poor communication

                                                                                                                                                n = 251
                                                                                                          A2 . Why are you [A1] with your power provider?

 Drilling down into these overall drivers of satisfaction, C&I customers were also asked to recall why
 they were satisfied or dissatisfied with the overall aspects of their power providers’ service.
 For the 39% of C&I customers satisfied with business operations, these factors included power
 providers’ customer service, communication, reputation, and smooth working relationship. See
 Chart 12. For the 35% of C&I customers satisfied with power delivery, specifics included an
 acceptable frequency and duration of outages, as well as the ability to restore power quickly. This
 shows that C&I customers consider both their providers’ system and people skills, assessing both
 their providers’ capabilities to deliver power as well as the day-to-day management and the long-
 term strength of their business partnership.
 The most common reason for dissatisfaction with overall service from their provider was the financial
 impact to their business, with 12% of C&I customers citing expensive and continually rising rates as the
 source of their sentiment.

12
State of U.S. Commercial and Industrial Power Reliability

       Chart 13: U.S. C&I Reason of Dissatisfaction with the Reliability of Power, 2017

                                    Outages/too many outages/unpredictable                                                        45%

                                    Outages cause problems for our business                                     23%

                                                Weather/storms cause outages                                18%
                                                  /power lines are not buried

                                                          Power is poor/unreliable                      14%

                                          Not told how long outages will last                         9%
                                               /when power will be restored

                                                                                      Other             14%

                                                                                      None        5%

                                                                                                                                                                                   n = 22
                                                                                                                             A5 . Why are you dissatisfied with the reliability of power?

Shifting focus to reliability, 45% of customers were dissatisfied with outages that occurred too
frequently and with unpredictable power delivery. See Chart 13. Following in line with this
sentiment, at 23% the next main cause for dissatisfaction was because power outages caused
problems for their businesses.

                             Chart 14: U.S. C&I Impacts because of Power Outages, 2017

                                                                         INDUSTRY                                                                   REGION

                                Total Sample    Manufacturing    Data Centers   Healthcare    Small Franchise    Education       Northeast    Midwest     South        Pacific

         Productivity Loss      76%              86%             57%             64%            62%              70%              70%          82%         74%         80%

       Delays in Service/
                               69%              71%               81%            67%             73%            52%               68%         72%         67%         71%
    Production/Deliveries

    Cost of Switching to/     46%              44%              48%             42%            54%               67%            46%           58%        40%         42%
 Operating Backup Power

    Equipment / Materials
                              40%              42%              38%             48%             12%             44%             42%          37%         42%         38%
     Damage or Spoilage

              Lost Sales/
                              32%              33%              43%              15%            62%             11%            32%                 22%   37%         36%
        Cancelled Orders

      Loss of Customers/
                              30%                18%                  33%        58%                 35%                48%           32%          28%         32%         29%
 Customer Dissatisfaction

                     Other    6%                7%              0%              6%            4%                7%               10%         2%           9%         4%

                                                                                                                                               n = 251
              A12 . The following are possible types of impact that your company may have experienced due to power outages in the past 12 months.
                                                          Please select the 3 most significant types of impact that your company experienced. - Ranked

                                                                                                                                                                                            13
State of U.S. Commercial and Industrial Power Reliability

 Honing in on the problems outages cause for C&I customers, productivity loss has the greatest impact
 on 76% of C&I businesses. See Chart 14 on page 13. The next greatest is the delay caused within
 service, deliveries, and production, which affects 69% of C&I businesses. These two impacts are the top
 two problems faced by C&I customers in any industry and region.

 Other notable reasons for dissatisfaction vary by industry. For the Healthcare industry, 58% of these
 customers share that outages resulted in losing customers and affecting their patients’ satisfaction. For
 Small Franchises, the aftermath of outages for 62% of these customers meant lost sales and cancelled
 orders. For Education, 67% faced significant costs from switching to or operating a back-up power
 system. This issue ranks third for the overall C&I market.

