Is mass-market advanced metering a technology whose time has finally come?
It’s hard to ignore the many advantages reported by leading-edge utilities: better power forecasting, fewer unnecessary truck-rolls, satisfied consumers. Regulators are intrigued by the possibility that residential demand-response programs might reduce the need for new infrastructure. Some North American utility companies are already considering or even launching advanced metering programs for all customer classes.
Many utilities, though, are hesitant to commit to new advanced metering systems. Will they be able to recover the high costs involved? Will they find themselves on the bleeding rather than leading edge of technology? How will customers respond to a major and permanent change in the way they pay for energy? Will regulators provide long amortization periods of the additional smart metering infrastructure cost in order to lessen the impact to customers?
No one can give a truly authoritative answer to these questions. But that doesn’t mean you must stand on the sidelines while others move forward with potentially cost-saving advanced metering technology. Here are some ideas that may help mitigate the risks you’ll encounter in the new world of smart metering:
Risk: Advanced metering is clearly desirable, but the cost is too high.
Remedy: You may be able to change the cost/benefit equation by broadening your outlook or even adding costs.
It may be counter-intuitive, but there are times when you can move an advanced metering system from red to black by adding costs.
A good example is an advanced metering proposal built around the need for demand-response and therefore predicated on one-way meter communications. Consider the added benefits available by moving up to two-way communication: meter polling during outages, remote programming that enables customers to use new products that might be offered by the utility or by a third party.
Fortunately, the range of benefits available from advanced metering is very broad. There are tangibles, for example:
• Fewer meter readers, which means lower total costs for salary, benefits, and workers compensation.
• Remote rather than expensive and occasionally risky on-site disconnects.
• Less wasted time in attempts to pinpoint the size and source of an outage.
• Better accuracy in the actual meter readings.
There are semi-tangibles, like less customer dissatisfaction—and fewer calls to the call center—concerning estimated meter reads. And there are intangibles, like customer—and neighbor—gratitude on discovering that, while the family was on vacation, the utility detected an unexpected and significant upswing in “consumption,” and as a consequence, gained emergency access to the residence and fixed a gas leak.
Fortunately, others have already gone down the path of benefits estimation. There’s considerable information available (see sidebar) that will help you build a business case that includes a comfortable cushion to cover the inevitable unexpected costs.
Risk: Pilot program results are misleading.
Remedy: If a pilot can’t reflect real-life conditions, substitute the research and experience of others.
Technology annuls are full of stories about successful pilots followed by unsuccessful products. That’s because it’s hard to narrow the gap between a test and real life.
Let’s take the example of a utility that wants to limit capital investment in new infrastructure. It already knows that large industrials will time-shift electricity use in response to a price signal. Might consumers do the same? And might that obviate or at least postpone the need for new construction?
That’s a question to which a pilot might easily provide the wrong answer.
Here’s why. A pilot must first recruit or assign participants. Either way, most utilities feel it necessary to protect pilot participants from overly harsh financial consequences. So they use rate structures that make it easy for participants to save money through time-shifting. Or they guarantee that participation won’t increase bills.
That’s not a real-life demand-response program. That’s a game.
Compounding the problem is that, by definition, pilots are interesting. Often, those willing to sign up for a pilot program of energy conservation have more of an environmental concern than the majority of a utility’s customers. Additionally, participants have positive feelings about being singled out. They enjoy their contacts with utility staff. They may develop a commitment to the project’s success. It’s hardly a surprise, then, that after six months or so, time-shifting has occurred.
Rolling out this same project to the public at large as a permanent change in energy billing may get markedly different results. Customers jaded by less-than-successful competitive energy programs may greet this new initiative with skepticism. They may find the supposed time-shifting savings to be elusive or difficult to achieve with the appliances currently in place. They may find the relatively small savings available are simply not worth the effort.
Complicating the problem are likely differences between long-term and short-term behavior.
• Will an initial rise in call center activity persist? Rise? Fall over the long term?
