Energy, Utilities & Chemicals the way we see it

A Call to ActionIn the near future, all North Americanutilities will adopt smart metering and the supporting advanced meteringinfrastructure (AMI) at some level or another.

Some utilities will inevitably take a bare bones approach, doing justenough to meet the minimumrequirements set forth in the EnergyPolicy Act of 2005 and other regulatorymandates. The more visionarycompanies, however, will use smartmetering as an opportunity to positivelyinfluence their destinies, and ultimately,the direction of the North Americanelectrical system. Encouragingly, itappears that most utilities favor the latter option based on the innovativeprograms being initiated at large utilities throughout North America.

The only sure thing is that doingnothing is not an option. The currentstate of the electrical infrastructure inNorth America is not sustainable. Tochange its course, utility companiesmust embrace a fresh approach tomanaging peak demand and systemsecurity—one that will drive marketefficiency while supporting economic,environmental and social priorities.

Certainly it’s a tall order. But Capgeminibelieves utilities can meet all of theirpriorities (and likely realize a host ofother benefits) if the approach theyadopt in managing peak demand andsystem security includes:

■ benefits that motivate consumers to embrace conservation and load management;

■ business cases that look beyond themeter-to-cash process for benefits tojustify investments in advancedmeters, communications and datamanagement infrastructure; and

■ transparency in the market thatenables consumers to align in blocksof load that system operators dispatchmore effectively as part of an efficienteconomic dispatch model.

Though the utility industry is oftenaccused of being slow to adopt andresistant to change, a new study by Platts and Capgemini suggests just theopposite. According to the study, inwhich more than 120 senior executivesat U.S. and Canadian utilitiesparticipated, AMI is the leading “newtechnology interest” for the majority of the surveyed executives.1

The State of the MarketThe compliance-based industry in which utilities operate simply doesn’toffer enough incentive for consumers,regulators or utilities to take thedifficult steps necessary to makeelectrical energy markets operateefficiently. For example:

■ Consumers want lower prices, higher quality service and absolutelyexpect the power to flow 24x7.

■ Some regulators impose long-term rate caps in an attempt to please consumers.

Smart Metering: A FreshApproach to Managing PeakDemand and System Security

These investments must be leveraged tosupport a broader set of benefits such as:

■ Aggregating demand response andallowing it to be dispatched to reducethe need for peak generating capacityand ancillary services.

■ Refining grid planning processes toimprove the efficiency and effectivenessof investments the grid.

■ Improving grid monitoring and controlprocesses to improve reliability, powerquality and reduce losses.

■ Providing new value-added services toconsumers that generate new streamsof revenue and income.

In addition to leveraging investmentsover a larger benefits base, performancemeasures for market participants mustbe better aligned; we must create a “win-win” environment. Good examplesof this include the decoupling underwayin a number of areas to allowdistribution companies to separate theirrevenue from consumption. Decouplinggives distribution utilities incentives totruly embrace conservation and demandresponse programs without jeopardizingtheir ability to earn a return on their investments in distribution grid infrastructure.

The ChallengeUtilities that structure their smartmetering programs strictly from arevenue management perspective areselling themselves short. There’s muchmore to smart metering programs thaninterval reads and time-of-use (TOU)rates. Utilities should leverage theirsmart metering programs to make nearreal-time, point-of-use consumption dataavailable to all participants in electricalenergy markets. Access to data improvestransparency in the market, and as aresult, drives market efficiency. Efficientmarkets offer incentives to bothgenerators and consumers that stimulatebalanced investment and consumptiondecisions and in turn, support economic,environmental and social priorities.

■ Regulated rates are not tied towholesale markets where utilitiespurchase all or a portion of the power they sell.

■ In some wholesale markets, prices are set based on the cost of the high-cost producer.

■ Incentives for consumers to conserveare not significant enough to changetheir behavior.

■ Regulators impose conservationprogram requirements on utilities, and as a result, utilities suffer fromdecreased revenues which are directlytied to consumption.

Despite these current realities, anumber of factors are converging thatwill enable and provide the right typesof incentives for utilities, regulators andconsumers to adopt innovativeapproaches to demand managementand market efficiency.

Convergence in the MarketplaceUtilities face a range of convergingissues that will have a profound impact on their futures.

Regulation and LegislationGovernments around the world aremaking energy conservation, energyindependence and global warming top-of-mind issues. A wide range of taxes,legislation and other policies designedto reduce the combustion of fossil fuelsare being considered across the globe.

Global Climate ChangeAs a society, we increasingly recognizehow burning carbon-based fossil fuelsadversely affects the environment.Momentum is building on many frontsto limit carbon emissions. Government,major corporations, citizen groups and utilities alike are promotingenvironmentally-friendly, greensolutions. Many are insisting thatbehavior must change and adoption a conservation culture is critical.

Customer ExpectationsAs household electricity consumptionincreases year over year, peak loads areincreasing and changes in consumptionpatterns are causing load factors todecrease. At the same time, consumersexpect higher quality power to operatethe increasing number of digital devicesthat we amass each year. Finally,consumers are demanding thisimproved quality at the low, stableprice levels of the past while, at thesame time, wanting a voice in how thepower they consume is generated.

