The Smart Grid Maturity Model

The software industry has been using maturity models to define and measure software development capabilities for decades. These models have helped the industry create a shared vision for these capabilities. They also have driven individual software development organizations to set and pursue aggressive capabilities goals while allowing these groups to measure progress in reaching those objectives along the way.

As the utility industry embarks on the complex and ambitious transformation of the outdated power grid to the new smart grid, it has struggled to develop a shared vision for the smart grid end-state and the path to its development and deployment. Now, the smart grid maturity model (SGMM) is helping the industry overcome these challenges by presenting a consensus vision of the smart grid, the benefits it can bring and the various levels of smart grid development and deployment maturity. SGMM is helping numerous utilities worldwide develop targets for their smart grid strategy, and build roadmaps of the activities, investments and best practices that will lead them to their future smart grid state.

IBM worked closely with members of the Intelligent Utility Network Coalition (IUNC) to develop, discuss and revise several drafts of the SGMM. This team was assisted by APQC, a member-based nonprofit organization that provides benchmarking and best-practice research for approximately 500 organizations worldwide. The goal in the development process was to ensure the SGMM reflects a consensus industry vision for the smart grid, and brings together a wide range of industry experts to define the technical, organizational and process details supporting that vision.

APQC has a long history of benchmarking, performance measurement and maturity definition, and was therefore able to provide critical experience to drive development of a clear, measureable maturity model. IBM has worked on smart grid initiatives with numerous utilities around the world, and provided guidance and some initial structure to help start the development process. But the most important contributors to the SGMM were utilities themselves, as they brought a wealth of deep technical and strategic knowledge to build a shared vision of the smart grid and the various stages of maturity that could be achieved.

Because of this consensus development process, the SGMM reflects a broad industry vision for the smart grid, and it now gives utilities a tool for both strategic and tactical use to guide, measure and assess a utility’s smart grid transformation:

Strategic uses of the SGMM:

  • Establish a shared vision for the smart grid journey;
  • Communicate the smart grid vision, both internally and externally;
  • Use as a strategic framework for evaluating smart grid business and investment objectives;
  • Plan for technological, regulatory, and organizational readiness; and
  • Benchmark and learn from others

Tactical uses of the SGMM:

  • Guide development of a specific smart grid roadmap or blueprint;
  • Assess and prioritize current smart grid opportunities and projects;
  • Use as a decision-making framework for smart grid investments;
  • Assess resource needs to move from one smart grid level to another; and
  • Measure smart grid progress using key performance indicators (KPIs).

The SGMM structure is based on three fundamental concepts:

Domains: eight logical groupings of functional components of a smart grid transformation implementation;

Maturity Levels: five sets of defined characteristics and outcomes; and

Characteristics: descriptions of over 200 capabilities that are expected at each stage of the smart grid journey.

As Figure 1 shows, the domains span eight areas covering people, technology, and process, and comprise all of the fundamental components of smart grid capabilities.

Maturity levels range from an entry level of 1, up to a top level of 5, and can be summarized as follows:

Level 1 – Exploring and Initiating: contemplating smart grid transformation; may have a vision, but no strategy yet; exploring options; evaluating business cases and technologies; may have some smart grid elements already deployed.

Level 2 – Functional Investing: making decisions, at least at a functional level; business cases in place and investments being made; one or more functional deployments under way with value being realized; strategy in place.

Level 3 – Integrating Cross Functional: smart grid spreading; operational linkages established between two or more functional areas; management ensuring decisions span functional interests, resulting in cross-functional benefits.

Level 4 – Optimizing Enterprise-Wide: smart grid functionality and benefits realized; management and operational systems rely on and take full advantage of observability and integrated control, both across and between enterprise functions.

Level 5 – Innovating Next Wave of Improvements: new business, operational, environmental, and societal opportunities present themselves, and the capability exists to take advantage of them.

It is important to note that a utility may not choose to target maturity level 5 in every domain – in fact, it may not target level 5 for any domain. Instead, each utility using the SGMM must consider its own strategic direction and performance goals, and then decide on the levels of smart grid maturity that will support those goals to determine the target maturity in each domain. For example, a utility that is strategically focused on the retail side of the business may want to achieve relatively high maturity in the customer management and experience domain, but have a much lower target for maturity in the grid operations domain.

The key point is that the SGMM is not a report card with those utilities reaching the highest maturity levels "winning the game." Instead, each utility uses the SGMM to understand how the smart grid can help optimize its planning and investment to achieve its aspirations.

With over 200 characteristics describing the capabilities for each domain and maturity level, it is not possible to describe them here, but an example of a typical characteristic shown in Figure 2 provides a good sense of the level of detail in each characteristic of the SGMM.

Taken together, the domains, maturity levels, and characteristics form a detailed matrix that describes smart grid maturity across all critical areas.

Evaluating Smart Grid Maturity

A utility uses two surveys in conjunction with the SGMM structure described above to: assess its smart grid maturity; and track its progress and the resulting benefits during deployment. The first survey is the maturity assessment, which asks a series of about 40 questions that cover the current state of the utility’s smart grid strategy and spending, and the current penetration of smart grid capabilities into various areas of the business. The assessment yields a detailed report, providing the results for each domain, as well as higher-level reports that show the broader view of the utility’s current state and aspirations for the smart grid.

In this example, the utility’s current smart grid maturity is shown by the green circles, while its maturity aspirations are shown by the yellow circles. This highlevel view can be very useful as support for detailed plans on how to get from current state to aspirational state. It is also helpful for conveying maturity concepts and results to various stakeholders – both inside and outside the utility.

The second survey is the opportunity and results survey, which focuses on KPIs that track progress in smart grid deployment, as well as realization of the resulting benefits. For example, many questions in the survey cover grid operations, with the focus on cost, reliability and penetration of smart grid capabilities into the "daily life" of grid operations. The survey is expected to be completed annually, allowing each utility using the SGMM to track its deployment progress and benefits realization.

Using SGMM Results

The results from the SGMM can be applied in many ways to gauge a utility’s smart grid progress. From a practical management standpoint, the following important indicators can be derived directly from the SGMM process:

  • How the utility compares to other survey participants overall;
  • Where the utility has deficiencies in one domain that may adversely affect other domains;
  • Effects of being potentially projectoriented rather than program-driven, resulting in a jagged, "peaks and valleys" maturity profile with uneven advancement;
  • Indications that some domains are too far ahead of others, resulting in the risk of putting the "cart before the horse;" and
  • Confirmation of progress in domains that have been given particular focus by the utility, and indications of domains that may require increased focus.

More broadly, completion of the SGMM surveys provide a utility with the information needed to establish a shared smart grid vision with both internal and external stakeholders, mesh that vision with the utility’s overall business strategy to set maturity targets, and then build a detailed roadmap for closing the gaps between the current and target maturity levels.

Transition of SGMM Stewardship

IBM has been pleased to work with APQC and members of the IUNC to support definition and early roll-out of the SGMM. But as an important and evolving industry tool, IBM believes that the SGMM should be supported and maintained by a broader group. Therefore, we are planning to transition to a stewardship model with three organizations each playing a critical role:

  • Governance, Management, and Growth: the Carnegie Mellon Software Engineering Institute will govern the SGMM, working in conjunction with Carnegie Mellon University and the Carnegie Mellon Electricity Industry Center. The institute and its 500 employees will leverage its 20 years of experience as stewards of the Capability Maturity Model for software development.
  • Global Stakeholder Representation and Advocacy: the World Energy Council will provide representation for stakeholders around the globe. The council was established in 1923, represents 95 member countries and regularly hosts the World Energy Congress. Its mission is to promote the sustainable supply and use of energy for the greatest benefit of all people. This mission fits well with the development of the smart grid and the expanding use of the SGMM.
  • Data Collection and Reporting: APQC will provide further support for the SGMM survey process. With over 30 years of quality and process improvement research, APQC will continue the work it has done to date to assist utilities in assessing their smart grid maturity and tracking their progress during deployment.

Summary

All utilities should consider using the SGMM as they develop their vision for the smart grid and begin to plan and execute the projects that will take them on the journey. The SGMM represents the best strategic and technical thinking of a broad cross-section of the utility industry. We believe that the SGMM will continue to represent a thoughtful and consensus view as the smart grid – and the technology that supports it – evolves over the next few years.

Surviving the Turmoil

With the new administration talking about a trillion dollars of infrastructure investment, the time for the intelligent utility of the future is now. Political pressure and climate change are going to drive massive investments in renewable and clean energy and smart grid technology. These investments will empower customers through the launch and adoption of demand response and energy efficiency programs.

Many believe that the utility industry will change more in the next five years than the previous 50. The greatest technological advancements are only valuable if they can enable desired business outcomes. In a world of rapidly changing technology it is easy to get caught up in the decisions of what to put in, how, when, and where – making it easy to forget why.

A New Era Emerges

The utility industry has, for decades, been the sleeping giant of the U.S. economy. Little has changed in service delivery and consumer options over the last 50 years. But a perfect storm of legislation, funding and technology has set in motion new initiatives that will change the way customers use and think about their utility service. The American Recovery and Reinvestment Act allocates more than $4 billion, via the Smart Grid Investment Grant Program, for development and upgrade of the electrical grid. Simultaneously, significant strides in smart metering technology make the prospect of a rewired grid more feasible.