• Will initial concern about electricity prices and availability give way to long-term “business as usual”? The history of gasoline prices suggests that higher energy prices produce initial consumer alarm and consideration of measures like car pooling and using public transportation. Few, however, appear to make such changes on a permanent basis. And while programs like demand-response could well affect the appliance features consumers demand, the homeowner’s appliance replacement cycle can be eight to 15 years or more. Add that to the time needed for manufacturers to bring such equipment to market and you have a gap between program implementation and effect that likely exceeds utilities’ and regulators’ time horizons.
• Will consumers seek regulatory relief from residential demand-response programs that require them, every day, for the rest of their lives, to find out the price of electricity, then adjust their behavior—and the behavior of family members—accordingly? Is there any other aspect of modern economic life that imposes such a burden on consumers’ time?
Without several years of experience, no one can give accurate answers to such questions. But the answers could turn a cost-saving program into one that loses money.
Fortunately, there are ways to avoid the misleading-pilot trap. If your goals will require an advanced metering program that cannot be accurately tested in a pilot, then avoid the pilot altogether. There are a number of studies and real-life examples already available (see sidebar) that should give you enough information, at a minimum, to put parameters around the range of likely customer reactions to an advanced metering program.
Risk: The savings in your business case don’t materialize.
Remedy: Get commitments to the actions that will produce the business case numbers before you implement the program.
Developing a valid business case is no easy task. Strategists may be able to see clearly three or four steps down the road; but that unseen fifth step may be the one that really counts.
Let’s take an example: an advanced metering program aimed at reducing the number of unneeded truck rolls in response to outage calls from customers. At some utilities, the “OK on arrival” outcomes of outage calls can run as high as 80 percent. Clearly, an advanced metering system that permits “pinging” the meters all around a reported outage can dramatically reduce unneeded responses to problems like blown fuses or other inside-the-building problems.
No business-case developer will project savings of 80 percent of the total costs of field crews and equipment. The costs of staff retraining and re-education will be included. So will amortization schedules for existing (and potentially unneeded) equipment and penalty charges for existing supplier contracts. The business case will allow for the dispersion of crews throughout large rural service territories and for the costs of supervising remote crews.
But will the business case adequately account for the potential consequences of fewer crews and trucks available to respond to widespread storm-related outages? Can it accurately foresee the effect of fewer field service crews on reliability measurements? Can it take into account the potential reactions of customers and regulators to slower power restoration? Can it gauge the reactions of other utilities that lend crews to respond to a neighbor’s emergency only to discover that the neighbor cannot return the favor? Will it correctly estimate the size and consequences of a unionized field force’s organized response?
The strategist may see those questions as unanswerable. But a field crew manager might argue successfully that, precisely because they are unanswerable, the utility should adopt a “go slow” attitude about making changes like reducing the number of field crews. If the business case depends on crew reductions, its numbers just got blown out of the water.
A similar situation might prevail even if the business case includes only reductions in overtime truck rolls. Field workers frequently see overtime as a benefit, and they may count on it as part of their total annual income. Eliminating or reducing overtime in this case is equivalent to a pay cut. Unionized crews may take exception to the plan and demand compensation or other work-rule changes that could negate some of the business case’s projected savings.
Avoiding unforeseen “second guessing” like this means involving managers throughout the utility. But testing a business case with a wide audience runs a high political risk. Premature rumors can tie management hands and reduce alternatives before they’re carefully considered.
When it comes to involving more people in the advanced metering business case, utility strategists are clearly caught between a rock and a hard place. But most will find that the risks of too much communication are smaller than the risks of too little.
Risk: Hardware and software investments turn out to be unneeded.
Remedy: Evaluate existing systems for their possible contribution to an ultimate advanced metering system.
A number of utilities have issued Requests For Information (RFIs) about vendors’ advanced metering capabilities. A few have moved to the proposal and contract stages. As a result, vendors are introducing new products and entering new alliances to respond to a perceived market demand.
This process has only just begun. New entrants will come into the market for at least the next few years. They will have new ideas that could turn out to be more suited to your specific situation or possibly less costly.