Aging InfrastructureMuch of the transmission anddistribution infrastructure in NorthAmerica is more than 50 years old and was designed to provide power in a different era. For many years, utilitiestypically underinvested in the gridinfrastructure or neglected to make thesignificant, ongoing investments requiredto sustain the infrastructure over thenext decade. As a result, most utilitiesare now at a crossroads, facing a decisionthat will be crucial to their futures.

The OpportunityMake smart metering programs thefoundation of Smart Grid or IntelligentNetwork initiatives by looking beyondthe meter-to-cash process to generatevalue for all participants in the electricalenergy market (including generators,system operators, transmission anddistribution service providers, retailers,energy service companies, consumers,regulators and legislators).

The investments required to implementsmart metering are substantial andusually cannot be justified based solelyon the benefits realized from theelimination of manual meter reading,efficiency improvements in the revenuemanagement process, improved controlover tampering and theft, and improvedoutage notification and restoration.

1 Platts/Capgemini Utilities Executive Study, 2006

2

■ Engaging other stakeholders in theirmarkets and developing consensusaround synergies, critical successfactors, required incentives andalignment of performance measures.

■ Formulating a business solution that is capable of meeting today’srequirements while being scalable to deliver against future demand.

■ Organizing a team capable ofimplementing the chosen business solution.

The Smart Solution In Capgemini’s view, effective smartmetering solutions share a number ofkey components:

■ Meters: Standards-based, two-way communication, remote connect/disconnect and interoperability with in-premisenetworks and devices.

■ In-premise data presentment andcontrol: Near real-time display ofusage and cost, receives market ratesignal, supports customer demandresponse interaction.

But today’s utilities need to look beyondthe technology into the opportunitiesand incentives the technology unlocks.Indeed, utilities must take a morecomprehensive view of smart metering.More important than the technologyitself is the role it plays in enablingsystem operators, retailers, load servingentities, aggregators and customers to use real time load data improvemarket efficiency.

Another key challenge is influencing thebehavior of consumers. When programsprovide meaningful and rewardingincentives, customers can, and will,embrace conservation, and as a result,loads can be more effectively andefficiently managed.

Capgemini believes the strategy forutilities should be proactive and thatprograms for action should include:

■ A long-term approach around smart metering and its linkages to operational improvements,conservation programs, demandresponse, capacity planning and new revenue opportunities.

Energy, Utilities & Chemicals the way we see it

End-to-End Smart Metering Solution

Legacy ApplicationsCIS, OMS, DMS, GIS, EAM, MWFM, etc.

Enterprise Service Bus (ESB)

Meter DataManagement

System(MDMS)

DemandResponse

ControlSystem

DataWarehouse/

ODS

AnalyticalReporting

Third-Party

Presentment

Enterprise ApplicationsTelecommunications

Cellular

Wireless

PLC/BPL

WiMaxPrivateWireless

Concentrator WirelessBroadband

WAN

ExternalParticipants

InstallersCustomersRetailers

RegulatorsAggregators

Head-End Event

Management

Firewall Firewall

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ElectricSmart Meter

GasSmart Meter

ElectricSmart Meter

DREnd Devices

End Points

DREnd Devices

DREnd Devices

DB Replication

“The current state of theelectrical infrastructure in North America is notsustainable. To change itscourse, utility companiesmust embrace a freshapproach to managingpeak demand and system security.”

Smart Metering: A Fresh Approach to Managing Peak Demand and System Security 3

■ Operational Services: Ability to manage all field installation andactivation activities including meters,meter data collection, communicationsand in-premise data presentment andcontrol elements.

■ Business Process Outsourcing (BPO)Hub Services: Extensive experiencewith billing and revenue management,meter data management, revenueassurance, demand response,distribution asset management, callcenter support, call center overflowand technology services, delivered from hub centers in the right locations.

Ultimately, the utilities that are able tobuild a strong team of partners readyand willing to share their vision inmanaging peak demand and systemsecurity will be the utilities that lead theway in driving market efficiency –delivering a positive and sustainableimpact not only on utilities but also onthe North American electrical system.

The Power of Partnership

Before embarking on a smart meteringinitiative, utilities should seek outpartners who will work collaborativelywith them to ensure the success of theinitiative. Partners should have a proventrack record, be prepared to sign up forend-to-end responsibility and be willingto have a stake in delivering results. Forsuperior results, utilities should look forpartners with deep industry experiencein these critical areas:

■ Program Management: Complex,multi-year, multi- programmanagement experience withestablished methods and tools.

■ System Integration: Expertise indeveloping and managing data models,service-oriented architecture, interfacedesign and development, configurationmanagement, solution documentationand end-to-end testing.

For more information contact:

Copyright © 2007 Capgemini. All rights reserved.

www.us.capgemini.com/energy

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■ Meter data collection systems: Two-way communication, multi-vendorsolution compatible.

■ Backhaul communications system:Two-way, high bandwidth, utility orthird-party owned.

■ Event management system: Interprets,filters and transfers event data to stakeholders.

■ Service-oriented integrationarchitecture: Standards-based, reusableservice accommodates changing sourceand target applications.

■ Meter data management system: Assetmanagement, data validation, editingand estimation (VEE); and publishing of billing determinates.

■ Decision-support system: Loadforecasting, revenue protection, asset analysis and rate design.

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Gord ReynoldsPractice LeaderSmart Energy Servicesgord.reynolds@capgemini.com+1 416.732.2200