      Chart 15: U.S. C&I Customer Anecdotes regarding Dissatisfaction with Reliability of
                                      Power, 2017

                                             WHY ARE YOU DISSATISFIED WITH THE
                                                  RELIABILITY OF POWER?

                                                     COST (apparently has a negative halo              Poor quality of support
              Frequent outages                         effect on satisfaction with reliability)          and infrastructure

     “Because we have many outages”                                                                    “Quality of power is poor,
          Healthcare, Northeast – Middle Atlantic                 “Very expensive”                    and support of resources is
                                                      Manufacturing, South – South Atlantic
                                                                                                                      very poor”
       “Too many outages caused by                                                                   IT Company, Northeast – Middle Atlantic
                     ‘small’ storms”
          Healthcare, Northeast – Middle Atlantic                                                 “No underground wiring. Every
                                                                                                    time a windstorm is present, the
      “We have more power outages                                                                                    power is not”
        in my area than I’ve had in any                                                                       Small Franchise, Pacific - Pacific
                other area in my life.”
                -Manufacturing, Pacific - Mountain                                                          “They don’t have new
                                                                                                                    technology”
                        “There are far too                                                              Manufacturing, South – South Atlantic
                          many outages”
      -Manufacturing, Midwest, East North Central

 Customers were asked to recount interactions with their power provider and what caused their
 dissatisfaction. These anecdotes trended into three themes: outages, cost, and infrastructure. See
 Chart 15. These quotations bring to light how C&I customers are attentive not only to outages and
 their cost, but to how power providers approach strengthening and modernizing the grid.

14
State of U.S. Commercial and Industrial Power Reliability

Section Comments on Satisfaction Drivers
At a high statistical confidence level, this survey identified the main drivers for C&I customer
satisfaction with their power provider. Of the respondents surveyed, 52% expressed dissatisfaction
with existing power-reliability levels. However, the extent of their dissatisfaction varied, indicating a
gap in the overall perception of reliability.
Improving overall satisfaction is driven by a perceived ability of power providers to support the future
business needs of the company. This includes an ability to control costs, minimize outages, and upgrade
infrastructure—a proactive approach to meeting changing energy demand, weather conditions, and
system age.

III. C&I CUSTOMERS ARE LOOKING FOR
     BETTER RELIABILITY
One additional step this survey took was to determine what, if any, next steps C&I customers are
taking given the current state of power reliability.

        Chart 16: U.S. C&I Customer’s Review about Power Providers, by Region, 2017

                                                                                                                            REGION

                                                                    Total
                                                                   Sample                          Northeast           Midwest           South         Pacific

Power providers should be held responsible for providing
power at all times                                                  88%                86%                      92%                      86%                      87%

Power providers should be held responsible and
accountable for ensuring an acceptable minimum                     86%                 82%                     86%                     86%                       89%
standard of power reliability
The State or relevant regulatory agencies should hold
power providers responsible and accountable for                    81%                 84%                     83%                 78%                    80%
providing power at all times
If power providers are truly held responsible and
accountable for standards of reliability, companies should         78%                 78%                 85%                     77%                 69%
never have to pay a premium to improve power reliability

Power reliability is currently an important cause for
concern in our company                                          70%                    80%               65%                 70%                 64%

We are actively seeking options to improve power                                  60%              58%                64%            56%
reliability outside what our power provider can offer.         60%

Power reliability has improved these past 2 years,
                                                               56%               52%           57%               59%             53%
compared to previous years

We would likely be willing to pay a premium to improve                           46%         40%         43%          47%
power reliability in our company                             43%

                                                                                                                                                       n = 251
                                              A21. Please indicate to what extent you agree or disagree that the following statements represent your company’s
                                                                         view about power providers, based on your company’s experience. - Top two box scores