While technological advances toward the intelligent utility are exciting, technology in and of itself is not the solution for the utility of the future. How those technologies are applied to supporting business outcomes will be key to success in a consumer-empowered environment. Those outcomes must include considerations such as increasing or sustaining customer service levels and reducing bad debt through innovative charging methods and better control of consumption patterns.

Facing New Challenges

Future smart grid considerations aside, consumer expectations are already undergoing transformation. Although some energy prices have decreased recently in light of declining natural gas prices, the long-term trend indicates rates will continue to climb. Faced with increasing energy costs and declining household incomes, customers are looking for options to reduce their utility bill. Further, utilities’ ability to meet demand during peak periods is often inadequate. According to the Galvin Electricity Initiative, “Each day, roughly 500,000 Americans spend at least two hours without electricity in their homes and businesses. Such outages cost at least $150 billion a year. The future looks even worse. Without substantial innovation and investment, rolling blackouts and soaring power bills will become a persistent fact of life [1].”

Simultaneously, environmental concerns are influencing a greater number of consumers than in the past. In April 2009, the U.S. Environmental Protection Agency (EPA) announced it had identified six greenhouse gases that may endanger public health or welfare [2]. According to the EPA, the process of generating electricity creates 41 percent of all carbon dioxide emissions in the U.S. Utilities are under pressure to offer ways to reduce the impact of fossil fuels to accommodate rapidly changing economic and social conditions.

Strategies such as rate structures that incent customers to schedule their energy-intensive activities during off-peak times would help the utility to avoid, or reduce, reliance on the facilities that produce greenhouse gases. Lowering a residential thermostat by just 2 degrees reduces reliance on less desirable sources of generation. According to McKinsey &
Company, carbon dioxide emissions can be reduced by 34 percent in the residential sector alone through enhanced energy productivity [3].

If a significant number of residential consumers could reschedule their peak usage today, it would extend the life of the current infrastructure and reduce the need to raise rates in order to fund capital investments. But at present, in most jurisdictions there is no demonstrable incentive, such as rate structures that reward off-peak usage, to motivate consumers to conserve in any meaningful way.

Aging CIS

Those utilities saddled with aging customer information systems (CIS) – and those executives who have been reluctant to adopt new technology – will be challenged to adapt to the new paradigm. Even utilities with a relatively new CIS in place may find themselves with technology not suited to today’s world. Typically, utilities have been “load serving entities” – matching supply to demand. In the new recession-prone environment, proactive utilities will need to encourage conservation to match supply. Most utilities do not have the capability to show consumers how and when they can save money by using electricity during off-peak hours.

Until utilities can address these needs, and answer customer inquiries about how to save money and energy, they will not be in a position to focus on desired business outcomes. Currently, many utilities track quantitative performance indicators, not business outcomes.

Desired Business Outcomes

Determining the tools, processes or intellectual property needed to achieve desired business outcomes can be a dilemma. Realizing targeted results may require out-of-the-box thinking. To leverage best-in-class practices, many utilities seek external expertise ranging from advisory and consulting resources to a fully outsourced solution.

When addressing the changes the future utility faces, it is easy to become focused on the what, how, when and where to deploy emerging technology rather than the most important element – why deploy at all? Figure 1 depicts Vertex’s four-level solutions approach to business outcomes as an example of keeping the focus on the “why.”

Level 1: Identify Business Challenges. What are the key issues your organization is grappling with? They may be part of the macro trends impacting the industry as a whole or they may be specific to your company. The list might include issues such as substantial bad debt, poor customer satisfaction, declining revenue and profits, high operating cost to serve, and customer acquisition and retention.

Level 2: Identify Desired Outcomes. While acting on business challenges is an integral part of the process, the desired business outcomes are the drivers that will guide you to the solution. At the same time, the solution will also determine if the desired outcomes can be achieved with in-house resources or if an experienced third party should join the team. The solution will also clarify whether you have the technology to realize the desired outcomes or if an investment will be necessary. For example, desired outcomes might include reducing bad debt by 10 percent, improving customer satisfaction from the second quartile to the first quartile, or eliminating 30 percent of the cost of the meter-to-cash process. One or more of these outcomes may require new supporting technology.

Level 3: Develop and Implement Solution. Once the specific business challenges have been fully discussed and the desired outcomes outlined, the next step requires designing the solution to enable achievement. The solution needs to be realistic, in line with your corporate culture, and deliver the right mix of technology, innovation and practicality, all with the appropriate cost-to-value ratio. Management must avoid the lure of overengineering to meet the goal, and thereby incurring more expense and complexity than needed. And the journey from perceived solution to actual solution to achieve a desired outcome might include some surprising elements.

For example, accomplishing the goal of reducing customer service costs by 30 percent might call for enhanced customer service representative (CSR) education and a reduction in the average number of calls a customer makes to the call center each year. The eventual solution may be very complex, and require touching all areas of the meter-to-cash process, along with implementing next generation technology. Or the solution may be as simple as upgrading the customer’s bill to provide more accurate and timely information. Putting more information in the customer’s hands makes billing easier to understand, resulting in fewer customer calls per year, leading to lower customer service costs. The value proposition enabling the business outcome might rely on a more robust analytics engine for analyzing and presenting data to customers. There are generally multiple paths that can bring about achieving a desired business outcome. Seeking external help on the pros and cons of the paths might be valuable to utility executives,
especially if the path involves deploying new technology.

Level 4: Measure Solution Results. Continuous process improvement must be a component of all solutions. The results must be measured and compared against the desired business outcomes. Reviewing results and lessons learned in a closed loop will empower continuous process improvement and maintain focus on the process.

Conservation and Education

While current technology may not be up to the task of helping consumers conserve and save money on energy, those restrictions will change in the very near future. Utilities need to start viewing themselves less as responders to supply and demand and more as advocates for conservation, the environment, and de-coupling of rates. Massive investments in clean and renewable energy, and smart grid technology, will empower customers to employ demand response decisions and gain energy efficiency. The real issue for the utility will not be how to implement the technology itself – wired, wireless, satellite, etc. – but how best to use the technology to achieve its desired business outcomes. Further, utilities need to be prepared for some disruption to business as usual while technology and business processes undergo a sea change.

The capability of deploying a smart grid and advanced meter management (AMM) is one of the most significant changes impacting utilities today. The outcomes are not achieved by technology alone. Those outcomes require the merging of AMM with meter-to-cash processes. The utility will realize business value only if the people and discrete processes within the customer care component of the end-toend process evolve to take advantage of new technology.

The New Reality

Most utilities already enjoy acceptable levels of customer satisfaction. As the smart grid comes on line, with its associated learning curve, myriad details and inevitable glitches, customers will depend on the utility for support and clarification. Call center volumes and average handle times will increase as the complexity of the product grows by an order of magnitude. The old standard of measuring productivity according to number of calls completed within a pre-determined number of minutes will no longer be viable. Average call length increased by a factor of four for one utility that has experimented with smart grid technology. Longer call times, however, can ultimately translate to increased customer satisfaction as consumers receive the information they need to understand the new system and how to reduce their energy bill.

But a four-fold increase in call center staff to accommodate longer calls is not economically practical. In the future, utilities will need to provide more in-depth education to CSRs so they can, in turn, educate customers. They may even need to change their hiring criteria, and seek more highly skilled call center staff who are already versed in the meter-to-cash process. For some customers, alternative sources of information such as the Internet will suffice, thus offsetting some of the strain placed on the call center.

Achieving Desired Outcomes

The following section provides examples of how the combination of advanced meter management and redefined meter-to-cash processes and tools can enable and help achieve desired business outcomes.

Accurate and Timely Data – With smart meters and the smart grid able to capture usage data in intervals as frequent as five minutes, utilities will have more current information about system activity than ever before. Developing a strategy for managing this massive database will require forethought to avoid overwhelming the back office. When fully deployed throughout a service area, customers will no longer receive estimated bills. Devices in the home will provide readouts about usage activity, and some consumer education may be needed to help households understand the presented data and how it translates to their usage patterns and billing. Demand response participation is likely to increase as consumers become more aware of the benefits of managing their energy usage patterns. The federal government’s stimulus bill funding may include allocations for retrofits for low-income homeowners. The call center can function as a resource for customers who wish to investigate this program.

Reduced Bad Debt – As noted earlier, average handle time will be a less significant metric as consumer interaction with the call center increases. The CSR will become a key element in the strategy to reduce bad debt. CSRs will be the conduit for consumer education and building rapport with the customer when resolving past-due bills. As an alternative, utilities may want to turn to Madison Avenue to help them design and roll out a customer information campaign.

Better Revenue Management – If customer education about the smart grid pays off, and consumers are using energy more judiciously, utilities will benefit. Without the pressure to make capital investments for new plants, there will be more opportunities for profit-taking and shareholder rewards. Utilities may instead be able to make profits on their energy efficiency and investments. New technologies will help utilities avoid spending the hundreds of billions of dollars that would otherwise be needed for base load. In addition, demand response participation on the part of residential consumers will better align commercial and industrial (C&I) energy pricing with residential pricing. C&I customers will see the quality and consistency of their power supply improve.

Increased Energy Efficiency – Utilities, whether municipal, public or private, will feel the social pressure to apply technologies in order to gain energy efficiency and encourage conservation. The future utility will become a leader, instead of a follower, in the campaign to improve the environment and use energy resources wisely. By using energy more strategically – that is, understanding the benefits of off-peak usage – consumers will help their utility reduce carbon emissions, which is the ultimate desired business outcome for all involved.