Some utilities simply cannot delay implementing new, complete end-to-end advanced metering systems. Others, however, may be able to make progress by using pieces of existing systems. Ask your existing vendors, for instance, the cost of:
• Adding substantially more customers (i.e. residentials) to an existing commercial and industrial interval-billing program.
• Developing more robust integrations between existing outage management and mobile workforce applications.
• Adding time-of-use or one-way communications capabilities to existing meters.
It may also be possible to piggyback advanced metering functions onto an existing quest for a new or replacement outage or billing solution.
Analysts predict most utilities will eventually want to handle advanced metering data in a separate meter data management application. But you may want to take an interim step that lets you test the benefits of your direction before you commit to a significant addition to your IT structure.
____________________
Consumer behavior is unpredictable. So are the long-term consequences of a major change in the way people pay for a fundamental building block of contemporary life. But utilities cannot afford to let unknowns paralyze them. Communities’ escalating energy needs plus the environmental consequences of wasted energy and infrastructure are simply too important for a “wait and see” approach to advanced metering.
Advanced metering promises far too many benefits to simply ignore. Risk mitigation approaches like the above may be the best way to add appropriate caution to issues on which most utilities will need to act sooner rather than later.
About the Author
Guerry Waters has more than 30 years experience in global information technology strategy, organization, architecture, and business-driven IT solutions. He has been SPL's Senior Vice President of Marketing and Strategy since November 2000.
Prior to joining SPL, Mr. Waters was Vice President of Energy Information Strategy at META Group, where he focused on customer management and alignment of the information technology function with the energy lines of business. His previous responsibilities in the energy industry included the positions of CTO and Director of Technology Strategy and Engineering at Southern Company.
Mr. Waters' educational background includes concentrations of studies in business, technology and extensive course work and studies in management, strategy development, and implementation planning. He is a frequent speaker and writer on issues surrounding the transformation of IT and creation of customer-related strategies and solutions in an increasingly competitive global market.
"The future of the utilities market lies in the ability of companies to innovate and adapt to today's changing markets. If companies are to succeed in the utilities sector, they must adopt innovative solutions capable of providing them with competitive advantage."
It’s hard to ignore the many advantages reported by leading-edge utilities: better power forecasting, fewer unnecessary truck-rolls, satisfied consumers. Regulators are intrigued by the possibility that residential demand-response programs might reduce the need for new infrastructure. Some North American utility companies are already considering or even launching advanced metering programs for all customer classes.
Many utilities, though, are hesitant to commit to new advanced metering systems. Will they be able to recover the high costs involved? Will they find themselves on the bleeding rather than leading edge of technology? How will customers respond to a major and permanent change in the way they pay for energy? Will regulators provide long amortization periods of the additional smart metering infrastructure cost in order to lessen the impact to customers?
No one can give a truly authoritative answer to these questions. But that doesn’t mean you must stand on the sidelines while others move forward with potentially cost-saving advanced metering technology. Here are some ideas that may help mitigate the risks you’ll encounter in the new world of smart metering:
Risk: Advanced metering is clearly desirable, but the cost is too high.
Remedy: You may be able to change the cost/benefit equation by broadening your outlook or even adding costs.
It may be counter-intuitive, but there are times when you can move an advanced metering system from red to black by adding costs.
A good example is an advanced metering proposal built around the need for demand-response and therefore predicated on one-way meter communications. Consider the added benefits available by moving up to two-way communication: meter polling during outages, remote programming that enables customers to use new products that might be offered by the utility or by a third party.
Fortunately, the range of benefits available from advanced metering is very broad. There are tangibles, for example:
• Fewer meter readers, which means lower total costs for salary, benefits, and workers compensation.
• Remote rather than expensive and occasionally risky on-site disconnects.
• Less wasted time in attempts to pinpoint the size and source of an outage.
• Better accuracy in the actual meter readings.
There are semi-tangibles, like less customer dissatisfaction—and fewer calls to the call center—concerning estimated meter reads. And there are intangibles, like customer—and neighbor—gratitude on discovering that, while the family was on vacation, the utility detected an unexpected and significant upswing in “consumption,” and as a consequence, gained emergency access to the residence and fixed a gas leak.
