Helping North American Utilities Transform the Way They Do Business

Utilities are facing a host of challenges ranging from environmental concerns, aging infrastructure and systems, to Smart Grid technology and related program decisions. The future utility will be required to find effective solutions to these challenges, while continuing to meet the increasing expectations of newly empowered consumers. This brings an opportunity to create stronger, more profitable relationships with customers, and to do so more cost effectively.

Since our formation in 1996 as the subsidiary of UK-based United Utilities Plc., Vertex Business Services has grown to serve over 70 North American utilities and retail energy clients, who in turn serve over 23 million end-use customers. Our broad portfolio of Business Process Outsourcing (BPO) and Information Technology (IT) solutions enables our clients to more effectively manage operational costs, improve efficiencies, develop front-line employees, and achieve superior customer experience.

Improving Utility Collection Performances

Utilities can greatly benefit from the debt management practices and experience of industries such as banking and retail that have developed a more sophisticated skill set. Benefits can come from adoption of proven methodologies for managing accounts receivable and managing outsourced agency collections business processes, as well as from the use of appropriate software for these processes. There is also benefit to using analytical tools to evaluate the process of collections and optimizing processes based on metrics collected.

Improve your collection rates and lower outstanding accounts receivable through Vertex’s proven collection services. Our rich heritage results in our ability to implement best practices and provide quality reporting strategies, ironclad credit and collection processes, and innovative training programs.

Handling Demand Response and Efficiency In the Call Center

In the next five to 10 years, utilities will be forced to change more than at any time in their previous history. These changes will be profound, widespread and will affect not only utilities themselves, but virtually all parts of our modern electrified culture. One of the most dramatic changes will be in the traditional relationship between utilities and their customers, especially at the residential level. Passive electricity "rate payers" are about to become very active participants in the relationship with their utility.

Turning Information Into Power

Around the world, utilities are under pressure. Citizens demand energy and water that don’t undermine environmental quality. Regulators seek action on smart grids and smart metering initiatives that add intelligence to infrastructure. Customers seek choice and convenience – but without additional costs.

Around the globe, utilities are re-examining every aspect of their business.

Oracle can help. We offer utility experts, mission-critical software applications, a rock-solid operational software suite, and world-leading middleware and technology that can help address these challenges. The result: flexible, innovative solutions that increase efficiency, improve stakeholder satisfaction, futureproof your organization – and turn information into power.

Utilities can begin with one best-of breed solution that addresses a specific pain point. Alternatively, you can implement several pre-integrated applications to ease the development and administration of cross-departmental business processes. Our complete applications and technology footprint can be standardized to focus on accountability and reduce the resources spent on vendor relations.

Oracle Is A Leader In Utilities: 20 of the Top 20 Global Utilities Get Results With Oracle

Oracle provides utilities with the world’s most complete set of software choices. We help you address emerging customer needs, speed delivery of utility-specific services, increase administrative efficiency, and turn business data into business intelligence.

Oracle Utilities offers the world’s most complete suite of end-to-end information technology solutions for the gas, water, and electric utilities that underpin communities around the world. Our revolutionary approach to providing utilities with the applications and expertise they need brings together:

  • Oracle Utilities solutions, utility-specific revenue and operations management applications:
    • Customer Care and Billing
    • Mobile Workforce Management
    • Network Management System
    • Work and Asset Management
    • Meter Data Management (Standard and Enterprise Editions)
    • Load Analysis
    • Load Profiling and Settlement
    • Portfolio Management
    • Quotation Management
    • Business Intelligence
  • Oracle’s ERP, database and infrastructure software:
    • Oracle E-Business Suite and other ERP applications
    • Times Ten for real-time data management
    • Data hubs for customer and product master data management
    • Analytics that provide insight and customer intelligence
    • ContentDB, SpatialDB and RecordsDB for content management
    • Secure Enterprise Search for enterprise-wide search needs
  • Siebel CRM for larger competitive utilities’ call centers, customer order management, specialized contacts and strategic sales:
    • Comprehensive transactional, analytical and engagement CRM capabilities
    • Tailored industry solutions
    • Role-based customer intelligence and pre-built
  • Oracle’s AutoVue Enterprise Visualization Solutions:
    • Make business and technical documents easily accessible by all enterprise users
    • Expedite document reviews with built-in digital annotations and markups
    • Boost the value of your enterprise system with integrated Enterprise Visualization
  • Oracle’s Primavera Solutions:
    • Effectively manage and control the most complex projects and project portfolio
    • Deliver projects across generation, transmission and distribution, and new clean-energy ventures
    • Optimize a diminishing but highly skilled workforce

Stand-alone, each of these products meets utilities’ unique customer and service needs. Together, they enable multi-departmental business processes. The result is an unparalleled set of technologies that address utilities’ most pressing current and emerging issues.

The Vision

Cross-organizational business processes and best practices are key to addressing today’s complex challenges. Oracle Utilities provides the path via which utilities may:

  • Address the "green agenda:"
    • Help reduce pollution
    • Increase efficiency
    • Complete software suite to enable the smart grid
  • Advance customer care with:
    • Real-time 360-degree views of customer information
    • Tools to help customers save time and money
    • Introduce or retire products and services quickly, in response to emerging customer needs
  • Enhance revenue and operations management:
    • Avoid revenue leakage across end-to-end transactions
    • Increase the visibility and auditability of key business processes
    • Manage assets strategically
    • Bill for services and collect revenue cost-effectively
    • Increase field crew and network efficiency
    • Track and improve performance against goals
    • Achieve competitive advantage with a leading-edge infrastructure that helps utilities respond quickly to change
  • Reduce total cost of ownership through access to a single global vendor with:
    • Proven best-in-class utility management solutions
    • Comprehensive, world-class capabilities in applications and technology infrastructure
    • A global 24/7 distribution and support network with 7,000 service personnel
    • Over 14,000 software developers
    • Over 19,000 partners

Strategic Technology For Every Utility

Only Oracle powers the information-driven enterprise by offering a complete, integrated solution for every segment of the utilities industry – from generation and transmission to distribution and retail services. And when you run Oracle applications on Oracle technology, you speed implementation, optimize performance, and maximize ROI.

When it comes to handling innovations like daily or interval meter reading, installing, maintaining, and replacing plant and linear assets, providing accurate bills and supporting your contact center and more, Oracle Utilities is the solution of choice. Utilities succeed with Oracle. Oracle helps electric, gas, water and waste management meet today’s imperatives to do the following:

  • Help customers conserve energy and reduce carbon footprints
  • Keep energy affordable
  • Strengthen and secure communities’ economic foundation

Meeting the Challenges of the Future, Today

Utilities today need a suite of software applications and technology to serve as a robust springboard from which to meet the challenges of the future.

Oracle offers that suite.

Oracle Utilities solutions enable you to meet tomorrow’s customer needs while addressing the varying concerns of financial stakeholders, employees, communities, and governments. We work with you to address emerging issues and changing business conditions. We help you to evolve to take advantage of new technology directions and to incorporate innovation into ongoing activity.

Partnering with Oracle helps you to futureproof your utility.

Enabling Successful Business Outcomes Through Value-Based Client Relationships

Utilities are facing a host of challenges ranging from environmental concerns, aging infrastructure and systems, to Smart Grid technology and related program decisions. The future utility will be required to find effective solutions to these challenges, while continuing to meet the increasing expectations of newly empowered consumers. Cost management in addressing these challenges is important, but delivery of value is what truly balances efficiency with customer satisfaction.

Our Commitment

Vertex clients trust us to deliver on our promises and commitments, and they partner with us to generate new ideas that will secure their competitive advantage, while also delivering stakeholder benefits. Our innovative same-side-of-the-table approach allows us to transform the efficiency and effectiveness of your business operations, enabling you to lower your risk profile and enhance your reputation in the eyes of customers, investors and regulatory bodies. Working as partners, we provide unique insights that will generate actionable ideas and help you achieve new levels of operational excellence.

With a long heritage in the utility industry, Vertex possesses an in-depth knowledge and understanding of the issues and challenges facing utility businesses today. We actively develop insights and innovative ideas that allow us to work with our utility clients to transform their businesses, and we can enhance your future performance in terms of greater efficiencies, higher customer satisfaction, increased revenue and improved profitability.

Achievement of desired business outcomes is best achieved with a strategic, structured approach that leverages continuous improvement throughout. Vertex takes a four-level approach, which starts with asking the right questions. Levels 1 and 2 identify business challenges and the corresponding outcomes your utility hopes to achieve. Need to improve customer satisfaction? If so, is moving from the 2nd to 1st quartile the right target? Pinpointing the key business challenges that are limiting or impeding your success is critical. These may include a need to reduce bad debt, reduce costs, minimize billing errors, or improve CSR productivity. Whatever challenges you face, collaboration with our experts will ensure your utility is on the right track to meet or exceed your targets.