Increased Stakeholder Satisfaction – Stakeholders run the gamut from shareholders and public utility commissions to consumers, utility employees and executives. All of these groups will be pleased if the public uses energy more efficiently, leading to more revenue for the utility and lower costs to consumers. Showing focus on business outcomes is generally a huge plus that helps increase stakeholder satisfaction.

Lower Cost to Serve – Utilities must try to design a business model with flatter delivery costs. For example, if it costs the utility $30 to $40 per customer per year, staying within that existing range with more and longer customer calls will be a challenge. Some utilities may opt out of providing customer service with in-house staff and contract with a service provider. Recognizing that supplying and managing energy, not delivering customer care, is their core competency, a utility can often reduce the cost of customer care by partnering with an organization that is an expert in this business process. If this is the path a utility takes it is very important to find the provider that will enable the desired outcomes of your business; not all service providers are equal or focus on outcomes. We expect relationships with vendors within the industry will change, with utilities embracing more business partners than in the past.

Increased Service Levels – Public utility commissions (PUC) often review financial and service metrics when considering a rate case. Utilities may need to collaborate with PUCs to help them understand the dynamics of smart meters, along with temporary changes in customer satisfaction and service levels, when submitting innovative rate cases and programs. Once the initial disruptive period of new technology is completed, utilities will be able to increase service levels with greater responsiveness to customer needs. When the call center staff is fully educated about smart meters and demand response, they will be positioned to provide customers with more comprehensive service, thus reducing the number of incoming and outgoing calls.

Future Competition – The current and upcoming changes in the industry are so dramatic that utilities must first assess how consumers are accepting change. Reinventing the grid via the smart grid and its related products and services will create new opportunities and new business models with potential for increased revenue. The extent to which the future market is more competitive depends on the rate of acceptance by consumers and how skillfully utilities adopt new business models. It is our premise that utilities who desire the right business outcomes and focus on enabling them through process, people, and technological changes will be most able to excel in a more competitive environment.

References

  1. Galvin Electricity Initiative, sponsored by The Galvin Project, Inc., www.galvinpower.org
  2. Press Release, “EPA Finds Greenhouse Gases Pose Threat to Public Health, Welfare/Proposed Finding Comes in Response to 2007 Supreme Court Ruling,” April 17, 2009. http://yosemite.epa.gov
  3. McKinsey Global Institute, “Wasted Energy: How the US Can Reach its Energy Productivity Potential,” McKinsey
    & Company, June 2007.

Business Process Improvement

In the past, the utility industry could consider itself exempt from market drivers like those listed above. However, today’s utilities are immersed in a sea of change. Customers demand reliable power in unlimited supply, generated in environmentally friendly ways without increased cost. All the while regulators are telling consumers to “change the way they are using energy or be ready to pay more,” and the Department of Energy is calling for utilities to make significant reductions in usage by 2020 [1].

“The consumer’s concept of quality will no longer be measured by only the physical attributes of the product – it will extend to the process of how the product is made, including product safety, environmental compliance and social responsibility compliance.”

– Victor Fang, chairman of Li and Fang,
in the 2008 IBM CEO Study

If these issues are not enough, couple them with a loss of knowledge and skill due to an aging workforce, an ever-increasing amount of automation and technology being introduced into our infrastructure with few standards, tightening bond markets and economic declines requiring us to do more with less. Now more than ever the industry needs to redefine our core competencies, identify key customers and their requirements, and define processes that meet or exceed their expectations. Business process improvement is essential to ensure future success for utilities.

There is no need to reinvent the wheel and develop a model for utilities to address business process improvement. One already exists that offers the most holistic approach to process improvement today. It is not new, but like any successful management method, it has been modified and refined to meet continuously changing business needs.

It is agnostic in the way it addresses methods used for analysis and process improvement such as Lean, Six Sigma and other tools; but serves as a framework for achieving results in any industry. It is the Baldrige Criteria for Performance Excellence (see Figure 1).

The Criteria for Performance Excellence is designed to assist organizations to focus on strategy-driven performance while addressing key decisions driving both short-term and long-term organizational sustainability in a dynamic environment. Is it possible that this framework was designed for times such as these in the utility industry?

The criteria are essentially simple in design. They are broken into seven categories as shown in figure 2; leadership, strategic planning, customer focus, measurement, analysis and knowledge management, workforce focus, process management and results.

In this model, measurement, analysis and knowledge management establish the foundation. There are two triads. On the left hand side, leadership, strategic planning and customer focus make up the leadership triad. On the right hand side of the model, workforce focus, process management and results make up the results triad. The alignment and integration of these essential elements of business create a framework for continuous improvement. This model should appear familiar in concept to industry leaders; there is not a single utility in the industry that does not identify with these categories in some form.

The criteria are built to elicit a response through the use of how and what questions that ask about key processes and their deployment throughout the organization. On face value, these questions appear to be simple. However, as you respond to them, you will realize their linkage and begin to identify opportunities for improvement that are essential to future success. Leaders wishing to begin this effort should not be surprised by the depth of the questions and the relatively few members within your organization who will be able to provide complete answers.

In assessment of the model’s ability to meet utility industry needs, let’s discuss each category in greater detail, provide relevance to the utility industry and include key questions for you to consider as you begin to assess your own organization’s performance.

Leadership: Who could argue that the current demand for leadership in utilities is more critical today than ever before in our history? Changes in energy markets are bringing with them increased levels of accountability, a greater focus on regulatory, legal and ethical requirements, a need for long-term viability and sustainability, and increased expectations of community support. Today’s leaders are expected to achieve ever increasing levels of operational performance while operating on less margin than ever before.

“The leadership category examines how senior leaders’ personal actions guide and sustain the organization. Also examined are the organization’s governance system and how it fulfills legal, ethical and societal responsibilities as well as how it selects and supports key communities [2].”

Strategic Planning: Does your utility have a strategic plan? Not a dust-laden document sitting on a bookshelf or a financial budget; but a plan that identifies strategic objectives and action plans to address short and long-term goals. Our current business environment demands that we identify our core competencies (and more importantly what are not our core competencies), identify strategic challenges to organizational success, recognize strategic advantages and develop plans that ensure our efforts are focused on objectives that will ensure achievement of our mission and vision.

What elements of our business should we outsource? Do our objectives utilize our competitive advantages and core competencies to diminish organizational challenges? We all know the challenges that are both here today and await us just beyond the horizon. Many of them are common to all utilities; an aging workforce, decreased access to capital, technological change and regulatory change. How are we addressing them today and is our approach systematic and proactive or are we simply reacting to the challenges as they arise?

“The strategic planning category examines how your organization develops strategic objectives and action plans. Also examined are how your chosen strategic objectives and action plans are deployed and changed if circumstances require, and how progress is measured [2].”

Customer Focus: The success of the utility industry has been due in part to a long-term positive relationship with its customers. Most utilities have made a conscientious effort to identify and address the needs of the customer; however a new breed of customer is emerging with greater expectations, a higher degree of sensitivity to environmental issues, a diminished sense of loyalty to business organizations and overall suspicion of ethical and legal compliance.

Their preferred means of communication are quite different than the generations of loyal customers you have enjoyed in the past. They judge your performance against similar customer experiences received from organizations far beyond the traditional competitor.

You now compete against Wal-Mart’s supply chain process, Amazon.com’s payment processes and their favorite hotel chain’s loyalty rewards process. You are being weighed in the balances and in many cases found to be lacking. Worse yet, you may not have even recognized them as an emerging customer segment.

“The Customer Focus category examines how your organization engages its customers for long-term marketplace success and builds a customer-focused culture. Also examined is how your organization listens to the voice of its customers and uses this information to improve and identify opportunities for innovation [2].”

Measurement, Analysis, and Knowledge Management: The data created and maintained by GIS, CIS, AMI, SCADA and other systems create a wealth of information that can be analyzed to obtain knowledge sufficient to make rapid business decisions. However, many of these systems are incapable of or at the very least difficult to integrate with one another, leaving leaders with a lot of data but no meaningful measures of key performance. Even worse, a lack of standards related to system performance leaves many utilities that develop performance measures with a limited number of inconsistently measured comparatives from their peers.

If utilities are going to overcome the challenges of the future, it is essential that they integrate all data systems for improved accessibility and develop standards that would facilitate meaningful comparative measures. This is not to say that comparative measures do not exist, they do. However, increasing the number of utilities participating would increase our understanding of best practices and enable us to determine best-in-class performance.

“The measurement, analysis and knowledge management category examines how the organization selects, gathers, analyzes, manages and improves its data, information and knowledge assets and how it manages its information technology. The category also examines how your organization reviews and uses reviews to improve its performance [2].”

Workforce Focus: We have already addressed the aging workforce and its impact on the future of utilities. Companion challenges related to the utility workforce include the heavy benefits burdens that many utilities currently bear. Also, the industry faces a diminished interest in labor positions and the need to establish new training methods to engage a variety of generations within our workforce and ensure knowledge acquisition and retention.

The new workforce brings with it new requirements for satisfaction and engagement. The new employee has proven to be less loyal to the organization and studies show they will have many more employers before they retire than that of their predecessors. It is essential that we develop ways to identify these requirements and take action to retain these individuals or we risk increased training cost and operational issues as they seek new employment opportunities.