Fortunately, others have already gone down the path of benefits estimation. There’s considerable information available (see sidebar) that will help you build a business case that includes a comfortable cushion to cover the inevitable unexpected costs.
Risk: Pilot program results are misleading.
Remedy: If a pilot can’t reflect real-life conditions, substitute the research and experience of others.
Technology annuls are full of stories about successful pilots followed by unsuccessful products. That’s because it’s hard to narrow the gap between a test and real life.
Let’s take the example of a utility that wants to limit capital investment in new infrastructure. It already knows that large industrials will time-shift electricity use in response to a price signal. Might consumers do the same? And might that obviate or at least postpone the need for new construction?
That’s a question to which a pilot might easily provide the wrong answer.
Here’s why. A pilot must first recruit or assign participants. Either way, most utilities feel it necessary to protect pilot participants from overly harsh financial consequences. So they use rate structures that make it easy for participants to save money through time-shifting. Or they guarantee that participation won’t increase bills.
That’s not a real-life demand-response program. That’s a game.
Compounding the problem is that, by definition, pilots are interesting. Often, those willing to sign up for a pilot program of energy conservation have more of an environmental concern than the majority of a utility’s customers. Additionally, participants have positive feelings about being singled out. They enjoy their contacts with utility staff. They may develop a commitment to the project’s success. It’s hardly a surprise, then, that after six months or so, time-shifting has occurred.
Rolling out this same project to the public at large as a permanent change in energy billing may get markedly different results. Customers jaded by less-than-successful competitive energy programs may greet this new initiative with skepticism. They may find the supposed time-shifting savings to be elusive or difficult to achieve with the appliances currently in place. They may find the relatively small savings available are simply not worth the effort.
Complicating the problem are likely differences between long-term and short-term behavior.
• Will an initial rise in call center activity persist? Rise? Fall over the long term?
• Will initial concern about electricity prices and availability give way to long-term “business as usual”? The history of gasoline prices suggests that higher energy prices produce initial consumer alarm and consideration of measures like car pooling and using public transportation. Few, however, appear to make such changes on a permanent basis. And while programs like demand-response could well affect the appliance features consumers demand, the homeowner’s appliance replacement cycle can be eight to 15 years or more. Add that to the time needed for manufacturers to bring such equipment to market and you have a gap between program implementation and effect that likely exceeds utilities’ and regulators’ time horizons.
• Will consumers seek regulatory relief from residential demand-response programs that require them, every day, for the rest of their lives, to find out the price of electricity, then adjust their behavior—and the behavior of family members—accordingly? Is there any other aspect of modern economic life that imposes such a burden on consumers’ time?
Without several years of experience, no one can give accurate answers to such questions. But the answers could turn a cost-saving program into one that loses money.
Fortunately, there are ways to avoid the misleading-pilot trap. If your goals will require an advanced metering program that cannot be accurately tested in a pilot, then avoid the pilot altogether. There are a number of studies and real-life examples already available (see sidebar) that should give you enough information, at a minimum, to put parameters around the range of likely customer reactions to an advanced metering program.
Risk: The savings in your business case don’t materialize.
Remedy: Get commitments to the actions that will produce the business case numbers before you implement the program.
Developing a valid business case is no easy task. Strategists may be able to see clearly three or four steps down the road; but that unseen fifth step may be the one that really counts.
Let’s take an example: an advanced metering program aimed at reducing the number of unneeded truck rolls in response to outage calls from customers. At some utilities, the “OK on arrival” outcomes of outage calls can run as high as 80 percent. Clearly, an advanced metering system that permits “pinging” the meters all around a reported outage can dramatically reduce unneeded responses to problems like blown fuses or other inside-the-building problems.
No business-case developer will project savings of 80 percent of the total costs of field crews and equipment. The costs of staff retraining and re-education will be included. So will amortization schedules for existing (and potentially unneeded) equipment and penalty charges for existing supplier contracts. The business case will allow for the dispersion of crews throughout large rural service territories and for the costs of supervising remote crews.