Once the challenges and outcomes have been identified and validated, Vertex partners with clients to develop effective solutions. The solutions implemented in Level 3 consist of unique value propositions that, when combined effectively, achieve the desired business outcome for the business challenge being addressed. Vertex’s proprietary “Value Creation Model” enables us to develop and implement solutions that provide measurable business results and ongoing quality assurance.

Inherent to the success of this model is the Vertex Transition Methodology, which has resulted in 200 successful transitions over a twelve-year period. Due diligence yields a clear understanding of how the business operates. Mobilizing activities lay the foundation for the transition, and a baseline for the transition plan is established. The plans developed during the planning stage are implemented, followed by a stabilization period from the business transfer to when things are fully operational.

Another key element of this model lies in Vertex’s transformation capabilities, and what we refer to as our “6D” transformation methodology. Dream, Define, Design, Develop, Deliver, Drive – our Lean Six Sigma methods guarantee successful deployment of continuous process improvement results. In addition to Lean Six Sigma, the Vertex Transformation Methodology includes change management, people and performance management, and project management.

In Level 4 of the Vertex solution approach, Vertex measures the effectiveness of a solution by determining if it achieved the desired business outcome. We utilize a Balanced Scorecard approach to ensure that the business outcome positively impacts all of the key elements of a client’s business: Customer, Employee, Operational, and Financial. As desired business outcomes evolve, Vertex will remain committed to adapting our solutions in partnership with our clients to meet these changing needs.

Transforming Your Organization

If you’re ready to transform to an outcomes- based business, Vertex has the capability to help. Our service lines include: Consulting and Transformation, IT Applications Services and Products, Debt Management, and Meter-to-Cash Outsourcing.

Our transformation approach blends innovation and business process improvement, focusing on achieving your strategic objectives via our proven expertise and insights. We bring business transformation that secures greater efficiencies, improved effectiveness and enhanced services for your organization. All the while we never forget that our employees represent your brand.

We’ll work collaboratively with you, rapidly implementing services and delivering on continuous improvement to meet your goals. We’ll build on your business needs, sharing ideas and jointly developing options for change – working together to deliver real value.

Empower Your Customers To Reduce Energy Demand

The Energy Information Administration (EIA) forecasts a continuing gap between total domestic energy production and consumption through 2030. This delta will not be closed by supply alone; customer behavior changes are needed to reduce total consumption and peak load. Electric and gas utilities face tremendous challenges meeting energy supply and demand needs and will play a pivotal role in determining practical solutions. With the right approach, utilities will deliver on the promise of energy efficiency and demand response.

Energy market projections are highly speculative as the market is characterized by high price volatility and rapid market transformation. Adding to the uncertainty is the voluntary nature of demand response and energy efficiency programs, and the critical importance of customer behavior change. Utilities are spending billions of dollars, making program penetration essential – and customer education paramount. At an end-point cost of up to $300, a five percent penetration is not the answer. Vertex can help mitigate these risks through highly effective management of customer care, CIS integration, pilot programs, and analytics. Vertex’s core “meter-to-cash” capabilities have undergone a major revolution in response to the new world of AMI, energy efficiency, and demand response. A robust set of new services will allow utilities to transform how they do business.

Smart meters put new demands on CIS platforms and traditional business processes – innovative rates, distributed generation, demand response and new customer programs all require creative change. Vertex is currently helping utilities develop and manage customer programs to fully exploit smart meter deployments and provide customer care to customers migrating to time-based rates. We deliver customer management services to drive penetration and designed to meet the unique customer care needs generated by smart meter installations, energy efficiency and demand response programs to empower customers to manage their energy use and reduce consumption, and cost-effective customer care and billing solutions to support smart meters.

Water utilities are not immune to the need for conservation. In the past 30 years, the U.S. population has grown over 50% while the total water use has tripled. On average, Americans use approximately 75 to 80 gallons of water per person per day. Vertex can help water utilities address the unique conservation challenges they face, including customer care and program support, MDMS solutions to organize data for forecasting, code enforcement, business and customer insight, and other services.

Case Study – Hydro One

Hydro One is an Ontario, Canada based utility that is one of the five largest transmission utilities in North America. As the stewards of critical provincial assets, Hydro One works with its industry partners to ensure that electricity can be delivered safely, reliably, and affordably to its customers. Vertex has been providing Meter-to-Cash outsourcing services to Hydro One since 2002.

Applying the Vertex 4-level solutions approach enabled desired business outcomes:

Level 1: Identify Business Challenges

In 2006 Hydro One approached Vertex and indicated that one of their corporate goals was to dramatically improve customer satisfaction as a result of the Hydro One customer satisfaction survey. At that point, Hydro One customer satisfaction scores on agent-handled calls had hovered in the 75-76% range for several years. Up to that time, the relationship with Vertex had focused on significant reductions to cost with no erosion to service offered to customers. Now, Hydro One was looking to Vertex to help lead the drive to improve the customer experience.

Level 2: Identify Desired Outcomes

In 2007 Vertex and Hydro One entered into collaborative discussions to evaluate and analyze the historical customer satisfaction scores, and to work jointly to develop a plan to radically modify the customer experience and improve customer satisfaction. Those discussions led down several paths, and the parties mutually agreed to target the following areas for change:

  • The Vertex/Hydro One Quality program
  • A cultural adjustment that would reflect the change in focus
  • Technology that could help support Hydro One’s goals
  • End-to-end process review

Level 3: Develop & Implement Solution

Vertex has worked closely with Hydro One to help them deliver on their goal of significant improvements to customer satisfaction. Changes were applied to process, call scripts, quality measures and performance scoring at all levels in the organization, including incentive compensation and recognition programs.

Level 4: Measure Solution Results

  • Customer satisfaction scores on agent-handled calls increased from 76% in 2006 to 86% in 2008
  • Quality monitoring program changes yielded a 10% increase in first-call resolution
  • Introduced bi-weekly Process/Quality forums
  • Monthly reviews with the client to reinforce success and progress toward targets

Thinking Smart

For more than 30 years, Newton- Evans Research Company has been studying the initial development and the embryonic and emergent stages of what the world now collectively terms the smart, or intelligent, grid. In so doing, our team has examined the technology behind the smart grid, the adoption and utilization rates of this technology bundle and the related market segments for more than a dozen or so major components of today’s – and tomorrow’s – intelligent grid.

This white paper contains information on eight of these key components of the smart grid: control systems, smart grid applications, substation automation programs, substation IEDs and devices, advanced metering infrastructure (AMI) and automated meter-reading devices (AMR), protection and control, distribution network automation and telecommunications infrastructure.

Keep in mind that there is a lot more to the smart grid equation than simply installing advanced metering devices and systems. A large AMI program may not even be the correct starting point for hundreds of the world’s utilities. Perhaps it should be a near-term upgrade to control center operations or to electronic device integration of the key substations, or an initial effort to deploy feeder automation or even a complete production and control (P&C) migration to digital relaying technology.

There simply is not a straightforward roadmap to show utilities how to develop a smart grid that is truly in that utility’s unique best interests. Rather, each utility must endeavor to take a step back and evaluate, analyze and plan for its smart grid future based on its (and its various stakeholders’) mission, its role, its financial and human resource limitations and its current investment in modern grid infrastructure and automation systems and equipment.

There are multiple aspects of smart grid development, some of which involve administrative as well as operational components of an electric power utility, and include IT involvement as well as operations and engineering; administrative management of customer information systems (CIS) and geographic information systems (GIS) as well as control center and dispatching operation of distribution and outage management systems (DMS and OMS); substation automation as well as true field automation; third-party services as well as in-house commitment; and of course, smart metering at all levels.

Space Station

I have often compared the evolution of the smart grid to the iterative process of building the international space station: a long-term strategy, a flexible planning environment, responsive changes incorporated into the plan as technology develops and matures, properly phased. What function we might need is really that of a skilled smart grid architect to oversee the increasingly complex duties of an effective systems planning organization within the utility organization.

All of these soon-to-be-interrelated activities need to be viewed in light of the value they add to operational effectiveness and operating efficiencies as well as the effect of their involvement with one another. If the utility has not yet done so, it must strive to adopt a systems-wide approach to problem solving for any one grid-related investment strategy. Decisions made for one aspect of control and automation will have an impact on other components, based on the accumulated 40 years of utility operational insights gained in the digital age.

No utility can today afford to play whack-a-mole with its approach to the intelligent grid and related investments, isolating and solving one problem while inadvertently creating another larger or more costly problem elsewhere because of limited visibility and “quick fix” decision making.

As these smart grid building blocks are put into service, as they become integrated and are made accessible remotely, the overall smart grid necessarily becomes more complex, more communications-centric and more reliant on sensor-based field developments.

In some sense, it reminds one of building the space station. It takes time. The process is iterative. One component follows another, with planning on a system-wide basis. There are no quick solutions. Everything must be very systematically approached from the outset.

Buckets of Spending

We often tackle questions about the buckets of spending for smart grid implementations. This is the trigger for the supply side of the smart grid equation. Suppliers are capable of developing, and will make the required R&D investment in, any aspect of transmission and distribution network product development – if favorable market conditions exist or if market outlooks can be supported with field research. Hundreds of major electric power utilities from around the world have already contributed substantially to our ongoing studies of smart grid components.