                                                                                                                            * Significantly larger at 95% confidence level

                                                                                                                                                                             15
State of U.S. Commercial and Industrial Power Reliability

 The vast majority of customers across all industries and regions feel power providers should be held
 responsible for providing power without interruption, totaling 88% of C&I customers. See Chart 16
 on page 15. This sentiment is strong across all regions, but particularly in the Midwest, where 92% of
 customers felt power providers should be held responsible for providing power at all times. Most also
 feel strongly about regulatory agencies holding power providers accountable, and if power providers
 are truly held responsible for reliable power availability, C&I customers should never have to pay a
 premium for power reliability.
 Despite a significant sector of C&I customers who claimed to be satisfied with power reliability in
 earlier findings in this report, 70% of these same respondents see power reliability as a cause for
 concern within their companies. Respondents from the Northeast feel most apprehensive about
 the state of power reliability, with 80% believing their reliability is a concern.
 With 60% of C&I customers seeking options to improve power reliability outside of what their power
 provider can offer, this unveils that their concerns with reliability are far more than alleged; the
 majority of these customers have determined they need to take their own actions to achieve the level
 of power reliability they need.

         Chart 17: U.S. C&I Customer’s Review about Power Providers, by Industry, 2017
                                                                                                                                 INDUSTRY

                                                                         Total                                           Data                                     Small
                                                                        Sample               Manufacturing              Center        Health Care               Franchise       Education

     Power providers should be held responsible for                     88%                 90%                86%                    82%                       88%             81%
     providing power at all times
     Power providers should be held responsible and
     accountable for ensuring an acceptable minimum                     86%                 89%                86%                   76%                81%                   81%
     standard of power reliability
     The State or relevant regulatory agencies should hold
     power providers responsible and accountable for                    81%              85%                  76%                73%                  77%               78%
     providing power at all times
     If power providers are truly held responsible and
     accountable for standards of reliability, companies should         78%              81%               67%                70%                 96%       *           67%
     never have to pay a premium to improve power reliability

     Power reliability is currently an important cause for
     concern in our company
                                                                     70%                72%              81%        *         67%               65%               67%

     We are actively seeking options to improve power
     reliability outside what our power provider can offer
                                                                    60%                59%              81%   *           61%             54%          56%

     Power reliability has improved these past 2 years,
     compared to previous years                                     56%                59%           67%                52%         62%          41%

     We would likely be willing to pay a premium to
     improve power reliability in our company                     43%                 46%         67%          36%        38%       33%

                                                                                                                                                           n = 251
                                                  A21. Please indicate to what extent you agree or disagree that the following statements represent your company’s
                                                                             view about power providers, based on your company’s experience. - Top two box scores

                                                                                                                                     * Significantly larger at 95% confidence level

 While C&I customer reviews about their power provider were relatively even from region to region,
 more variance in reviews are apparent across industries. See Chart 17. At 96%, Small Franchises feel
 very strongly about not having to pay a premium to improve power reliability. At 81%, Data Centers

16
State of U.S. Commercial and Industrial Power Reliability

cite that power reliability is a major concern, with the same percentage seeking options to improve
power reliability outside of what their power provider can offer—indicating Data Centers are looking
for a higher standard for power reliability compared to what they currently experience, and they
believe procuring their own solutions will best guarantee the level they need.

       Chart 18: U.S. C&I Annual Expense for Guaranteeing Power Reliability, 2017
                                                           INDUSTRY                                                                                 REGION

                           Total Sample    Manufacturing   Data Centers   Healthcare   Small Franchise       Education   Northeast        Midwest      South   Pacific

     Less than $1,000
                                     43%            42%        10%               55%            42%                67%         48%              48%     38%       42%

     $1,000 to $9,999
                                 16%            20%            19%          6%              19%              4%          10%                14%        21%         18%

     $10,000 to $49,999         17%                                                         27%              7%          10%                           18%
                                                21%            19%          6%                                                            22%                      18%

     $50,000 to $99,999         6%             5%             14%           3%             8%            0               8%          3%                7%       4%

     $100,000 and higher                                                                                       22%
                                18%            12%              38%           30%        4%                               24%              14%        16%      18%

                                                                                                                                                         n = 251
                                                                                          B12. What is your annual expense spent for guaranteeing power reliability?