“The workforce focus category examines how your organization engages, manages and develops the workforce to utilize its full potential in alignment with organizational mission, strategy and action plans. The category examines the ability to assess workforce capability and capacity needs and to build a workforce environment conducive to high performance [2].”

Process Management: It is not unusual for utilities to implement new software with dramatically increased capabilities and ask the integrator to make it align with their current processes or continue to use their current processes without regard for the system’s new capabilities. Identifying and mapping key work processes can enable incredible opportunities for streamlining your organization and facilitate increased utilization of technology.

What are your utilities’ key work processes and how do you determine them and their relationship to creating customer value? These are difficult for leaders to articulate; but yet, without a clear understanding of key work processes and their alignment to core competencies and strategic advantages as well as challenges, it may be that your organization is misapplying efforts related to core competencies and either outsourcing something best maintained internally or performing effort that is better delivered by outsource providers.

“The process management category examines how your organization designs its work systems and how it designs, manages and improves its key processes for implementing these work systems to deliver customer value and achieve organizational success and sustainability. Also examined is your readiness for emergencies [2].”

Results: Results are the fruit of your efforts, the gift that the Baldrige Criteria enables you to receive from your applied efforts. All of us want positive results. Many utilities cite positive performance in measures that are easy to acquire: financial performance, safety performance, customer satisfaction. But which of these measures are key to our success and sustainability as an organization? As you answer the questions and align measures that are integral to obtaining your organization’s mission and vision, it will become abundantly clear which measures you’ll need to maintain and develop competitive comparisons and benchmarks.

“The results category examines the organization’s performance and improvement in all key areas – product outcomes, customer-focused outcomes, financial and market outcomes, workforce-focused outcomes, process-effectiveness outcomes and leadership outcomes. Performance levels are examined relative to those of competitors and other organizations with similar product offerings [2].”

A Challenge

The adoption of the Baldrige criteria is often described as a journey. Few utilities have embraced this model. However, it appears to offer a comprehensive solution to the challenges we face today. Utilities have a rich history and play a positive role in our nation. A period of rapid change is upon us. We need to shift from reacting to leading as we solve the problems that face our industry. By applying this model for effective process improvement, we can once again create a world where utilities lead the future.

References

  1. Quote from U.S. Treasury Secretary Tim Geithner as communicated in SmartGrid Newsletter
  2. Malcolm Baldrige National Quality Award, “Path to Excellence and Some path Building Tools.” www.nist.gov/baldrige.

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

Future of Learning

The nuclear power industry is facing significant employee turnover, which may be exacerbated by the need to staff new nuclear units. To maintain a highly skilled workforce to safely operate U.S. nuclear plants, the industry must find ways to expedite training and qualification, enhance knowledge transfer to the next generation of workers, and develop leadership talent to achieve excellent organizational effectiveness.

Faced with these challenges, the Institute of Nuclear Power Operations (INPO), the organization charged with promoting safety and reliability across the 65 nuclear electric generation plants operating in the U.S., created a “Future of Learning” initiative. It identified ways the industry can maintain the same high standard of excellence and record of nuclear safety, while accelerating training development, individual competencies and plant training operations.

The nuclear power industry is facing the perfect storm. Like much of the industrialized world, it must address issues associated with an aging workforce since many of its skilled workers and nuclear engineering professionals are hitting retirement age, moving out of the industry and beginning other pursuits.

Second, as baby boomers transition out of the workforce, they will be replaced by an influx of Generation Y workers. Many workers in this “millenials” generation are not aware of the heritage driving the single-minded focus on safety. They are asking for new learning models, utilizing the technologies which are so much a part of their lives.

Third, even as this big crew change takes place, there is increasing demand for electricity. Many are turning to cleaner technologies – solar, wind, and nuclear – to close the gap. And there is resurgence in requests for building new nuclear plants, or adding new reactors at existing plants. This nuclear renaissance also requires training and preparation to take on the task of safely and reliably operating our nuclear power plants.

It is estimated there will be an influx of 25,000 new workers in the industry over the next five years, with an additional 7,000 new workers needed if just a third of the new plants are built. Given that incoming workers are more comfortable using technology for learning, and that delivery models that include a blend of classroom-based, instructor-led, and Web-based methods can be more effective and efficient, the industry is exploring new models and a new mix of training.

INPO was created by the nuclear industry in 1979 following the Three Mile Island accident. It has 350 full-time and loaned employees. As a nonprofit organization, it is chartered to promote the highest levels of safety and reliability – in essence, to promote excellence – in the operation of nuclear electric generating plants. All U.S. nuclear operating companies are members.

INPO’s responsibilities include evaluating member nuclear site operations, accrediting each site’s nuclear training programs and providing assistance and information exchange. It has established the National Academy for Nuclear Training, and an independent National Nuclear Accrediting Board. INPO sends teams to sites to evaluate their respective training activities, and each station is reviewed at least every four years by the accrediting board.

INPO has developed guidelines for 12 specifically accredited programs (six operations and six maintenance/technical), including accreditation objectives and criteria. It also offers courses and seminars on leadership, where more than 1,500 individuals participate annually, from supervisors to board members. Lastly, it operates NANTeL (National Academy for Nuclear Training e-Learning system) with 200 courses for general employee training for nuclear access. More than 80,000 nuclear workers and sub-contractors have completed training over the Web.

The Future of Learning

In 2008, to systematically address workforce and training challenges, the INPO Future of Learning team partnered with IBM Workforce and Learning Solutions to conduct more than 65 one-on-one interviews, with chief executive officers, chief nuclear officers, senior vice presidents, plant managers, plant training managers and other leaders in the extended industry community. The team also completed 46 interviews with plant staff during a series of visits to three nuclear power plants. Lastly, the team developed and distributed a survey that was sent to training managers at the 65 nuclear plants, achieving a 62 percent response rate.

These are statements the team heard:

  • “Need to standardize a lot of the training, deliver it remotely, preferably to a desktop, minimize the ‘You train in our classroom in our timeframe’ and have it delivered more autonomously so it’s likely more compatible with their lifestyles.”
  • “We’re extremely inefficient today in how we design/develop and administer training. We don’t want to carry inefficiencies that we have today into the future.”
  • “Right now, in all training programs, it’s a one-size-fits-all model that’s not customized to an individual’s background. Distance learning would enable this by allowing people to demonstrate knowledge and let some people move at a faster pace.”
  • “We need to have ‘real’ e-learning. We’ve been exposed to less than adequate, older models of e-learning. We need to move away from ‘page turners’ and onto quality content.”

Several recommendations were generated as a result of the study. The first focused on ways to improve INPO’s current training offerings by adding leadership development courses, ratcheting up the interactivity of the Web-based and e-learning offerings in NANTeL and developing a “nuclear citizenship” course for new workers in the industry.

Second, there were recommendations about better utilizing training resources across the industry by centralizing common training, beginning with instructor training and certification and generic fundamentals courses. It was estimated that 50 percent of the accredited training materials are common across the industry. To accomplish this objective, INPO is exploring an industry infrastructure that would enable centralized training material development, maintenance and delivery.

The last set of recommendations focused on methods for better coordination and efficiency of training, including developing processes for certifying vendor training programs, and providing a jump-start to common community college and university curriculum.

In 2009, INPO is piloting a series of Future of Learning initiatives which will help determine the feasibility, cost-effectiveness, readiness and acceptance of this first set of recommendations. It is starting to look more broadly at ways it can utilize learning technology to drive economies of scale, accelerative and prescriptive learning, and deliver value to the nuclear electric generation industry.

Where Do We Go From Here ?

Beyond the initial perfect storm is another set of factors driving the future of learning.

First, consider the need for speed. It has been said that “If you are not learning at the speed of change, you are falling behind.”

In his “25 Lessons from Jack Welch,” the former CEO of General Electric said, “The desire, and the ability, of an organization to continuously learn from any source, anywhere – and to rapidly convert this learning into action – is its ultimate competitive advantage.” Giving individuals, teams and organizations the tools and technologies to accelerate and broaden their learning is an important part of the future of learning.

Second, consider the information explosion – the sheer volume of information available, the convenience of information access (due, in large part, to continuing developments in technology) and the diversity of information available. When there is too much information to digest, a person is unable to locate and make use of the information that one needs. When one is unable to process the sheer volume of information, overload occurs. The future of learning should enable the learner to sort through information and find knowledge.

Third, consider new developments in technology. Generations X and Y are considered “digital natives.” They expect that the most current technologies are available to them – including social networking, blogging, wikis, immersive learning and gaming – and to not have them is unthinkable.

Impact of New Technology

Philosophy of training has morphed from “just-in-case” (teach them everything and hope they will remember when they need it), to “just-in-time” (provide access to training just before the point of need), to “just-for-me.” With respect to the latter, learning is presented in a preferred media, with a learning path customized to reflect the student’s preferred learning style, and personalized to address the current and desired level of expertise within any given time constraint.

Imagine a scenario in which a maintenance technician at a nuclear plant has to replace a specialized valve – something she either hasn’t done for awhile, or hasn’t replaced before. In a Web 2.0 world, she should be able to run a query on her iPhone or similar handheld device and pull up the maintenance of that particular valve, access the maintenance records, view a video of the approved replacement procedure, or access an expert who could coach her through the process.