In looking at the operational/engineering components of smart grid developments, centering on the physical grid itself (whether a transmission grid, a distribution grid or both), one must include what today comprises P&C, feeder and switch automation, control center-based systems, substation measurement and automation systems, and other significant distribution automation activities.

On the IT and administrative side of smart grid development, one has to include the upgrades that will definitely be required in the near- or mid-term, including CIS, GIS, OMS and wide area communications infrastructure required as the foundation for automatic metering. Based on our internal estimates and those of others, spending for grid automation is pegged for 2008 at or slightly above $1 billion nationwide and will approach $3.5 billion globally. When (if) we add in annual spending for CIS, GIS, meter data management and communications infrastructure developments, several additional billions of dollars become part of the overall smart grid pie.

In a new question included in the 2008 Newton-Evans survey of control center managers, these officials were asked to check the two most important components of near-term (2008-2010) work on the intelligent grid. A total of 136 North American utilities and nearly 100 international utilities provided their comments by indicating their two most important efforts during the planning horizon.

On a summary basis, AMI led in mentions from 48 percent of the group. EMS/ SCADA investments in upgrades, new applications, interfaces et al was next, mentioned by 42 percent of the group. Distribution automation was cited by 35 percent as well.

Spending Outlook

The financial environment and economic outlook do not bode well for many segments of the national and global economies. One question we have continuously been asked well into this year is whether the electric power industry will suffer the fate of other industries and significantly scale back planned spending on T&D automation because of possible revenue erosion given the slowdown and fallout from this year’s difficult industrial and commercial environments.

Let’s first take a summary look at each of the five major components of T&D automation because these all are part and parcel of the operations/engineering view of the smart grid of the future.

Control Systems Outlook: Driven by SCADA-like systems and including energy management systems and distribution management software, this segment of the market is hovering around the $500 million mark on a global scale – excluding the values of turn-key control center projects (engineering, procurement and construction (EPC) of new control center facilities and communications infrastructure). We see neither growth nor erosion in this market for the near-term, with some up-tick in spending for new applications software and better visualization tools to compensate for the “aging” of installed systems. While not a control center-based system, outage management is a closely aligned technology development, and will continue to take hold in the global market. Sales of OMS software and platforms are already approaching the $100 million mark led by the likes of Oracle Utilities, Intergraph and MilSoft.

Substation Automation and Integration Programs: The market for substation IEDs, for new communications implementations and for integration efforts has grown to nearly $500 million. Multiyear programs aimed at upgrading, integrating and automating the existing global base of about a quarter million or so transmission and primary distribution substations have been underway for some time. Some programs have been launched in 2008 that will continue into 2011. We see a continuation of the growth in spending for critical substation A&I programs, albeit 2009 will likely see the slowest rate of growth in several years (less than 3 percent) if the current economic malaise holds up through the year. Continuing emphasis will be on HV transmission substations as the first priority for upgrades and addition of more intelligent electronic devices.

AMI/AMR: This is the lynchpin for the smart grid in the eyes of many industry observers, utility officials and perhaps most importantly, regulators at the state and federal levels of the U.S., Canada, Australia and throughout Western Europe. With nearly 1.5 billion electricity meters installed around the world, and about 93 percent being electro-mechanical, interest in smart metering can also be found in dozens of other countries, including Indonesia, Russia, Honduras, Malaysia, Australia, and Thailand. Another form of smart meters, the prepayment meter, is taking hold in some of the developing nations of the world. The combined resources of Itron, coupled with its Actaris acquisition, make this U.S. firm the global share leader in sales and installations of AMI and AMR systems and meters.

Protection and Control: The global market for protective relays, the foundation for P&C has climbed well above $1.5 billion. Will 2009 see a drop in spending for protective relays? Not likely, as these devices continue to expand in capabilities, and undertake additional functions (sequence of event recording, fault recording and analysis, and even acting as a remote terminal unit). To the surprise of many, there is still a substantial amount (perhaps as much as $125 million) being spent annually for electro-mechanical relays nearly 20 years into the digital relay era. The North American leader in protective relay sales to utilities is SEL, while GE Multilin continues to hold a leading share in industrial markets.

Distribution Automation: Today, when we discuss distribution automation, the topic can encompass any and all aspects of a distribution network automation scheme, from the control center-based SCADA and distribution management system on out to the substation, where RTUs, PLCs, power meters, digital relays, bay controllers and a myriad of communicating devices now help operate, monitor and control power flow and measurement in the medium voltage ranges.

Nonetheless, it is beyond the substation fence, reaching further down into the primary and secondary network, where we find reclosers, capacitors, pole top RTUs, automated overhead switches, automated feeders, line reclosers and associated smart controls. These are the new smart devices that comprise the basic building blocks for distribution automation. The objective will be achieved with the ability to detect and isolate faults at the feeder level, and enable ever faster service restoration. With spending approaching $1 billion worldwide, DA implementations will continue to expand over the coming decade, nearing $2.6 billion in annual spending by 2018.

Summary

The T&D automation market and the smart grid market will not go away this year, nor will it shrink. When telecommunications infrastructure developments are included, about $5 billion will have been spent in 2008 for global T&D automation programs. When AMI programs are adding into the mix, the total exceeds $7 billion. T&D automation spending growth will likely be subdued, perhaps into 2010. However, the overall market for T&D automation is likely to be propped up to remain at or near current levels of spending for 2009 and into 2010, benefiting from the continued regulatory-driven momentum for AMI/ AMR, renewable portfolio standards and demand response initiatives. By 2011, we should once again see healthier capital expenditure budgets, prompting overall T&D automation spending to reach about $6 billion annually. Over the 2008-2018 periods, we anticipate more than $75 billion in cumulative smart grid expenditures.

Expenditure Outlook

Newton-Evans staff has examined the current outlook for smart grid-related expenditures and has made a serious attempt to avoid double counting potential revenues from all of the components of information systems spending and the emerging smart grid sector of utility investment.

While the enterprise-wide IT portions (blue and red segments) of Figure 1 include all major components of IT (hardware, software, services and staffing), the “pure” smart grid components tend to be primarily in hardware, in our view. Significant overlap with both administrative and operational IT supporting infrastructure is a vital component for all smart grid programs underway at this time.

Between “traditional IT” and the evolving smart grid components, nearly $25 billion will likely be spent this year by the world’s electric utilities. Nearly one-third of all 2009 information technology investments will be “smart grid” related.

By 2013, the total value of the various pie segments is expected to increase substantially, with “smart grid” spending possibly exceeding $12 billion. While this amount is generally understood to be conservative, and somewhat lower than smart grid spending totals forecasted by other firms, we will stand by our forecasts, based on 31 years of research history with electric power industry automation and IT topics.

Some industry sources may include the total value of T&D capital spending in their smart grid outlook.

But that portion of the market is already approaching $100 billion globally, and will likely top $120 billion by 2013. Much of that market would go on whether or not a smart grid is involved. Clearly, all new procurements of infrastructure equipment will be made with an eye to including as much smart content as is available from the manufacturers and integrators.

What we are limiting our definition to is edge investment, the components of the 21st century digital transport and delivery systems being added on or incorporated into the building blocks (power transformers lines, switchgear, etc.) of electric power transmission and delivery.

Customer Relationships and the Economy

A little over a year ago, the challenges facing the global energy and utilities market were driving a significant wedge between utilities and their customers. In Western European markets, price increases across gas, electricity and water, combined with increased corporate earnings, left many utilities in the uncomfortable position of being seen as profiteering from customers unable to change suppliers for significant benefit.

Headline-makers had a field day, with gross simplification of the many utilities’ business models. They made claims about “obscene profits,” while citing the “long-suffering” consumer position [1]. Now, more than a year later, gas and electricity prices are falling, but the severity and pace of the wider economic downturn has given no time for utilities to re-position themselves with customers. Brand and relationship-enhancing programs such as smart metering and energy efficiency are still largely in their infancy.

The evolving relationship with the customer base, where customer expectations are resulting in a more participatory, multi-channel engagement, comes at a time when the evolution of smart networks and metering solutions are on the cusp of driving down cost to serve and improving service levels and options. Significant benefits accrue from consumption measurement and management capabilities. Benefits also result from the opportunity to transform the consumer relationship by pushing into new areas such as home device management, more personalised tariffs and easier debt arrangements. The position for utilities, therefore, should be favourable – finally being seen as working on a more participatory relationship with their customers.

For consumers, the consequences of recession include an increased pressure on household spending. In competitive markets, there could be increased churn as the ever-changing “best-buys” attract customers. For utilities, increased churn rates are obviously bad news – the cost of new customer acquisition often wipes out profit associated with consumption by that customer for months, even years. Moreover, while utilities are working on marketing the best deals to acquire and retain customers – and on piloting smart technologies in the home – consumers’ familiarity with new technologies and their allegiance to some brands presents an opportunity for third parties to gain greater hold on the customer relationship.