Although most C&I customers indicate they would not like to pay a premium to their power
provider to ensure better reliability, the majority of respondents still have annual expenses
allocated for guaranteeing their own power uptime and availability themselves. See Chart 18.
Almost a quarter of respondents spend $50,000 or more per year, and a third spend between
$1,000 and $49,000. Data Centers pay the most of any industry, with 52% spending $50,000 or
more for improved power reliability.

                                                                                                                                                                         17
State of U.S. Commercial and Industrial Power Reliability

 While customers do not want to pay premiums, the fact that they are reserving funds to do so shows
 power reliability is a true concern and priority for their businesses. As mentioned in Chart 8 on page 8
 earlier in this report, these measures indicate a preparedness within facilities and systems in the event
 of an outage.

     Chart 19: Choosing Alternative Electricity Energy Providers, by U.S. Region, 2017
                                                                                                                REGION

                                                                Total Sample       Northeast       Midwest         South           Pacific

      I am satisfied with my current reliability and the
      reliability of my utility and do not see needs for                36%              32%              43%           30%              42%
      alternative sources of energy.
      I currently own alternative energy sources such as
                                                                         35%             32%            37%             33%              38%
      on site generation or battery storage systems.

      I would prefer to have my local utility offer premium             34%              40%            37%             33%         24%
      power as part of their services.
      I currently own alternative energy sources such as
      on site gene ration or battery storage systems and                25%              32%         18%                26%          27%
      will likely expand them.
      I am not satisfied with my current reliability but am          10%              18%           12%             10%              0
      not considering action to improve.

      Other                                                        2%               2%             3%              2%                0

                                                                                                                                              n = 251
                              A22. If you had choices, would you choose alternatives to your current electrical energy provider? Select all that apply

 With the majority of C&I customers taking measures to ensure power reliability, 35% currently own
 alternative energy sources, such as on-site generation or battery energy storage systems. See Chart 19.
 Another 25% also own these same power-reliability solutions and will likely expand them.

18
State of U.S. Commercial and Industrial Power Reliability

The Northeast ranks highest among the regions in preferring to have local utilities offer premium
power as part of their services, as well as plans to grow their own on-site generation.

Chart 20: U.S. C&I Choosing Alternative Electricity Energy Providers, by Industry, 2017

                                                                                                    INDUSTRY

                                                           Total Sample Manufacturing    Data Centers       Healthcare       Small Franchise     Education

 I am satisfied with my current reliability and the
                                                                                                                                                                   *
 reliability of my utility and do not see needs for                36%             34%        19%                      45%             27%                   56%
 alternative sources of energy.
 I currently own alternative energy sources such as
                                                                    35%            34%              57% *            30%              19%                33%
 on site generation or battery storage systems.

 I would prefer to have my local utility offer premium             34%             30%              62% *            36%                   42%        26%
 power as part of their services.
 I currently own alternative energy sources such as
 on site generation or battery storage systems and                 25%             25%             43%               27%              19%             22%
 will likely expand them.
 I am not satisfied with my current reliability but am         10%             10%           10%                 12%                 12%             15%
 not considering action to improve.

 Other                                                        2%              1%              0                 6%                     0            4%

                                                                                                                                            n = 251
                                   A21. Please indicate to what extent you agree or disagree that the following statements represent your company’s
                                                              view about power providers, based on your company’s experience. - Top two box scores

                                                                                                             * Significantly larger at 95% confidence level

Looking at alternative energy providers through the industrial lens, there is more variance in
responses. See Chart 20. Data Centers take a far more active role in guaranteeing power reliability.
The majority, at 57%, own on-site generation, and another 43% own on-site generation and are seeking
to expand it in the future. The majority also would like their local utility to offer premium power.