But will the business case adequately account for the potential consequences of fewer crews and trucks available to respond to widespread storm-related outages? Can it accurately foresee the effect of fewer field service crews on reliability measurements? Can it take into account the potential reactions of customers and regulators to slower power restoration? Can it gauge the reactions of other utilities that lend crews to respond to a neighbor’s emergency only to discover that the neighbor cannot return the favor? Will it correctly estimate the size and consequences of a unionized field force’s organized response?
The strategist may see those questions as unanswerable. But a field crew manager might argue successfully that, precisely because they are unanswerable, the utility should adopt a “go slow” attitude about making changes like reducing the number of field crews. If the business case depends on crew reductions, its numbers just got blown out of the water.
A similar situation might prevail even if the business case includes only reductions in overtime truck rolls. Field workers frequently see overtime as a benefit, and they may count on it as part of their total annual income. Eliminating or reducing overtime in this case is equivalent to a pay cut. Unionized crews may take exception to the plan and demand compensation or other work-rule changes that could negate some of the business case’s projected savings.
Avoiding unforeseen “second guessing” like this means involving managers throughout the utility. But testing a business case with a wide audience runs a high political risk. Premature rumors can tie management hands and reduce alternatives before they’re carefully considered.
When it comes to involving more people in the advanced metering business case, utility strategists are clearly caught between a rock and a hard place. But most will find that the risks of too much communication are smaller than the risks of too little.
Risk: Hardware and software investments turn out to be unneeded.
Remedy: Evaluate existing systems for their possible contribution to an ultimate advanced metering system.
A number of utilities have issued Requests For Information (RFIs) about vendors’ advanced metering capabilities. A few have moved to the proposal and contract stages. As a result, vendors are introducing new products and entering new alliances to respond to a perceived market demand.
This process has only just begun. New entrants will come into the market for at least the next few years. They will have new ideas that could turn out to be more suited to your specific situation or possibly less costly.
Some utilities simply cannot delay implementing new, complete end-to-end advanced metering systems. Others, however, may be able to make progress by using pieces of existing systems. Ask your existing vendors, for instance, the cost of:
• Adding substantially more customers (i.e. residentials) to an existing commercial and industrial interval-billing program.
• Developing more robust integrations between existing outage management and mobile workforce applications.
• Adding time-of-use or one-way communications capabilities to existing meters.
It may also be possible to piggyback advanced metering functions onto an existing quest for a new or replacement outage or billing solution.
Analysts predict most utilities will eventually want to handle advanced metering data in a separate meter data management application. But you may want to take an interim step that lets you test the benefits of your direction before you commit to a significant addition to your IT structure.
____________________
Consumer behavior is unpredictable. So are the long-term consequences of a major change in the way people pay for a fundamental building block of contemporary life. But utilities cannot afford to let unknowns paralyze them. Communities’ escalating energy needs plus the environmental consequences of wasted energy and infrastructure are simply too important for a “wait and see” approach to advanced metering.
Advanced metering promises far too many benefits to simply ignore. Risk mitigation approaches like the above may be the best way to add appropriate caution to issues on which most utilities will need to act sooner rather than later.
About the Author
Guerry Waters has more than 30 years experience in global information technology strategy, organization, architecture, and business-driven IT solutions. He has been SPL's Senior Vice President of Marketing and Strategy since November 2000.
Prior to joining SPL, Mr. Waters was Vice President of Energy Information Strategy at META Group, where he focused on customer management and alignment of the information technology function with the energy lines of business. His previous responsibilities in the energy industry included the positions of CTO and Director of Technology Strategy and Engineering at Southern Company.
Mr. Waters' educational background includes concentrations of studies in business, technology and extensive course work and studies in management, strategy development, and implementation planning. He is a frequent speaker and writer on issues surrounding the transformation of IT and creation of customer-related strategies and solutions in an increasingly competitive global market.
"The future of the utilities market lies in the ability of companies to innovate and adapt to today's changing markets. If companies are to succeed in the utilities sector, they must adopt innovative solutions capable of providing them with competitive advantage."