Take the case of smart metering, for example, where many utilities are engaging upon pilot and larger rollouts. This is an area of innovation that should deliver benefits to both consumers and utilities. The assured business benefits to the utility companies come not only from applying the technology to lower operational costs, but also from enhancing their brand and customer service reputation. To the customer, smart technologies offer consumption details in an understandable form and give the promise of accurate commodity billing.

The risk is that the potentially lucrative relationship between customer and utility is currently damaged to a point where telecommunications providers, retailers or technology companies could step in with attractive, multi-service offerings. That could relegate the utility to simple supply activities, unable to gain a significant hold in home engagement. Certainly, utilities will still witness savings from automated meter reading and improved billing accuracy, but this commoditisation path for the utility company will limit profitable growth and push them further away from customers. Combine this with increased churn, and suddenly the benefits of smart technology deployment could be wiped out for the utility company.

This is not just an issue associated with smart technologies – the entire customer relationship journey with a utility is under threat from non-utility entrants (See Figure 1). Consider the area of consumer marketing and sign-up. Third parties that simply market other companies’ services have already taken a position in this part of the customer journey by providing Internet sites that allow tariff comparison and online switching of suppliers. The brand awareness of the comparison sites has already begun to gain the trust of the customer and the utility brand becomes more remote – the start of an uneasy decline. Additionally, in receiving fees for bringing customers to utilities, these companies thrive on churn – driving up utility cost and driving an even greater gap into the consumer-utility relationship.

Further credence to the challenges comes in the areas around presentation of information to customers. Any utility information channel will demand attention to “stickiness” when using technology such as the Internet for displaying utility bills and consumption data. This information has to be pushed to consumers in an attractive, understandable, and above all, personal format. Does the traditional utility information quality and flow have enough appeal for the average consumer to repeatedly view over time? It could be argued that third parties have the ability to blend in more diverse information to improve stickiness on, for example, handheld devices that give the consumer other benefits such as telephony, traffic and weather updates.

Customer Experience Risks

Traditionally, utilities are seen as relatively “recession proof,” operating on longer- term cycles than financial and retail markets. It is this long-term view that, coupled with an already disjointed customer relationship, poses a significant risk to utilities in the next two years. Customers will react in the competitive markets to the feeling of being “cornered” in an environment where few utilities truly differentiate themselves on customer service, product, tariff or brand. Research suggests that consumers are driving change in the relationship with their utilities, and it is this change that opens up opportunity for others (“Plugging in the Consumer”, IBM Institute for Business Value, 2007).

Reaction may not come soon; rarely do new entrants come into a recessionary market. But the potential for non-utilities to begin exploiting the gap between customer and utility should be cause for concern.

The parallel of these changes and risks was seen in the telco landline market over the last two decades. Several of the big, former-monopoly landline carriers are now perceived as commodity bandwidth providers, with declining core customer numbers and often-difficult regulatory challenges. Newer, more agile companies have stepped into the role of “owning” the consumer relationship and are tailoring the commodities into appealing packages. The underlying services may still come from the former-monopoly, but the customer relationship is now skewing toward the new entrant.

There are strategies that can be proactively deployed, individually or in combination, that improve the resilience of a utility through a recession, and that indeed redraw the client relationship to the point where profitability can increase without attracting the appearance of excess. These strategies resist the potential demise of the utilities to commodity providers, allowing for a value-add future based on their pervasive presence in the home.

The five steps outlined below revolve around the need to focus on the fundamentals, namely customer relationships and cash:

  1. Know Your Customer. Like most companies, utilities can benefit greatly by knowing more about customers. By engaging upon a strategy of ongoing information collection, customer segmentation and profitability analysis, plans can be put in place to detect and react to customer attrition risks. This includes early identification of changes to a customer’s circumstances, such as the ability to settle debt, allowing the utility to work proactively with the customer to address the issue. An active relationship style will show consumers that utilities care and understand, increasing brand loyalty, and hence, lowering the cost to serve.
  2. Free Up Locked Cash. Although recession-resistant in the short-term, identifying organic sources of improved cash flow can be an important source of funding for utilities that need to invest in improving customer relationships and capabilities. Industry benchmarks indicate that most utilities have opportunities to plug leaks in their working capital processes, with the potential of tapping into a significant and accessible source of free cash flow. For example, consider the traditionally neglected, under-invested area of consumer debt. With the economic downturn, debt levels are likely to rise, and, if unchecked, costs and cash flow will be adversely impacted.

    Focus areas for addressing the issue and freeing up locked cash include:

    • Using process management techniques such as activity-based management or Lean Six Sigma to identify opportunities for performance improvement across the billing, collections and credit-management processes;
    • Focusing on developing the skills and operational structures required to better integrate the meter to cash functions; and
    • Optimizing the use of utility-specific debt tools that work with the core systems.

Additionally, gaining insights through precision analytics to better manage debt functions – similar to best practices in banking and telecommunications – needs to be accelerated.

  1. Focus on the Future. Cost cutting is inevitable by many companies in this economic environment. It is important to understand the medium-to-long-term impact of any cuts on the customer relationship to determine if they could hurt profitability by increasing churn and related cost-to-serve metrics. Thus, utilities must achieve a clear understanding of their baseline performance, and have a predictive decision-making capability that delivers accurate, real-time insights so they can be confident that any actions taken will yield the best results.
  2. Innovate. Utilities traditionally work on longer investment cycles than many other businesses. When compared to consumer-facing industries, that can result in consumer perception that they are lacking innovation. Many consumers readily accept new offerings from retailers, telcos and technology firms, and the promise of a smart home will clearly be of strong commercial interest to these individuals. That’s why utilities must act now to show how they are changing, innovating for the future and putting control into the hands of the consumer. Smart metering programs will help the utilities reposition themselves as innovators. The key will be to use technology in a manner that bonds the customer better with the utility.
  3. Agility is King. Longer investment cycles in the utility sector, combined with the massive scale of operations and investment, often restrict a utilities’ ability to be agile in their business models. The long-term future of many utilities will depend upon being able to react to new consumer, technology and regulatory demands within short timescales. Innovation is only innovative for a short time – businesses need to be ready to embrace and exploit innovation with new business models.

Take Action Now

Many will argue that the current utility programs of change, such as core system replacement, smart metering and improving customer offerings, will be enough to sustain and even enhance the customer relationship. The real benefit, however, will be from building upon the change, moving into new products, delivering personalized services and tariffs, and demonstrating an understanding of individual consumer needs.

Still, utilities may struggle to capture discretionary spending from customers ahead of telcos, retailers, financial firms and others. Simply put, action needs to be taken now to prevent the loss of long-term customer relationships. For utilities, doing more of the same in this dynamic and changing market may simply not be good enough!

References:

  1. Multiple references, especially in the British press, including this one from Energy Saving Trust: http://www.energysavingtrust.org.uk/Resources/Daily-news/Gas-and-Electricity/Probe-demanded-into-energy-rip-off/(energysavingtrust)/20792

Be a People Person

I have to admit it. Despite all the exciting new technologies out there, I am finding myself to be a people person when it comes to building smarter grids and more intelligent utilities. Granted, technology is rapidly developing and the utility industry is finding itself in the middle of more and more automation. However, people – from linemen to consumers – will remain critical components for delivering information-enabled energy.

In the many conversations I have with utilities and other industry thought leaders, we often start out talking about smart technology, but eventually our chats settle on people. People can ultimately make or break even the most promising technologies – from personnel and consumers adopting and using the technology to executives driving technology investments. So, in a world buzzing with new technologies, it is important to reacquaint ourselves with people. This article traces some of my conversations about what an intelligent utility is, how people fit in – both on the consumer and utility personnel side – and what the utility industry can do to better involve people. As is my usual style, I will serve up these critical subjects with a side of humor and perspectives outside the utility industry. So be prepared to learn more about yoga, Nashville, crystal balls and the telecom industry, too.

What Is An Intelligent Utility ?

Before understanding the importance of people, let’s take a moment to understand where people fit into smart grids and intelligent utilities. Utilities are no longer exempt from change. From economic stimulus plans to carbon controls, to the impending electric vehicle flood, we must face the fact that the utility industry will undergo significant changes in the coming years, months and even minutes. Now, it is not so much a question of what changes will happen, but how – and how well – will the utility industry adapt to these changes?

A frequent answer to this question has been a “smart grid,” but most smart grid discussions inevitably lead to these questions:

  • How do we get to a smart grid?
  • When do we know when we are there?
  • What is a smart grid anyway?

These are not easy questions. Many groups define the smart grid, but how can you tell when a utility has one? Better understanding this challenge requires an unusual, but useful comparison: Nashville and Nirodha – a state of mind in yoga. Let’s say you are traveling to Nashville. You would see landmarks that you could only find in Nashville, such as the Grand Ole Opry, B.B. King’s Blues Club and the Bell- South Tower. Smart grid landmarks, however, are harder to come by. Utilities can install smart meters and other smart sensors on their grid, but having these technologies does not necessarily mean they have arrived at a smart grid. To add to the confusion, other smart grid components, such as demand response, distribution automation and more advanced metering, have already been around for years.