                                                                                                                                                               19
State of U.S. Commercial and Industrial Power Reliability

            Chart 21: U.S. C&I Measurements to be included for Reliability, 2017

                                                                                           of respondents
                                    of respondents
                                                                                           agreed or somewhat
                                    agreed or somewhat
                                                                                           agreed that the bar
                     72 %           agreed that the bar
                                    for reliability should             67 %                for reliability should
                                                                                           be raised to include
                                    be raised to include
                                                                                           major weather
                                    loss of generation.
                                                                                           events.

                                                                                           of the 67% of
                                                                                           respondents that
                                    of respondents
                                                                                           agreed to the
                                    agreed or somewhat
                                                                                           inclusion of outages
                                    agreed that the bar
                     67 %           for reliability should
                                    be raised to include
                                                                       80 %                under 5 minutes, 80%
                                                                                           agree that the bar
                                                                                           should be raised
                                    outages under 5
                                                                                           further to include
                                    minutes.
                                                                                           outages under one
                                                                                           minute.

 In addition to customers taking on generation sources themselves to guarantee higher power reliability,
 there is a general consensus to improve overall power reliability measurements and for utilities to take
 more ownership around the issue.
 The U.S. energy industry measures utilities on their ability to provide power. These reliability
 measurements exclude major events (loss of generation or weather-related issues), as well as outages
 lasting less than 5 minutes. In this survey, C&I customers were asked whether the industry should
 take a stricter stance on utility performance. In response, 67% believed the bar for reliability should be
 raised to include both major events and outages lasting less than 5 minutes. See Chart 21.

20
State of U.S. Commercial and Industrial Power Reliability

Chart 22: U.S. C&I Reason of Agreement to raise the bar for Reliability Measurements, 2017

• We need consistent/uninterrupted
  power to operate our business
• Outages slow down/stop
  production/harm productivity
                                             • Power should always be on/should
• Outages cause disruptions/interruptions      not be outages
• Outages have an impact/a business          • Power provider should be prepared
  impact/result in lost business               for outages/have a backup system in                                • Major weather events
• Outages have multiple                        place                                                              • Need to keep/have records of all
  consequences/affect multiple things        • Power outages should be               • Cost (unspecified)           outages
• Outages cost us lost time                    short/restored quickly                • Outages cost us            • Good/like the idea
• Outages can damage equipment               • Power provider should be                money/time is money        • Clear/precise indicator
• Outages can cause harm/injury to             responsible for any outages                                        • Good measure of reliability
  people                                     • Weather-related outages should be                                  • Good measure of safety/security
• Outages mean equipment has to be             short/limited
  reset/restarted                            • Problems with power providers/
• Outages can ruin research/controlled         the grid
  experiments

                     35%                                         27%                              15%                              21%

               Need/usage                                Power provider                       Financial                     Miscellaneous

                                                                                                                                           n = 206
A18f. What are the key reasons why you agree that reliability measurements should include everything that causes outages (loss of generation, major
                                                                              weather events, outages under 5 minutes, outages under 1 minute)?

When asked why, 35% of C&I customers explained that outages are too disruptive and costly to their
business. See Chart 22. This supports the earlier findings related to the costs C&I customers incur as a
result of outages. See Chart 8 on page 8. Another 27% stated that no-outage goals are the expectation
and the responsibility of power providers.

                                                                                                                                                       21
State of U.S. Commercial and Industrial Power Reliability

 Section Comments and Overall Conclusions:
 This survey reveals there is a variance and gap in the services utilities offer today. Key findings within
 this report include:

 OUTAGE AUDITS:
     • 50% of companies experienced a power outage that lasted more than one hour in the past year.

     • 25% of companies experience a power outage at least once a month, and 86% of respondents
       have experienced at least one power outage in the last 12 months.

     • 18% of companies experienced a loss of more than $100,000 as a result of the worst outage.

 DRIVERS OF CUSTOMER SATISFACTION:
     • 52% of respondents expressed dissatisfaction with existing power-reliability levels. However, the
       extent of their dissatisfaction varied, indicating a gap in the overall perception of reliability.