Learning Devices

What needs to be in place to enable this vision of the future of learning? First, workers will need a device that can access the information by connecting over a secure wireless network inside the plant. Second, the learning has to be available in small chunks – learning nuggets or learning assets. Third, the learning needs to be assembled along the dimensions of learning style, desired and target level of expertise, time available and media type, among other factors. Finally, experts need to be identified, tagged to particular tasks and activities, and made accessible.

Fortunately, some of the same learning technology tools that will enable centralized maintenance and accelerated development will also facilitate personalized learning. When training is organized at a more granular level – the learning asset level – not only can it be leveraged over a variety of courses and courseware, it can also be re-assembled and ported to a variety of outputs such as lesson books, e-learning and m-learning (mobile-learning).

The example above pointed out another shift in our thinking about learning. Traditionally, our paradigm has been that learning occurs in a classroom, and when it occurs, it has taken the form of a course. In the example above, the learning takes place anywhere and anytime, moving from the formal classroom environment to an informal environment. Of course, just because learning is “informal” does not mean it is accidental, or that it occurs without preparation.

Some estimates claim 10 percent of our learning is achieved through formal channels, 20 percent from coaching, and 70 percent through informal means. Peter Henschel, former director of the Institute for Research on Learning, raised an important question: If nearly three-quarters of learning in corporations is informal, can we afford to leave it to chance?

There are still several open issues regarding informal learning:

  • How do we evaluate the impact/effectiveness of informal learning? (Informal learning, but formal demonstration of competency/proficiency);
  • How do we record one’s participation and skill-level progression in informal learning? (Information learning, but formal recording of learning completion);
  • Who will create and maintain informal learning assets? (Informal learning, but formal maintenance and quality assurance of the learning content); and
  • When does informal learning need a formal owner (in a full- or part-time role)? (Informal learning, but will need formal policies to help drive and manage).
    • In the nuclear industry, accurate and up-to-date documentation is a necessity. As the nuclear industry moves toward more effective use of informal channels of learning, it will need to address these issues.

      Immersive Learning (Or Virtual Worlds)

      The final frontier for the future of learning is expansion into virtual worlds, also known as immersive learning. Although Second Life (SL) is the best known virtual world, there are also emerging competitors, including Active Worlds, Forterra (OLIVE), Qwag and Unisfair.

      Created in 2003 by Linden Lab of San Francisco, SL is a three-dimensional, virtual world that allows users to buy “property,” create objects and buildings and interact with other users. Unlike a game with rules and goals, SL offers an open-ended platform where users can shape their own environment. In this world, avatars do many of the same things real people do: work, shop, go to school, socialize with friends and attend rock concerts.

      From a pragmatic perspective, working in an immersive learning environment such as a virtual world provides several benefits that make it an effective alternative to real life:

      • Movement in 3-D space. A virtual world could be useful in any learning situation involving movement, danger, tactics, or quick physical decisions, such as emergency response.
      • Engendering Empathy. Participants experience scenarios from another person’s perspective. For example, the Future of Learning team is exploring ways to re-create the control room experience during the Three-Mile Island incident, to provide a cathartic experience for the next generation workforce so they can better appreciate the importance of safety and human performance factors.
      • Rapid Prototyping and Co-Design. A virtual world is an inexpensive environment for quickly mocking up prototypes of tools or equipment.
      • Role Playing. By conducting role plays in realistic settings, instructors and learners can take on various avatars and play those characters.
      • Alternate Means of Online Interaction. Although users would likely not choose a virtual world as their primary online communication tool, it provides an alternative means of indicating presence and allowing interaction. Users can have conversations, share note cards, and give presentations. In some cases, SL might be ideal as a remote classroom or meeting place to engage across geographies and utility boundaries.

      Robert Amme, a physicist at the University of Denver, has another laboratory in SL. Funded by a grant from the Nuclear Regulatory Commission, his team is building a virtual nuclear reactor to help train the next generation of environmental engineers on how to deal with nuclear waste (see Figure 1). The INPO Future of Learning team is exploring ways to leverage this type of learning asset as part of the nuclear citizenship initiative.

      There is no doubt that nuclear power generation is once again on an upswing, but critical to its revival and longevity will be the manner in which we prepare the current and next generation of workers to become outstanding stewards of a safe, effective, clean-energy future.

Managing Communications Change

Change is being forced upon the utilities industry. Business drivers range from stakeholder pressure for greater efficiency to the changing technologies involved in operational energy networks. New technologies such as intelligent networks or smart grids, distribution automation or smart metering are being considered.

The communications network is becoming the key enabler for the evolution of reliable energy supply. However, few utilities today have a communications network that is robust enough to handle and support the exacting demands that energy delivery is now making.

It is this process of change – including the renewal of the communications network – that is vital for each utility’s future. But for the utility, this is a technological step change requiring different strategies and designs. It also requires new skills, all of which have been implemented in timescales that do not sit comfortably with traditional technology strategies.

The problems facing today’s utility include understanding the new technologies and assessing their capabilities and applications. In addition, the utility has to develop an appropriate strategy to migrate legacy technologies and integrate them with the new infrastructure in a seamless, efficient, safe and reliable manner.

This paper highlights the benefits utilities can realize by adopting a new approach to their customers’ needs and engaging a network partner that will take responsibility for the network upgrade, its renewal and evolution, and the service transition.

The Move to Smart Grids

The intent of smart grids is to provide better efficiency in the production, transport and delivery of energy. This is realized in two ways:

  • Better real-time control: ability to remotely monitor and measure energy flows more closely, and then manage those flows and the assets carrying them in real time.
  • Better predictive management: ability to monitor the condition of the different elements of the network, predict failure and direct maintenance. The focus is on being proactive to real needs prior to a potential incident, rather than being reactive to incidents, or performing maintenance on a repetitive basis whether it is needed or not.

These mechanisms imply more measurement points, remote monitoring and management capabilities than exist today. And this requires a greater reliance on reliable, robust, highly available communications than has ever been the case before.

The communications network must continue to support operational services independently of external events, such as power outages or public service provider failure, yet be economical and simple to maintain. Unfortunately, the majority of today’s utility communications implementations fall far short of these stringent requirements.

Changing Environment

The design template for the majority of today’s energy infrastructure was developed in the 1950s and 1960s – and the same is true of the associated communications networks.

Typically, these communications networks have evolved into a series of overlays, often of different technology types and generations (see Figure 1). For example, protection tends to use its own dedicated network. The physical realization varies widely, from tones over copper via dedicated time division multiplexing (TDM) connections to dedicated fiber connections. These generally use a mix of privately owned and leased services.

Supervisory control and data acquisitions systems (SCADA) generally still use modem technology at speeds between 300 baud to 9.6k baud. Again, the infrastructure is often copper or TDM running as one of many separate overlay networks.

Lastly, operational voice services (as opposed to business voice services) are frequently analog on yet another separate network.

Historically, there were good operational reasons for these overlays. But changes in device technology (for example, the evolution toward e-SCADA based on IP protocols), as well as the decreasing support by communications equipment vendors of legacy communications technologies, means that the strategy for these networks has to be reassessed. In addition, the increasing demand for further operational applications (for example, condition monitoring, or CCTV, both to support substation automation) requires a more up-to-date networking approach.

Tomorrow’s Network

With the exception of protection services, communications between network devices and the network control centers are evolving toward IP-based networks (see Figure 2). The benefits of this simplified infrastructure are significant and can be measured in terms of asset utilization, reduced capital and operational costs, ease of operation, and the flexibility to adapt to new applications. Consequently, utilities will find themselves forced to seriously consider the shift to a modern, homogeneous communications infrastructure to support their critical operational services.

Organizing For Change

As noted above, there are many cogent reasons to transform utility communications to a modern, robust communications infrastructure in support of operational safety, reliability and efficiency. However, some significant considerations should be addressed to achieve this transformation:

Network Strategy. It is almost inevitable that a new infrastructure will cross traditional operational and departmental boundaries within the utility. Each operational department will have its own priorities and requirements for such a network, and traditionally, each wants some, or total, control. However, to achieve real benefits, a greater degree of centralized strategy and management is required.

Architecture and Design. The new network will require careful engineering to ensure that it meets the performance-critical requirements of energy operations. It must maintain or enhance the safety and reliability of the energy network, as well as support the traffic requirements of other departments.

Planning, Execution and Migration. Planning and implementation of the core infrastructure is just the start of the process. Each service requires its own migration plan and has its own migration priorities. Each element requires specialist technical knowledge, and for preference, practical field experience.

Operation. Gone are the days when a communications failure was rectified by sending an engineer into the field to find the fault and to fix it. Maintaining network availability and robustness calls for sound operational processes and excellent diagnostics before any engineer or technician hits the road. The same level of robust centralized management tools and processes that support the energy networks have to be put in place to support communications network – no matter what technologies are used in the field.

Support. Although these technologies are well understood by the telecommunications industry, they are likely to be new to the energy utilities industry. This means that a solid support organization familiar with these technologies must be implemented. The evolution process requires an intense level of up-front skills and resources. Often these are not readily available in-house – certainly not in the volume required to make any network renewal or transformation effective. Building up this skill and resource base by recruitment will not necessarily yield staff that is aware of the peculiarities of the energy utilities market. As a result, there will be significant time lag from concept to execution, and considerable risk for the utility as it ventures alone into unknown territory.