Although such technologies can support a smarter grid, the smart grid is more than just acquiring certain technology landmarks. So, although it is a nice place, you shouldn’t just think Nashville when you think smart grid. Think Nirodha. For those of you who aren’t yoga enthusiasts, Nirodha is a state of mind in yoga in which you become more focused and aware of an object. In the case of a utility, the object is primarily the transmission and distribution network. As a utility becomes more aware and ultimately more knowledgeable about its network, it can make better decisions about its operation.

Furthermore, as a company builds more knowledge about its grid, it develops not only a smarter grid, but also a more intelligent utility. An intelligent utility overlays information on energy that goes beyond the transmission and distribution network all the way from generation to end users, maximizing its reliability, affordability and sustainability. Essentially, utilities are delivering information-enabled energy. And technology is just one piece for delivering this sort of energy. Here is a quick run-down of the key components in an intelligent utility:

  • Process & technology: Utility objectives and their impact on business process change and smart technology deployment;
  • Economic models: The challenges and opportunities of new paradigms. So this is not just the changes involved with upgrading a technology – like a customer information or geographic information system – but the changes from initiatives like electrifying transportation and microgrids that could radically alter utility companies and the roles of generators and consumers;
  • Finance: Investment trends associated with smart technologies;
  • Public policy: The impact of politics on energy – including efforts by regulators and legislators. These groups ultimately set up the framework that determines whether and how intelligent initiatives move forward; and
  • People: The knowledge, skills and abilities required for both the workforce and consumers in an information-enabled environment.

Involving Workforce

The rest of this article will take a little bit closer look at the last component – people. As we move toward information-enabled energy, the utility workforce will undergo some significant changes – from new job titles, to new knowledge, skills and abilities (KSAs), to new people joining utility companies from other industries.

Ryan Cook, vice president of the employment services division at Energy Central, has pointed out that “In today’s utilities, employee KSAs are based primarily on providing electrical power as a product. These KSAs support the rules-based, process-oriented, functionally structured, and cost-focused business needs of today’s utility. In the future, however, there will be a massive paradigm shift from providing just a product to providing customers with customizable services and solutions for their unique energy needs. The result will be a shift toward KSAs that support a more agile, innovative, collaborative, cross-functional, service-oriented utility of the future. Employees will need to deal with constantly evolving technology.”

So, digitizing the grid will change personnel needs. We know that much, but the big unknown is how exactly will those needs change? And where is a good crystal ball when you need one? Since my snow globe wasn’t working, I thought about other industries that have gone through a digital revolution, which brought me to the telecom and cable industry. I learned much from Alan Babcock, president of Broadband Training Associates. As this industry digitized its grid over the last 13 years and began to focus more on services as opposed to products, it saw significant workforce changes – touching everyone from field crews, to executives, to marketing folks – that could happen to the utility industry as well.

Out In the Field

Before digitizing the telecom and cable industry, many field crews were still pencil and paper, and some still are today. But digitization changes weren’t just about figuring out how to use a truck-mounted laptop. The workforce has a whole new job to do today. In particular, they now have to troubleshoot new problems on multiple services in the network and become experts at devices on an end user’s premise.

Before digitization, field crews dealt with one service – like video in the cable industry – but now they have to balance multiple services in the same network, including voice, data and video. The decisions you make for one service will ultimately impact the others. So, with multiple services, it changes how you do regular maintenance, how you troubleshoot networks, and how you take the network down to make repairs. On top of that, technicians may not be able to take down certain parts of the network because of service level agreements with customers.

Besides dealing with multiple services, field crews have to better understand the devices that extend into customer premises – including modems for Internet or set-top boxes for cable. It can be embarrassing for a telecom or cable company when the consumer knows more about consumer devices than the technician.

Back In the Office

Digitizing the network not only changed KSAs for field crews, but has changed things in the back office of telecom and cable companies as well. These changes occurred in the areas of marketing, customer service, planning and IT.

  • Marketing to customers: Digitization provides cable and telecom companies with increased visibility into the customer premises. This is not only helpful with determining whether customers have service, but also understanding their entertainment preferences. These companies now better understand what entertainment you watch and when you watch it. Ultimately, they have a lot of information at their disposal to be able to better market to you. Telecom companies, however, weren’t traditionally in the entertainment industry, so better marketing to consumers required a new group of employees from outside telecom.
  • Customer service: Customer service has changed in many ways with the digitization of the telecom and cable industry. With a smarter grid, the utility industry often focuses on benefits that it will bring to the customer representatives in terms of access to more information, but there are other benefits to consider as well. An interesting twist in the telecom and cable industry is that as the network gets more complex, a customer service agent’s job gets somewhat simpler. Essentially, customer service representatives have to recall fewer technical details about the network than they did before. It is not as important that they understand how the networks function because they have better visibility into the premise and have more intelligent systems to walk them through trouble-shooting problems.
  • Capital and strategic planning: Digitization has changed the planning time horizon and knowledge requirements for telecom and cable executives. They must factor in the dizzying technology advancements in the industry; think about the rapid movement from 2G to 3G to 4G networks and beyond. The five-year plan now has to be the three-year plan. From a planning standpoint, they also need to better understand the networks in order to figure out how to best utilize and benefit from services that are enabled by those networks.
  • Designing and maintaining IT systems: Aside from learning how to design and maintain new technologies and systems, the technology personnel in telecom and the cable industry have learned some important lessons as they digitize the networks. The first is to more carefully consider the usefulness of new technologies. If a new technology comes along, it doesn’t mean that it has to be used. If a new technology does make sense to use, technology personnel need to consider the human aspects involved with making that change, including change management and making sure the technology is ready when people actually begin using it.

Involving Customers

Not only will the intelligent utility impact its own personnel, but it will impact consumers as well. In particular, utilities will have to help consumers to understand the value of changes and get them to participate in intelligent initiatives.

As I am sure many of you have realized from conversations with friends and family, many people do not understand smart grid benefits or even how the grid really works. Although more people are starting to realize the value, a key challenge is how to get consumers to grasp these concepts and support a smarter grid and more intelligent utility. Utilities have to figure out how to make these things real for people – and are finding many ways to do that. As one utility executive pointed out, “A technology center served to convince our community stakeholders and our PUC that this appears to be a worthwhile journey. The awareness to the consumer was a tremendous value. They were able to start thinking of the value of what we’re trying to build rather than what we’re trying to build.”

Many intelligent initiatives, from demand response to real-time pricing, focus on the end user and require some level of consumer effort. Consumer participation is key for success, but utilities are finding it challenging to get participation. Solutions range from more automation in controlling household appliances and HVAC systems to competition between neighbors regarding energy consumption, but there is still much work to be done in this area, depending on consumer demographics.

Be A People Person

It is easy to get caught up in the technology hype, but as the examples above demonstrate, it is important to keep people in the equation when looking at smart initiatives. People play a key role in determining their success or failure. By preparing for the people factor and considering them in smart initiatives, utilities can better ensure the adoption and success of new technologies and processes.

Customer Service in the Brave New World of Today’s Utilities

A NEW GENERATION OF CUSTOMER

Today’s utility customers are energy dependant, information driven, technologically advanced, willing to change and environmentally friendly. Their grandparents prompted utilities to develop and offer levelized billing, and their parents created the need for online bill presentment and credit card payment. This new generation of customer is about to usher in a brave new world of utility customer service in which the real-time utility will conduct business 24 hours a day, seven days a week, 365 days a year, and Internet-savvy consumers will have all the capabilities of the current customer service representative. They’ll be able to receive pricing signals and control their utility usage via Internet portals, as well as shop among utilities for the best price and switch providers.

Expectations of system reliability are high today. Ten years ago, when the customer called to let you know their power was out, the call took 20 seconds; today, they expect you to already know that their power is out and be able to provide additional information about the nature and duration of that outage. What’s wrong? Are crews on the way? What’s the ETR? Can you text me when it’s back on? The call that includes these questions (and more) takes three times as long as that phone call 10 years ago. Thankfully, utility technology is coming of age just in time to meet the needs of evolving utility customers.

Many utilities already use automated circuit switchers to monitor lines for potential fault conditions and to react in real time to isolate faults and restore power. Automated metering systems send out “last gasp” outage notifications to outage management systems to predict the location of a problem for quicker restoration of service. Two-way communications systems send signals to smart appliances, system monitoring devices and customer messaging orbs to affect customer usage patterns. Fiber-to-the-home (FTTH) and wireless systems communicate meter usage in near real time to enable monitoring for abnormal consumption patterns. If customers have all of this data at their fingertips, what more will they expect from their utility service professionals? Advanced metering infrastructure (AMI) and two-way communications between customer and utility provider are essential to the future of these innovations. Figure 1 indicates the penetration of advanced metering by region.