     • Improving overall satisfaction is tied to a perceived ability of power providers to support the
       future business needs of the company. This includes an ability to control costs, minimize outages,
       and upgrade infrastructure—a proactive approach to meeting changing energy demand, weather
       conditions, and system age.

 LOOKING FOR BETTER RELIABILITY:
     • 71% of companies own or plan to develop alternative energy sources, supplementing their
       existing provider’s generation and power reliability.

     • 67% of companies believe major events (weather or generation loss) and outages lasting less
       than 5 minutes should be included in reliability measurements.

     • 70% of companies see power reliability as an existing cause for concern, and 40% would pay
       premiums to improve it.

 Although the majority of C&I customers claim to be content with their power reliability, their
 behaviors and concerns indicate otherwise, and in the same breath admit that power reliability is a
 concern. Many are incorporating on-site generation, turning away from their power providers for
 solutions, and are calling for the industry to take a stricter stance on power-reliability standards.
 This survey reveals that this so-called customer satisfaction is merely the acceptance of the status quo,
 when in reality C&I customers need services with higher performance and future-proof technologies.
 Utilities can no longer afford to continue business as usual but must rise along with C&I customers
 who aggressively seek survival in their competitive marketplaces.

22
State of U.S. Commercial and Industrial Power Reliability

RESEARCH BACKGROUND AND
METHODOLOGY
Between October and December 2017, Frost & Sullivan conducted a customer survey of 251 C&I
customers across the United States to determine customer perception of power reliability.
The quantitative and qualitative analysis consisted of telephone interviews across five industries.
See Charts 23 and 24. These industries were chosen because of their high energy use.

                      Chart 23: U.S. Respondent Profile Industry and Region, 2017

                                                                                                                       REGION

                                                                Total Sample               Northeast                   Midwest                          South               Pacific

                              Manufacturing                                    54%                      48%                         58%                         57%                    47%

                                Healthcare                             13%                        24%                   14%                           10%                  7%

                                    Education                          11%                   8%                        8%                             9%                         22%

                           Small Franchise                             10%                   6%                        6%                             12%                    18%

                              Data Centers
                                                                       8%                    8%                        11%                            9%                   4%
     (Site owner for storage and/or server)

                                      Others                        4%                       6%                        3%                          3%                     2%

                                                                                                                                                              n = 251
                                                                                            S1 . Which of the following industry sectors best describes your company?

                 Chart 24: U.S. Respondent Job Title by Industry and Region, 2017
                                                                         INDUSTRY                                                                                     REGION

                                        Total Sample   Manufacturing     Data Centers   Healthcare   Small Franchise    Education         Northeast         Midwest      South           Pacific

     Facility Director or Manager                30%           34%             24%           30%              31%           26%               30%               37%        33%               16%

     Director of Operations                      23%           22%              33%          24%              38%           7%               20%               22%         22%               29%

     Energy Management Manager                  12%           11%               33%         3%                4%            26%              14%               8%         14%                13%

     Purchasing Manager                         4%            4%               5%            9%               4%            0%               8%               3%          2%                 4%

     Property Manager                           3%            4%               0%           3%                8%            0%               4%               2%          3%                 4%

     Other                                       28%           25%             5%            31%              15%             41%            24%               28%         26%               34%

                                                                                                                                                                                n = 251
                                                                                                                                           S6. Please indicate your job title or position.

                                                                                                                                                                                                   23
About S&C Electric Company
S&C, with global headquarters in Chicago, is applying its heritage of innovation to address
challenges facing the world’s power grids, thus shaping the future of reliable electricity delivery.
The mission of employee-owned S&C is to continually develop new solutions for electricity
delivery, fostering the improved efficiency and reliability required for the intelligent grid.

About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage
visionary innovation that addresses the global challenges and related growth opportunities that will
make or break today’s market participants. For more than 50 years, we have been developing growth
strategies for the global 1000, emerging businesses, the public sector and the investment community.

LEARN MORE AT SANDC.COM

100-T120
April 23, 2018
© S&C Electric Company 2018, all rights reserved
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