Keys To Successful Engagement

Engaging a services partner does not mean ceding control through a rigid contract. Rather, it means crafting a flexible relationship that takes into consideration three factors: What is the desired outcome of the activity? What is the best balance of scope between partner assistance and in-house performance to achieve that outcome? How do you retain the flexibility to accommodate change while retaining control?

Desired outcome is probably the most critical element and must be well understood at the outset. For one utility, the desired outcome may be to rapidly enable the upgrade of the complete energy infrastructure without having to incur the upfront investment in a mass recruitment of the required new communications skills.

For other utilities, the desired outcome may be different. But if the outcomes include elements of time pressure, new skills and resources, and/or network transformation, then engaging a services partner should be seriously considered as one of the strategic options.

Second, not all activities have to be in scope. The objective of the exercise might be to supplement existing in-house capabilities with external expertise. Or, it might be to launch the activity while building up appropriate in-house resources in a measured fashion through the Build-Operate- Transfer (BOT) approach.

In looking for a suitable partner, the utility seeks to leverage not only the partner’s existing skills, but also its experience and lessons learned performing the same services for other utilities. Having a few bruises is not a bad thing – this means that the partner understands what is at stake and the range of potential pitfalls it may encounter.

Lastly, retaining flexibility and control is a function of the contract between the two parties which should be addressed in their earliest discussions. The idea is to put in place the necessary management framework and a robust change control mechanism based on a discussion between equals from both organizations. The utility will then find that it not only retains full control of the project without having to take day-to-day responsibility for its management, but also that it can respond to change drivers from a variety of sources – such as technology advances, business drivers, regulators and stakeholders.

Realizing the Benefits

Outsourcing or partnering the communications transformation will yield benefits, both tangible and intangible. It must be remembered that there is no standard “one-size-fits-all” outsourcing product. Thus, the benefits accrued will depend on the details of the engagement.

There are distinct tangible benefits that can be realized, including:

Skills and Resources. A unique benefit of outsourcing is that it eliminates the need to recruit skills not available internally. These are provided by the partner on an as-needed basis. The additional advantage for the utility is that it does not have to bear the fixed costs once they are no longer required.

Offset Risks. Because the partner is responsible for delivery, the utility is able to mitigate risk. For example, traditionally vendors are not motivated to do anything other than deliver boxes on time. But with a well-structured partnership, there is an incentive to ensure that the strategy and design are optimized to economically deliver the required services and ease of operation. Through an appropriate regime of business-related key performance indicators (KPIs), there is a strong financial incentive for the partner to operate and upgrade the network to maintain peak performance – something that does not exist when an in-house organization is used.

Economies of Scale. Outsourcing can bring the economies of scale resulting from synergies together with other parts of the partner’s business, such as contracts and internal projects.

There also are many other benefits associated with outsourcing that are not as immediately obvious and commercially quantifiable as those listed above, but can be equally valuable.

Some of these less tangible benefits include:

Fresh Point of View. Within most companies, employees often have a vested interest in maintaining the status quo. But a managed services organization has a vested interest in delivering the best possible service to the customer – a paradigm shift in attitude that enables dramatic improvements in performance and creativity.

Drive to Achieve Optimum Efficiency. Executives, freed from the day-to-day business of running the network, can focus on their core activities, concentrating on service excellence rather than complex technology decisions. To quote one customer, “From my perspective, a large amount of my time that might have in the past been dedicated to networking issues is now focused on more strategic initiatives concerned with running my business more effectively.”

Processes and Technologies Optimization. Optimizing processes and technologies to improve contract performance is part of the managed services package and can yield substantial savings.

Synergies with Existing Activities Create Economies of Scale. A utility and a managed services vendor have considerable overlap in the functions performed within their communications engineering, operations and maintenance activities. For example, a multi-skilled field force can install and maintain communications equipment belonging to a variety of customers. This not only provides cost savings from synergies with the equivalent customer activity, but also an improved fault response due to the higher density of deployed staff.

Access to Global Best Practices. An outsourcing contract relieves a utility of the time-consuming and difficult responsibility of keeping up to speed with the latest thinking and developments in technology. Alcatel-Lucent, for example, invests around 14 percent of its annual revenue into research and development; its customers don’t have to.

What Can Be Outsourced?

There is no one outsourcing solution that fits all utilities. The final scope of any project will be entirely dependent on a utility’s specific vision and current circumstances.

The following list briefly describes some of the functions and activities that are good possibilities for outsourcing:

Communications Strategy Consulting. Before making technology choices, the energy utility needs to define the operational strategy of the communications network. Too often communications is viewed as “plug and play,” which is hardly ever the case. A well-thought-out communications strategy will deliver this kind of seamless operation. But without that initial strategy, the utility risks repeating past mistakes and acquiring an ad-hoc network that will rapidly become a legacy infrastructure, which will, in turn, need replacing.

Design. Outsourcing allows utilities to evolve their communications infrastructure without upfront investment in incremental resources and skills. It can delegate responsibility for defining network architecture and the associated network support systems. A utility may elect to leave all technological decisions to the vendor and merely review progress and outcomes. Or, it may retain responsibility for technology strategy, and turn to the managed services vendor to turn the strategy into architecture and manage the subsequent design and project activities.

Build. Detailed planning of the network, the rollout project and the delivery of turnkey implementations all fall within the scope of the outsourcing process.

Operate, Administer and Maintain. Includes network operations and field and support services:

  • Network Operations. A vendor such as Alcatel-Lucent has the necessary experience in operating Network Operations Centers (NOCs), both on a BOT and ongoing basis. This includes handling all associated tasks such as performance and fault monitoring, and services management.
  • Network and Customer Field Services. Today, few energy utilities consider outside maintenance and provisioning activities to be a strategic part of their business and recognize they are prime candidates for outsourcing. Activities that can be outsourced include corrective and preventive maintenance, network and service provisioning, and spare parts management, return and repair – in other words, all the daily, time-consuming, but vitally important elements for running a reliable network.
  • Network Support Services. Behind the first-line activities of the NOC are a set of engineering support functions that assist with more complex faults – these are functions that cannot be automated and tend to duplicate those of the vendor’s. The integration and sharing of these functions enabled by outsourcing can significantly improve the utility’s efficiency.

Conclusion

Outsourcing can deliver significant benefits to a utility, both in terms of its ability to invest in and improve its operation and associated costs. However, each utility has its own unique circumstances, specific immediate needs, and vision of where it is going. Therefore, each technical and operational solution is different.

Alcatel-Lucent Your Smart Grid Partner

Alcatel-Lucent offers comprehensive capabilities that combine Utility industry – specific knowledge and experience with carrier – grade communications technology and expertise. Our IP/MPLS Transformation capabilities and Utility market – specific knowledge are the foundation of turnkey solutions designed to enable Smart Grid and Smart Metering initiatives. In addition, Alcatel-Lucent has specifically developed Smart Grid and Smart Metering applications and solutions that:

  • Improve the availability, reliability and resiliency of critical voice and data communications even during outages
  • Enable optimal use of network and grid devices by setting priorities for communications traffic according to business requirements
  • Meet NERC CIP compliance and cybersecurity requirements
  • Improve the physical security and access control mechanism for substations, generation facilities and other critical sites
  • Offer a flexible and scalable network to grow with the demands and bandwidth requirements of new network service applications
  • Provide secure web access for customers to view account, electricity usage and billing information
  • Improve customer service and experience by integrating billing and account information with IP-based, multi-channel client service platforms
  • Reduce carbon emissions and increase efficiency by lowering communications infrastructure power consumption by as much as 58 percent

Working with Alcatel-Lucent enables Energy and Utility companies to realize the increased reliability and greater efficiency of next-generation communications technology, providing a platform for, and minimizing the risks associated with, moving to Smart Grid solutions. And Alcatel-Lucent helps Energy and Utility companies achieve compliance with regulatory requirements and reductions in operational expenses while maintaining the security, integrity and high availability of their power infrastructure and services. We build Smart Networks to support the Smart Grid.

American Recovery and Reinvestment Act of 2009 Support from Alcatel-Lucent

The American Recovery and Reinvestment Act (ARRA) of 2009 was adopted by Congress in February 2009 and allocates $4.5 billion to the Department of Energy (DoE) for Smart Grid deployment initiatives. As a result of the ARRA, the DoE has established a process for awarding the $4.5 billion via investment grants for Smart Grid Research and Development, and Deployment projects. Alcatel-Lucent is uniquely qualified to help utilities take advantage of the ARRA Smart Grid funding. In addition to world-class technology and Smart Grid and Smart Metering solutions, Alcatel-Lucent offers turnkey assistance in the preparation of grant applications, and subsequent follow-up and advocacy with federal agencies. Partnership with Alcatel-Lucent on ARRA includes:

  • Design Implementation and support for a Smart Grid Network
  • Identification of all standardized and unique elements of each grant program
  • Preparation and Compilation of all required grant application components, such as project narratives, budget formation, market surveys, mapping, and all other documentation required for completion
  • Advocacy at federal, state, and local government levels to firmly establish the value proposition of a proposal and advance it through the entire process to ensure the maximum opportunity for success

Alcatel-Lucent is a Recognized Leader in the Energy and Utilities Market

Alcatel-Lucent is an active and involved leader in the Energy and Utility market, with active membership and leadership roles in key Utility industry associations, including the Utility Telecom Council (UTC), the American Public Power Association (APPA), and Gridwise. Gridwise is an association of Utilities, industry research organizations (e.g., EPRI, Pacific Northwest National Labs, etc.), and Utility vendors, working in cooperation with DOE to promote Smart Grid policy, regulatory issues, and technologies (see www.gridwise.org for more info). Alcatel-Lucent is also represented on the Board of Directors for UTC’s Smart Network Council, which was established in 2008 to promote and develop Smart Grid policies, guidelines, and recommended technologies and strategies for Smart Grid solution implementation.