A TOUCH OF ORWELL

This brave new world is not without risk. Tremendous amounts of data will be acquired and maintained. Monthly usage habits of consumers can provide incredible insight into customers’ lives – imagine the knowledge that real-time data can provide. As marketers begin to understand the powerful communications channels utilities possess, partnerships will emerge to maximize their value. Privacy laws and regulations defining proper use and misuse of data similar to Customer Private Network Information (CPNI) legislation will emerge just as they did in the telecommunications industry. Thus, it would be wise for the utility industry to take steps to limit use prior to legislative mandates being enacted that would create barriers to practical use.

EMERGING BUSINESSES CREATING VALUE FOR CUSTOMERS

Many of the technologies discussed in this paper already exist; the future will simply make their application more common – the interesting part will come in seeing how these products and services are bundled and who will provide them. Over the next 10 years, many new services (and a few new spins on old ones) will be offered to the consumer via this new infrastructure. The array of service offerings will be as broad as the capabilities that are created through the utilities infrastructure design. Utilities offering only one-way communication from the meter will be limited, while utilities with two-way communication riding their own fiber-optic systems will find a vast number of opportunities. Some of these services will fall within the core competency of the utility and be a natural fit in creating new revenue streams; others will require new partnerships to enable their existence. Some will span residential, commercial and industrial market segments, while others will be tailored to the residential customer only.

Energy management and consulting services will flourish during the initial period, especially in areas where time-of-use rates are incorporated in all market segments. Cable, Internet, telephone and security services will consolidate in areas where fiber-to-the-home is part of the infrastructure. Utilities’ ability to provide these services may be greatly effected by their legal and regulatory structures. Where limitations are imposed related to scope and type of services, partnerships will be formed to enable cost-effective service. Figure 2 shows what utilities reported to be the most common AMI system usages in a recent Federal Energy Regulatory Commission (FERC) survey.

As shown in Figure 2, load control, demand response monitoring and notification of price changes are already a part of the system capabilities. As an awareness of energy efficiency develops, a new focus on conservation will give rise to a newfound interest in smart appliances. Their operational characteristics will be more sophisticated than the predecessors of the “cycle and save” era, and they will meet customers’ demand for energy savings and environmental friendliness. This will not be limited to water heaters and heating, venting and air-conditioning (HVAC) units. The new initiatives will encompass refrigerators, freezers, washers, dryers and other second-order appliances, driving conservation derived from time-of-day use to a new level. And these initiatives will not be limited to electricity.

IMPACTS OF TECHNOLOGICAL CHANGE ON OTHER UTILITIES

Very few utility services will be exempt from the impact of changes in the electric industry. Natural gas and water usage, too, will be impacted as the nation focuses its attention on the efficient use of resources. Natural gas time-of-use rates will rise along with interruptible rates for residential consumers. This may take 10 to 15 years to occur, and a declining usage trend will need to be reversed; however, the same infrastructure restraints and concerns that plague the electric industry will be recognized in the natural gas industry as well. Thus, we can expect energy providers to adopt these rates in the future to stay competitive. If the electric systems are able to shift peak usage and levelize loads, the need for natural gas-fired generation will diminish. Natural gas-fired generation plants for system peaking would become unnecessary, and the decrease in demand would assist in stabilizing natural gas pricing.

Water availability issues are no longer limited to the Western United States, with areas such as Atlanta now beginning to experience water shortages as well. As a result, reverse-step rates that encourage water usage are being replaced with fixed and progressive step-rate structures to encourage water conservation. Automated metering can assist in eliminating waste, identifying excessive use during curtailment periods and creating a more efficient water distribution system. As energy time-of-use rates are implemented, water and wastewater treatment plants may find efficiencies in offering time-of-use rates as well in order to shape the usage characteristics of their customers without adding increased facilities. Even if this does not occur, time-of-use shifting of electrical load will have an impact on water usage patterns and effectively change water and wastewater operational characteristics.

In a world of increasing environmental vulnerability, the ability to monitor backflow in water metering will be essential in our efforts to be environmentally safe and monitor domestic threats to the water supply. Although technology’s ability to identify such threats will not prevent their occurrence, it will help utilities evaluate events and respond in order to isolate and diminish possible future threats.

IMPLICATIONS FOR UTILITIES

The above-described technological innovations don’t come without an impact to the service side of utilities. It will be difficult at best for utilities to modify legacy systems to take advantage of the benefits found in new technologies. More robust computer systems implemented in preparation for Y2K will be capable of some modifications; however, new software offerings are being designed today to address the vast opportunities that will soon exist. Processes for data management, storage and retrieval and use will need to be developed. And a new breed of customer service representative will begin to evolve. New technologies, near realtime information available to the consumer, unique customer and appliance configurations, and partnerships and services that go beyond the core competencies of the current workforce will create a short-term gap in trained customer service professionals. Billing departments will expand as rates become more complex. And the increased flexibility of customer information systems will require extensive checks and verifications to ensure accuracy.

Figure 3 (created by Robert Pratt of Pacific Northwest National Laboratory) provides a picture of the new landscape being created by the technologies utilities are implementing and the implications they have for customers.

Utilities with completely integrated systems will be the biggest winners in the future. Network management; geographic information systems; customer information systems; work order systems; supervisory control and data acquisition (SCADA) systems; and financial systems that communicate openly will be positioned to recognize the early wins that will spark the next decade of innovation. Cost-to-serve models continue to resonate as a popular topic among utility providers, and the impact of new technology will assist in making this integral to financial success.

The processes underlying current policies and procedures were designed for the way utilities traditionally operated – which is precisely why today’s utilities must take a systematic approach to re-evaluating their business processes if they’re to take advantage of new technology. They’ll even need to consider the cost of providing a detailed bill and mail delivery. The existence of real-time readings may bring dramatic changes in payment processing. Prepay accounts may eliminate the need to require deposits or assume risk for uncollectible accounts. Daily, weekly and semi-monthly payments may bring added cost (as may allowing customers to choose their due dates in the traditional arrears billing model); thus, utilities must consider the implications of these actions on cash fl ow and risk before implementing them. Advance notice of service interruption due to planned maintenance or construction can be communicated electronically over two-way automated meter reading (AMR) systems to orbs, communication panels, computers or other means. These same capabilities will dramatically change credit and collections efforts over the next 10 years. Electronic notification of past due accounts, shut-off and reconnection can all be done remotely at little cost to the utility.

IMPLICATIONS FOR CONSUMERS

Customers and commercial marketing efforts will be the driving forces for much of the innovation we’ll witness in coming years. No longer are customers simply comparing utilities against each other; today, they’re comparing utility customer service with their best and worst customer experiences regardless of industry. This means that customers are comparing a utility’s website capabilities with Amazon. com and its service response with the Ritz Carlton, Holiday Inn or Marriott they might frequent. Service reliability is measured against FedEx. Customer service expectations are raised with every initiative of competitive enterprise – a fact utilities will have to come to terms with if they’re to succeed.

All customers are not created equal. Technologically advanced customers will find the future exciting, while customers who view their utility as just another service provider will find it complicated and at times overwhelming. Utilities must communicate with customers at all levels to adequately prepare them for a future that’s already arrived.

Microsoft Helps Utilities Use IT to Create Winning Relationships

The utilities industry worldwide is experiencing growing energy demand in a world with shifting fuel availability, increasing costs, a shrinking workforce and mounting global environmental pressures. Rate case filings and government regulations, especially those regarding environmental health and safety, require utilities to streamline reporting and operate safely enterprise-wide. At the same time, increasing competition and costs drive the need for service reliability and better customer service. Each issue causes utilities to depend more and more on information technology (IT).

The Microsoft Utility team works with industry partners to create and deploy industry-specific solutions that help utilities transform challenges into opportunities and empower utilities workers to thrive in today’s market-driven environment. Solutions are based on the world’s most cost-effective, functionally rich, and secure IT platform. The Microsoft platform is interoperable with a wide variety of systems and proven to improve people’s abilities to access information and work with others across boundaries. Together, they help utilities optimize operations in each line of business.

Customer care. Whether a utility needs to modernize a call center, add customer self-service or respond to new business requirements such as green power, Microsoft and its partners provide solutions for turning the customer experience into a powerful competitive advantage with increased cost efficiencies, enhanced customer service and improved financial performance.

Transmission and distribution. Growing energy demand makes it critical to effectively address safe, reliable and efficient power delivery worldwide. To help utilities meet these needs, Microsoft and its partners offer EMS, DMS and SCADA systems; mobile workforce management solutions; project intelligence; geographic information systems; smart metering/grid; and work/asset/document management tools that streamline business processes and offer connectivity across the enterprise and beyond.

Generation. Microsoft and its partners provide utilities with a view across and into their generation operations that enables them to make better decisions to improve cycle times, output and overall effectiveness while reducing the carbon footprint. With advanced software solutions from Microsoft and its partners, utilities can monitor equipment to catch early failure warnings, measure fleets’ economic performance and reduce operational and environment risk.

Energy trading and risk management. Market conditions require utilities to optimize energy supply performance. Microsoft and its partners’ enterprise risk management and trading solutions help utilities feed the relentless energy demands in a resource-constrained world.

Regulatory compliance. Microsoft and its partners offer solutions to address the compliance requirements of the European Union; Federal Energy Regulatory Commission; North American Reliability Council; Sarbanes-Oxley Act of 2000; Environmental, Health and Safety; and other regional jurisdiction regulations and rate case issues. With solutions from Microsoft partners, utilities have a proactive approach to compliance, the most effective way to manage operational risk across the enterprise.

Enterprise. To optimize their businesses, utility executives need real-time visibility across the enterprise. Microsoft and its partners provide integrated e-business solutions that help utilities optimize their interactions with customers, vendors and partners. These enterprise applications address business intelligence and reporting, customer relationship management, collaborative workspaces, human resources and financial management.

The Distributed Utility of the (Near) Future

The next 10 to 15 years will see major changes – what future historians might even call upheavals – in the way electricity is distributed to businesses and households throughout the United States. The exact nature of these changes and their long-term effect on the security and economic well-being of this country are difficult to predict. However, a consensus already exists among those working within the industry – as well as with politicians and regulators, economists, environmentalists and (increasingly) the general public – that these fundamental changes are inevitable.

This need for change is in evidence everywhere across the country. The February 26, 2008, temporary blackout in Florida served as just another warning that the existing paradigm is failing. Although at the time of this writing, the exact cause of that blackout had not yet been identified, the incident serves as a reminder that the nationwide interconnected transmission and distribution grid is no longer stable. To wit: disturbances in Florida on that Tuesday were noted and measured as far away as New York.

A FAILING MODEL

The existing paradigm of nationwide grid interconnection brought about primarily by the deregulation movement of the late 1990s emphasizes that electricity be generated at large plants in various parts of the country and then distributed nationwide. There are two reasons this paradigm is failing. First, the transmission and distribution system wasn’t designed to serve as a nationwide grid; it is aged and only marginally stable. Second, political, regulatory and social forces are making the construction of large generating plants increasingly difficult, expensive and eventually unfeasible.

The previous historic paradigm made each utility primarily responsible for generation, transmission and distribution in its own service territory; this had the benefit of localizing disturbances and fragmenting responsibility and expense. With loose interconnections to other states and regions, a disturbance in one area or a lack of resources in a different one had considerably less effect on other parts of the country, or even other parts of service territories.

For better or worse, we now have a nationwide interconnected grid – albeit one that was neither designed for the purpose nor serves it adequately. Although the existing grid can be improved, the expense would be massive, and probably cost prohibitive. Knowledgeable industry insiders, in fact, calculate that it would cost more than the current market value of all U.S. utilities combined to modernize the nationwide grid and replace its large generating facilities over the next 30 years. Obviously, the paradigm is going to have to change.

While the need for dramatic change is clear, though, what’s less clear is the direction that change should take. And time is running short: North American Electric Reliability Corp. (NERC) projects serious shortages in the nation’s electric supply by 2016. Utilities recognize the need; they just aren’t sure which way to jump first.

With a number of tipping points already reached (and the changes they describe continuing to accelerate), it’s easy to envision the scenario that’s about to unfold. Consider the following:

  • The United States stands to face a serious supply/demand disconnect within 10 years. Unless something dramatic happens, there simply won’t be nearly enough electricity to go around. Already, some parts of the country are feeling the pinch. And regulatory and legislative uncertainty (especially around global warming and environmental issues) makes it difficult for utilities to know what to do. Building new generation of any type other than “green energy” is extremely difficult, and green energy – which currently meets less than 3 percent of U.S. supply needs – cannot close the growing gap between supply and demand being projected by NERC. Specifically, green energy will not be able to replace the 50 percent of U.S. electricity currently supplied by coal within that 10-year time frame.
  • Fuel prices continue to escalate, and the reliability of the fuel supply continues to decline. In addition, increasing restrictions are being placed on fuel selection, especially coal.
  • A generation of utility workers is nearing retirement, and finding adequate replacements among the younger generation is proving increasingly difficult.
  • It’s extremely difficult to site new transmission – needed to deal with supply-and-demand issues. Even new Federal Energy Regulatory Commission (FERC) authority to authorize corridors is being met with virulent opposition.

SMART GRID NO SILVER BULLET

Distributed generation – including many smaller supply sources to replace fewer large ones – and “smart grids” (designed to enhance delivery efficiency and effectiveness) have been posited as solutions. However, although such solutions offer potential, they’re far from being in place today. At best, smart grids and smarter consumers are only part of the answer. They will help reduce demand (though probably not enough to make up the generation shortfall), and they’re both still evolving as concepts. While most utility executives recognize the problems, they continue to be uncertain about the solutions and have a considerable distance to go before implementing any of them, according to recent Sierra Energy Group surveys.

According to these surveys, more than 90 percent of utility executives now feel that the intelligent utility enterprise and smart grid (IUE/SG) – that is, the distributed utility – represents an inevitable part of their future (Figure 1). This finding was true of all utility types supplying electricity.

Although utility executives understand the problem and the IUE/SG approach to solving part of it, they’re behind in planning on exactly how to implement the various pieces. That “planning lag” for the vision can be seen in Figure 2.

At least some fault for the planning lag can be attributed to forces outside the utilities. While politicians and regulators have been emphasizing conservation and demand response, they’ve failed to produce guidelines for how this will work. And although a number of states have established mandatory green power percentages, Congress failed to do the same in an Energy Policy Act (EPACT) adopted in December 2007. While the EPACT of 2005 “urged” regulators to “urge” utilities to install smart meters, it didn’t make their installation a requirement, and thus regulators have moved at different speeds in different parts of the country on this urging.

Although we’ve entered a new era, utilities remain burdened with the internal problems caused by the “silo mentality” left over from generations of tight regulatory control. Today, real-time data is often still jealously guarded in engineering and operations silos. However, a key component in the development of intelligent utilities will be pushing both real-time and back-office data onto dashboards so that executives can make real-time decisions.

Getting from where utilities were (and in many respects still are) in the last century to where they need to be by 2018 isn’t a problem that can be solved overnight. And, in fact, utilities have historically evolved slowly. Today’s executives know that technological evolution in the utility industry needs to accelerate rapidly, but they’re uncertain where to start. For example, should you install an advanced metering structure (AMI) as rapidly as possible? Do you emphasize automating the grid and adding artificial intelligence? Do you continue to build out mobile systems to push data (and more detailed, simpler instructions) to field crews who soon will be much younger and less experienced? Do you rush into home automation? Do you build windmills and solar farms? Utilities have neither the financial nor human resources to do everything at once.

THE DEMAND FOR AMI

Its name implies that a smart grid will become increasingly self-operating and self-healing – and indeed much of the technology for this type of intelligent network grid has been developed. It has not, however, been widely deployed. Utilities, in fact, have been working on basic distribution automation (DA) – the capability to operate the grid remotely – for a number of years.

As mentioned earlier, most theorists – not to mention politicians and regulators – feel that utilities will have to enable AMI and demand response/home automation if they’re to encourage energy conservation in an impending era of short supplies. While advanced meter reading (AMR) has been around for a long time, its penetration remains relatively small in the utilities industry – especially in the case of advanced AMI meters for enabling demand response: According to figures released by Sierra Energy Group and Newton-Evans Research Co., only 8 to 10 percent of this country’s utilities were using AMI meters by 2008.

That said, the push for AMI on the part of both EPACT 2005 and regulators is having an obvious effect. Numerous utilities (including companies like Entergy and Southern Co.) that previously refused to consider AMR now have AMI projects in progress. However, even though an anticipated building boom in AMI is finally underway, there’s still much to be done to enable the demand response that will be desperately needed by 2016.

THE AUTOMATED HOME

The final area we can expect the IUE/SG concept to envelope comes at the residential level. With residential home automation in place, utilities will be able to control usage directly – by adjusting thermostats or compressor cycling, or via other techniques. Again, the technology for this has existed for some time; however, there are very few installations nationwide. A number of experiments were conducted with home automation in the early- to mid-1990s, with some subdivisions even being built under the mantra of “demand-side management.”

Demand response – the term currently in vogue with politicians – may be considered more politically correct, but the net result is the same. Home automation will enable regulators, through utilities, to ration usage. Although politicians avoid using the word rationing, if global warming concerns continue to seriously impact utilities’ ability to access adequate generation, rationing will be the result – making direct load control at the residential level one of the most problematic issues in the distributed utility paradigm of the future. Are large numbers of Americans going to acquiesce calmly to their electrical supply being rationed? No one knows, but there seem to be few options.

GREEN PRESSURE AND THE TIPPING POINT

While much legitimate scientific debate remains about whether global warming is real and, if so, whether it’s a naturally occurring or man-made phenomenon (arising primarily from carbon dioxide emissions), that debate is diminishing among politicians at every level. The majority of politicians, in fact, have bought into the notion that carbon emissions from many sources – primarily the generation of electricity by burning coal – are the culprit.