Alcatel-Lucent IP MPLS Solution for the Next Generation Utility Network

Utility companies are experienced at building and operating reliable and effective networks to ensure the delivery of essential information and maintain flawless service delivery. The Alcatel-Lucent IP/MPLS solution can enable the utility operator to extend and enhance its network with new technologies like IP, Ethernet and MPLS. These new technologies will enable the utility to optimize its network to reduce both CAPEX and OPEX without jeopardizing reliability. Advanced technologies also allow the introduction of new Smart Grid applications that can improve operational and workflow efficiency within the utility. Alcatel-Lucent leverages cutting edge technologies along with the company’s broad and deep experience in the utility industry to help utility operators build better, next-generation networks with IP/MPLS.

Alcatel-Lucent has years of experience in the development of IP, MPLS and Ethernet technologies. The Alcatel-Lucent IP/MPLS solution offers utility operators the flexibility, scale and feature sets required for mission-critical operation. With the broadest portfolio of products and services in the telecommunications industry, Alcatel-Lucent has the unparalleled ability to design and deliver end-to-end solutions that drive next-generation utility networks.

About Alcatel-Lucent

Alcatel-Lucent’s vision is to enrich people’s lives by transforming the way the world communicates. As a leader in utility, enterprise and carrier IP technologies, fixed, mobile and converged broadband access, applications, and services, Alcatel-Lucent offers the end-to-end solutions that enable compelling communications services for people at work, at home and on the move.

With 77,000 employees and operations in more than 130 countries, Alcatel-Lucent is a local partner with global reach. The company has the most experienced global services team in the industry, and Bell Labs, one of the largest research, technology and innovation organizations focused on communications. Alcatel-Lucent achieved adjusted revenues of €17.8 billion in 2007, and is incorporated in France, with executive offices located in Paris.

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.

A Smart Strategy for a Smart Grid

Every year, utilities are faced with the critical decision of where to invest capital. These decisions are guided by several factors, such as regulatory requirements, market conditions and business strategies. Given their magnitude, decisions are not made hastily. Careful consideration is given to the financial and operational prudence of large capital projects, such as power plants and new infrastructure.

The utility also makes sure that it has the resources to support the implementation and on-going operation of large projects. This discipline is necessary to do what is best for the utility, and ultimately, the customer. This same discipline is essential in assessing the use of smart grid technologies, such as advanced metering infrastructure (AMI), distribution automation (DA) and home area networks (HAN).

In the last several years, the ubiquitous coverage of the smart grid has sparked the interests of many utilities looking to modernize their infrastructures and find new ways to interact with their customers. Most recently, the excitement around smart grid initiatives has accelerated as a result of its inclusion in the U.S. government’s economic stimulus package. However, utilities must remain cautious as they evaluate these new technologies.

The current "rush" can result in a lack of structure around strategy and planning for smart grid improvements. As utilities embrace smart grid technologies, many are tempted to develop a vision and strategies in a hurried, reactionary fashion rather than taking a rigorous, structured approach to determine what technologies will deliver the most value to the utility and its customer base.

Unlike planning for other capital projects, planning for smart grid is not simply about filing a regulatory business case; it is planning a business case for transformation. It is about implementing the right mix of smart grid technologies that delivers the greatest direct (operational savings) and indirect (customer benefits, customer satisfaction, reliability) benefits for the utility. Additionally, proper planning and strategy identifies risks and considerations that facilitate implementation of new technologies. Finally, a structured approach considers the organization’s capacity to complete the project. Just as you wouldn’t approve the construction of a power plant without ensuring that you have the resources to complete it, you shouldn’t begin the smart grid journey without a clear sense of where you are going and how you are going to get there.

A methodical approach to defining a smart grid vision can be accomplished through leadership workshops that define a portfolio of strategic options and establish the criteria to analyze the portfolio’s value (both quantitative and qualitative). These sessions assess the various smart grid technologies to determine what unique mix (technologies and geographies) is the best fit to meet the utility’s objectives.

The key steps to defining a smart grid vision are:

  • Define a decision framework;
  • Develop strategic options;
  • Analyze value; and
  • Ratify strategy.

Ultimately, this approach results in a richer smart grid strategy and decision making process that is consistent with other large capital projects.

Define a Decision Framework

The first step toward defining a smart grid vision is to develop a decision making process to establish the emphasis and focus of the smart grid program. Are upfront capital costs the main concern, or is selecting mature and proven technologies more crucial? Some utilities may seek technologies that can be implemented quickly, while others may be more focused on a multi-year rollout of smart grid initiatives.

Identifying these crucial drivers and understanding their importance is achieved by creating a baseline decision framework to evaluate smart grid technologies. The framework should be shaped by project management, sponsorship and subject matter experts (SMEs) from all functional groups (e.g., transmission and distribution, meter services, billing, call center, human resources, finance and information technology) within the organization. This ensures that the initiative has executive buy-in and input from all groups affected by a smart grid implementation.

A good decision framework incorporates company strategic priorities and consists of both qualitative and quantitative measures. Qualitative factors include customer satisfaction, technology maturity and obsolescence, implementation risks and alignment with business priorities. Quantitative factors examine product and resource costs, and product benefits and savings.

It is also important to understand and compare functionality available to functionality needed. For example, a utility might be interested in implementing HAN capabilities, but may ultimately realize that DA will generate greater value. In the end, the decision framework lays the foundation for the evaluation of a utility’s smart grid portfolio.

Finally, a decision framework should consider and evaluate the program risks and the organization’s ability to successfully execute the project (e.g., timeline, skill set required, availability of resources, competing projects, technological obsolescence/ maturity).

Develop Strategic Options

Smart grid is not a "one size fits all" initiative. Rather than view smart grid as an "all or nothing" proposition, each utility should define its own customized solution. The specific strategy and technologies of a smart grid program is driven by the needs of the utility. For instance, utilities focused on improving grid reliability will emphasize DA technologies, while others more interested in reducing operational costs will emphasize an AMI approach.

Once a decision framework has been created, the utility should begin to assess the advantages and disadvantages of smart grid technologies using a summary scorecard (Figure 1).

These scorecards provide a comprehensive view of the technology and identify risks, dependencies, resource effort, key benefits and costs associated with the technology. Once complete, scorecards can be used to identify different mixtures, or portfolios, of smart grid technology options.

The advantage of assembling technologies into a portfolio is that it enables an enterprise-wide perspective of the program. The value for each stakeholder organization can be identified and evaluated. The integration of smart grid technologies is made more apparent.

When selecting a portfolio, there are a few key points to keep in mind. First, a smart grid portfolio doesn’t have to incorporate all available technologies, only the ones that coincide with the business strategy. Next, smart grid technologies don’t have to be implemented uniformly across the entire service territory. For instance, a utility could elect to utilize substation automation only at critical or less reliable substations, or choose to install AMI meters in jurisdictions/areas where meter reading cost is high.

Finally, timing of the smart grid rollout is critical. A utility doesn’t have to provide all of the functionality on day 1. Subsequent capability releases can be planned many years in the future.

One of the major obstacles to implementing a smart grid program is the lack of maturity in emerging smart grid technologies. Utilities can counter this through the use of interim solutions. An interim solution helps the utility to recognize smart grid benefits in a "manumatic" environment, combining manual business processes and a degree of process and system automation, with the goal to transition to more integration and automation.

Examples of interim solutions include:

  • Advanced Metering Infrastructure (AMI) – If there is no regulatory structure for the use of interval data, a utility could initially use the technology for remote monthly register reads and remote connect/ disconnect with idea to transition to interval-based rates as they become required.
  • Meter Data Management System (MDMS) – If interval data is not yet needed, the utility may be able to defer investment in an MDMS. At a later date, a new CIS system/CIS modifications could provide MDMS functionality.
  • Wide Area Network (WAN) Communications Backhaul – A utility may start with a cellular backhaul and move to another technology (e.g., WiMax) as it evolves.
  • Direct Load Control – Initially, a utility could use a technology independent of AMI (e.g., paging network) and then transition to load control through the AMI meter.

Incorporating interim solutions gives utilities additional flexibility in what technologies can be included in its smart grid portfolio. Once a closer analysis is given to the technology portfolio, utilities can determine if and where interim solutions should be considered.

Analyze Value

Would a utility build a 2 GigaWatt power plant to satisfy a 100 MegaWatt demand? It’s safe to say most wouldn’t. The additional capacity of the plant does not justify the cost. Although this is an obvious example, it demonstrates that utilities have an existing decision process around large capital investments. In order to successfully define a smart grid strategy, utilities must find a way to transition this type of analysis to smart grid technologies. A qualitative and quantitative value analysis of smart grid portfolios will provide justification of which smart grid technologies to implement.

Qualitative review involves scoring the chosen technology portfolio(s) against the decision framework. This provides a sense of how the technologies match the utility’s risk profile, resource constraints and overall strategy. For instance, a utility may see that some technologies are cost-effective, but too risky to implement in the short-term. These factors are not captured in financial modeling and provide key information to aid in the transition from strategic planning to implementation.

Quantitative analysis assures cost effectiveness for smart grid technology portfolio(s) and is achieved through the use of a business case or financial model. This analysis factors in the various costs and benefits of the smart grid portfolio. For instance, a technology portfolio with AMI and DA would indicate significant costs for the purchase and deployment of new devices, but would calculate benefits on improved grid reliability and remote meter reading.

Figure 2 depicts an overview of a financial model that could be used for smart grid value analysis. As the cost-effectiveness of a particular technology portfolio is determined, the utility may find that the portfolio needs to be modified in order to achieve increased savings. For example, an advanced communications infrastructure to implement AMI alone may not be cost effective. However, if the same infrastructure was also used to enable DA and mobile dispatch it would become much more cost effective. The combination of financial data and qualitative options analysis will help the utility to determine the optimal mix of smart grid technologies to implement.

Ratify Strategy

The selection of a smart grid portfolio and the associated value analysis is only the starting point on the journey to a smart grid; it simply puts the building blocks in place for the utility to transition into implementation planning. The final step in developing a smart grid strategy is to understand how the project will be executed. Utilities should begin implementation planning by asking the following key questions:

  • What is the project scope?
  • What are the key success factors?
  • What is the timeline to complete the project?
  • Which technologies do we implement first (priority/critical path)?
  • What resources are going to do the work? What can be done with internal employees vs. consultants and contractors?
  • What are the risks? How will we manage them?
  • What are the key integration points?
  • What are the competing priorities/projects?
  • Are there regulatory constraints?

A final question leadership may want to ask is "What is the largest non-core project the company has ever undertaken?" and "Why was this project successful/ unsuccessful?" Considering this will allow the utility to consider lessons learned and better understand their capacity for change.

Once these questions have been answered, the utility is ready to begin a smart grid deployment roadmap. The purpose of this roadmap is to lay out the key initiatives over the project timeline, noting the key dependencies and integration points. At this point, it is crucial to transition the organization from a strategy focus to an implementation focus. Current project leadership/sponsorship and functional SMEs should not be released from the project, but rather retained to assist with implementation planning and execution in new roles within the utility’s smart grid organization.

For a variety of reasons, a utility may decide not to immediately begin its smart grid implementation once the vision and strategy have been defined. All is not lost as this analysis helps to identify the key drivers, benefits, risks and obstacles associated with the smart grid program. This can be used as a baseline for future analysis or planning once the utility is ready to continue its smart grid journey.

Conclusion

Implementing a smart grid strategy and plan is an enterprise-transforming endeavor. It may be one of the most pervasive programs a utility has ever attempted. It will impact most every energy delivery organization/function; from operations to customer service and from procurement to human resources. The information technology/operations technology boundary will be crossed many times. Appropriate evaluation of the options and alignment with the company’s strategic goals and challenges is perhaps the most critical step in the smart grid journey. Strategic decisions should be based on rigorous analysis of internal and external aspects, and not an industry trend.

Shaping a New Era in Energy

In the last few years, the world has seen the energy & utilities business accelerate into a significant period of transformation as a result of the smart grid and related technologies. Today, with some early proponents leading the way, the industry is on the verge of a step-change improvement that some might even classify as a full-scale revolution. Utilities are viewed not only as being a critical link in solving the challenges we face related to climate change and the care of our planet’s energy resources, but they’re becoming enablers of growth and innovation – and even new products, services and jobs. Clearly the decisions the industry is making today around the world’s electricity networks will impact our lives for decades to come.

If the current economic environment has muted any enthusiasm for this transformation, it hasn’t been much. With the exception, perhaps, of plummeting oil prices temporarily providing some sense of calm in the sector, there are probably few people left who don’t believe the world needs to urgently address its clean, smart energy future. As of this writing, fledgling signs of an economic recovery are emerging, and along with it, increases in fossil fuel prices. As such, enthusiasm is growing over the debate about how countries will utilize billions in stimulus funding to enable the industry to achieve a new level of greatness.

There is a confluence of events helping us along this path of dramatic and beneficial change. IBM’s recent industry consumer survey (selected findings of which are featured in this publication in "Lighting the Way" by John Juliano) signals a future that is being shaped in part by a younger generation of digitally savvy people who care about – and are willing to participate in – our collective energy future. They willingly engage in more open communication with utility providers and tend to be better at understanding and controlling energy utilization.

As utilities instrument virtually all elements of the energy value chain from the power plant to the plug, they will improve service quality to these customers while reducing cost and improving reliability to a degree never before achievable. Customers engage because they see themselves as part of a larger movement to forestall the effects of climate change, or to battle price instability. This fully connected, instrumented energy ecosystem takes advantage of the data it collects, applying advanced analytics to enable real-time decisions on energy consumption. Some smart grid projects are already helping consumers save 10% of their bills, and reduce peak demand by 15%. Imagine the potential total savings when this is scaled to include companies, governments and educational institutions.

While positive new developments abound, they also are creating a highly complex environment, raising many difficult questions. For example, are families and businesses truly prepared to go on a "carbon diet" and will they stay on it? How will governments, with their increased stake in auto manufacturers, effectively and efficiently manage the transition toward PHEVs? Will industry players collaborate with one another to deal with stealth attacks on smart grids that are no longer the stuff of spy novels, but current realities we must face 24/7? How do we responsibly support the resurgence of nuclear-based power generation?

Matters of investment are also complex. Will there be sufficient public/private partnership to effectively stimulate investment in new businesses and models to profitably progress safe alternative energy forms such as solar, tidal, wind, geothermal and others? Will we have the "smarts" – and the financial commitment – to build more smarts into the reconstruction of ailing infrastructures?

Leading the Way

IBM has been a leading innovator in smart grid technology, significantly investing in energy and environmental programs designed to promote the use of intelligent energy worldwide. We created the Global Intelligent Utility Network Coalition, a strategic relationship with a small group of select utilities from around the world to shape, accelerate and share in the development of the smart grid. With the goal to lead industry organizations to smart grid transformation, we actively lead and participate in a host of global organizations including the GridWise® Alliance, Gridwise Architecture Council, EPRI’s Intelligrid program, and the World Energy Council, among others. By coming together around a shared vision of a smarter grid, we have an unprecedented opportunity to reshape the energy industry and our economic future.

The IBM experts who engage in these groups – along with the thousands of other IBMers working in the industry – have contributed significant thinking to the industry’s progress, not the least of which is the creation of the Smart Grid Maturity Model (SGMM) which has been handed over to the Carnegie Mellon Software Engineering Institute (SEI) for ongoing governance, growth and evolution of the model. Furthermore, the World Energy Council (WEC) has become a channel for the global dissemination of the model among its worldwide network of member committees.

IBM’s own Intelligent Utility Network (IUN) solution enables a utility to instrument everything from the meter in the home to miles of power lines to the network itself. In fact, the IUN looks a lot more like the Internet than a traditional grid. It can be interconnected to thousands of power sources – including climate-friendly ones – and its instrumentation generates new data for analysis, insight and intelligence that can be applied for the benefit of businesses and consumers alike.

Our deep integration skills, leading-edge technology, partner ecosystem and business and regulatory expertise have earned us roles in more than 50 smart grid projects around the globe with showcase projects in the U.S. Pacific Northwest, Texas, Denmark and Malta (See "The Smart Grid in Malta" by Carlo Drago in this publication) to name just a few. IBM also has a role in seven out of the world’s 10 largest advanced meter management projects.

The IBM Solution Architecture for Energy (SAFE), is a specialized industry framework focused on the management, maintenance, and integration of a utility’s assets and information, inclusive of generation, transmission and distribution, and customer operations. This is complemented by a world-class solution portfolio based on the most comprehensive breadth of hardware, software, consulting services, and open standards-based IT infrastructure that can be customized to meet the needs of today’s energy and utilities enterprises around the globe.

These activities are augmented by the renowned IBM Research organization that engages in both industry-specific and cross-industry research that influences our clients’ progress. This includes new computing models to handle the proliferation of end-user devices, sensor and actuators, connecting them with powerful back-end systems. How powerful? In the past year IBM’s Roadrunner supercomputer broke the "petaflop" barrier – one thousand trillion calculations per second using standard chip sets. Combined with advanced analytics and new computing models like "clouds" we’re turning mountains of data into intelligence, making systems like the smart grid more efficient, reliable and adaptive – in a word, smarter.

IBM Research also conducts First-of-a-Kind research – or FOAKs – in partnership with our clients, turning promising research into market-ready products and services. And our Industry Solution Labs around the world give IBM clients the chance to discover how leading-edge technologies and innovative solutions can be assembled and proven to help solve real business problems. For example, we’re exploring how to turn millions of future electric vehicles into a distributed storage system, and we maintain a Center of Excellence for Nuclear Power to improve design, safety analysis, operation, and nuclear modeling / simulation processes.

IBM is excited to be at the forefront of this changing industry – and our changing world. And we’re honored to be working closely with our clients and business partners in helping to evolve a smarter planet.