Thus, despite continued scientific debate, the political tipping point has been reached, and U.S. politicians are making moves to force this country’s utility industry to adapt to a situation that may or may not be real. Whether or not it makes logical or economic sense, utilities are under increasing pressure to adopt the Intelligent Utility/Smart Grid/Home Automation/Demand Response model – a model that includes many small generation points to make up for fewer large plants. This political tipping point is also shutting down more proposed generation projects each month, adding to the likely shortage. Since 2000, approximately 50 percent of all proposed new coal-fired generation plants have been canceled, according to energy-industry adviser Wood McKenzie (Gas and Power Service Insight, February 2008).

In the distant future, as technology continues to advance, electric generation in the United States will likely include a mix of energy sources, many of them distributed and green. however, there’s no way that in the next 10 years – the window of greatest concern in the NERC projections on the generation and reliability side – green energy will be ready and available in sufficient quantities to forestall a significant electricity shortfall. Nuclear energy represents the only truly viable solution; however, ongoing opposition to this form of power generation makes it unlikely that sufficient nuclear energy will be available within this period. The already-lengthy licensing process (though streamlined somewhat of late by the Nuclear Regulatory Commission) is exacerbated by lawsuits and opposition every step of the way. In addition, most of the necessary engineering and manufacturing processes have been lost in the United States over the last 30 years – the time elapsed since the last U.S. nuclear last plant was built – making it necessary to reacquire that knowledge from abroad.

The NERC Reliability Report of Oct. 15, 2007, points strongly toward a significant shortfall of electricity within approximately 10 years – a situation that could lead to rolling blackouts and brownouts in parts of the country that have never experienced them before. It could also lead to mandatory “demand response” – in other words, rationing – at the residential level. This situation, however, is not inevitable: technology exists to prevent it (including nuclear and cleaner coal now as well as a gradual development of solar, biomass, sequestration and so on over time, with wind for peaking). But thanks to concern over global warming and other issues raised by the environmental community, many politicians and regulators have become convinced otherwise. And thus, they won’t consider a different tack to solving the problem until there’s a public outcry – and that’s not likely to occur for another 10 years, at which point the national economy and utilities may already have suffered tremendous (possibly irreparable) harm.

WHAT CAN BE DONE?

The problem the utilities industry faces today is neither economic nor technological – it’s ideological. The global warming alarmists are shutting down coal before sufficient economically viable replacements (with the possible exception of nuclear) are in place. And the rest of the options are tied up in court. (For example, the United States needs 45 liquefied natural gas plants to be converted to gas – a costly fuel with iffy reliability – but only five have been built; the rest are tied up in court.) As long as it’s possible to tie up nuclear applications for five to 10 years and shut down “clean coal” plants through the political process, the U.S. utility industry is left with few options.

So what are utilities to do? They must get much smarter (IUE/Sg), and they must prepare for rationing (AMI/demand response). As seen in SEG studies, utilities still have a ways to go in these areas, but at least this is a strategy that can (for the most part) be put in place within 10 to 15 years. The technology for IUE/Sg already exists; it’s relatively inexpensive (compared with large-scale green energy development and nuclear plant construction); and utilities can employ it with relatively little regulatory oversight. In fact, regulators are actually encouraging it.

For these reasons, IUE/SG represents a major bridge to a more stable future. Even if today’s apocalyptic scenarios fail to develop – that is, global warming is debunked, or new generation sources develop much more rapidly than expected – intelligent utilities with smart grids will remain a good idea. The paradigm is shifting as we watch – but will that shift be completed in time to prevent major economic and social dislocation? Fasten your seatbelts: the next 10 to 15 years should be very interesting!

Using Analytics for Better Mobile Technology Decisions

Mobile computing capabilities have been proven to drive business value by providing traveling executives, field workers and customer service personnel with real-time access to customer data. Better and more timely access to information shortens response times, improves accuracy and makes the workforce more productive.

However, although your organization may agree that technology can improve business processes, different stakeholders – IT management, financial and business leadership and operations personnel – often have different perspectives on the real costs and value of mobility. For example, operations wants tools that help employees work faster and focus more intently on the customer; finance wants the solution that costs the least amount this quarter; and IT wants to implement mobile projects that can succeed without draining resources from other initiatives.

It may not be obvious, but there are ways to achieve everyone’s goals. Analytics can help operations, finance and IT find common ground. When teams understand the data, they can understand the logic. And when they understand the logic they can support making the right decision.

EXPOSING THE FORMULA

Deploying mobile technology is a strategic initiative with far-reaching consequences for the health of an enterprise. In the midst of evaluating a mobile project, however, it’s easy to forget that the real goal of hardware-acquisition initiatives is to make the workforce more productive and improve both the top and bottom lines over the long term.

Most decision-analytics tools focus on up-front procurement questions alone, because the numbers seem straightforward and uncomplicated. But these analyses miss the point. The best analysis is one that can determine which of the solutions will provide the most advantages to the workforce at the lowest possible overall cost to the organization.

To achieve the best return on investment we must do more than recoup an out-of-pocket expense: Are customers better served? Are employees working better, faster, smarter? Though hard to quantify, these are the fundamental aspects that determine the return on investment (ROI) of technology.

It’s possible to build a vendor-neutral analysis to calculate the total cost of ownership (TCO) and ROI of mobile computers. Panasonic Computer Solutions Company, the manufacturer of Toughbook notebooks, enlisted the services of my analytics company, Serious Networks, Inc., to develop an unbiased TCO/ROI application to help companies make better decisions when purchasing mobile computers.

The Panasonic-sponsored operational analysis tool provides statistically valid answers by performing a simulation of the devices as they would be used and managed in the field, generating a model that compares the costs and benefits of multiple manufacturers’ laptops. Purchase cost, projected downtime, the range of wireless options, notebook features, support and other related costs are all incorporated into this analytic toolset.

Using over 100 unique simulations with actual customers, four key TCO/ROI questions emerged:

  • What will it cost to buy a proposed notebook solution?
  • What will it cost to own it over the life of the project?
  • What will it cost to deploy and decommission the units?
  • What value will be created for the organization?

MOVING BEYOND GUESSTIMATES – CONSIDERING COSTS AND VALUE OVER A LIFETIME

There is no such thing as an average company, so an honest analysis uses actual corporate data instead of industry averages. Just because a device is the right choice for one company does not make it the right choice for yours.

An effective simulation takes into account the cost of each competing device, the number of units and the rate of deployment. It calculates the cost of maintaining a solution and establishes the value of productive time using real loaded labor rates or revenue hours. It considers buy versus lease questions and can extrapolate how features will be used in the field.

As real-world data is entered, the software determines which mobile computing solution is most likely to help the company reach its goals. Managers can perform what-if analyses by adjusting assumptions and re-running the simulation. Within this framework, managers will build a business case that forecasts the costs of each mobile device against the benefits derived over time (see Figures 1 and 2).

MAKING INTANGIBLES TANGIBLE

The 90-minute analysis process is very granular. It’s based on the industry segment – because it simulates the tasks of the workforce – and compares up to 10 competing devices.

Once devices are selected, purchase or lease prices are entered, followed by value-added benefits like no-fault warranties and on-site support. Intangible factors favoring one vendor over another, such as incumbency, are added to the data set. The size and rate of the deployment, as well as details that determine the cost of preparing the units for the workforce, are also considered.

Next the analysis accounts for the likelihood and cost of failure, using your own experience as a baseline. Somewhat surprisingly, the impact of failure is given less weight than most outside observers would expect. Reliability is important, but it’s not the only or most important attribute.

What is given more weight are productivity and operational enhancements, which can have a significantly greater financial impact than reliability, because statistically employees will spend much more of their time working than dealing with equipment malfunctions.

A matrix of features and key workforce behaviors is developed to examine the relative importance of touch screens, wireless and GPS, as well as each computer vendor’s ability to provide those features as standard or extra-cost equipment. The features are rated for their time and motion impact on your organization, and an operations efficiency score is applied to imitate real-world results.

During the session, the workforce is described in detail, because this information directly affects the cost and benefit. To assess the value of a telephone lineman’s time, for example, the system must know the average number of daily service orders, the percentage of those service calls that require re-work and whether linemen are normally in the field five, six or seven days a week.

Once the data is collected and input it can be modified to provide instantaneous what-if, heads-up and break-even analyses reports – without interference from the vendor. The model is built in Microsoft Excel so that anyone can assess the credibility of the analysis and determine independently that there are no hidden calculations or unfair formulas skewing the results.

CONCLUSION

The Panasonic simulation tool can help different organizations within a company come to consensus before making a buying decision. Analytics help clarify whether a purpose-built rugged or business-rugged system or some other commercial notebook solution is really the right choice for minimizing the TCO and maximizing the ROI of workforce mobility.

ABOUT THE AUTHOR

Jason Buk is an operations director at Serious Networks, Inc., a Denver-based business analytics firm. Serious Networks uses honest forecasting and rigorous analysis to determine what resources are most likely to increase the effectiveness of the workforce, meet corporate goals and manage risk in the future.