The Shift in Energy Consumerism

Few years ago, I published an article titled “Utilities 2.0” in Public Utilities Fortnightly where I proposed some tangible value co-creation opportunities for power utilities through the lenses of DART (a framework devised by Prahlad and Ramaswami). I am pleasantly surprised to see how the term “Utilities 2.0” has caught on since then, and more amazingly, how rapidly the concept has been becoming a reality.

The 2012 “Actionable Insights for New Energy Consumer” report from Accenture reveals some really fascinating data that perfectly align with the evolution of Utility 2.0. The shift in energy consumerism is not vaporware, - it is real - “…from isolated to connected, from unaware to informed, from passive to active.” And this shift is transforming the stale business models for traditional utilities.

Below is an example of how different opportunities shape up for Dialogue, Access, Risk Assessment and Transparency (DART) and their intersections.

Some random bickering over AMI Investment Cases

For reasons not-so-difficult-to-understand, power utilities are extremely conservative when it comes to making their investment plans. AMI being the case in point, if you exclude the non-operational benefits from the equation, the Net Present Value comes out gravely negative for most business cases for most utilities. And for the non-operational benefits, which are primarily attainable through broader consumer load participation via market based demand response or direct load control, some of key enabling policy instruments are yet to be instituted owing to the lack of political will and organizational momentum.

It’s interesting to note that reliability gains are completely missed out from most AMI investment cases, with some notable exceptions (such as Connecticut Light & Power). In the base case, utilities can expect to save up to 10% of their outage restoration costs by leveraging the AMI events to reduce the average system interruption minutes (SAIDI). There are also achievable grid efficiencies delivered by business analytics with all the AMI and PMU (Phasor Measurement Unit) data.

At some point in the near future, utilities should sit back and perform a comprehensive value audit and recalibrate their transformation roadmaps. But, agreeably, that’s a broader subject.

AMI to Fix Connectivity Data

Big or small, almost all utilities have a chronic condition – data quality of their network connectivity models is less than desirable. For some, the device associations are inaccurate to the extent of 30 - 40%. In recent years, many utilities have spent tens of millions to physically walk the circuits to verify the connectivity data, but not many (if not any) have sufficiently leveraged the meter events to correct the model.

This, truly, is a low hanging fruit. Correlating meters that throw out power out events with the meters that are associated with the OMS created outage tickets can easily indicate the disassociation. Utilities can adopt a continuous improvement approach to analytically compare these two data-sets to identify the anomalies on a regular basis. This is a “slow and steady” strategy, but that’s the way to win the race at a time when commissions are holding tight to their wallets.

Leveraging AMI for Outage Management

By 2015, over 40 million advanced electric meters will be deployed by the US utilities. A significant number, however, it still makes up for only 25% of all electric customers. The good news is that almost all major IOUs, who are the traditional trend setters in the US electric market, have already dared the devil and are in the last laps of AMI deployment. Time has come to think “so, now, what?” All these utilities had compelling business cases to convince their commissioners, but now, billions of dollars later, the question remains whether they will really be able to offset the customer surcharge by achieving promised efficiency gains.  They have got some really cool toys, petabytes of data and some brilliantly fluffy ideas, - but they still need to figure out how to connect the dots.

I intend to write some fuzzy posts on these fluffy ideas in days (or months) to come, - but here is something that many utilities have already embarked on: enabling outage management process with AMI. There is a wide range of benefits - from instantaneous outage detection to nested outage determination to device analysis - but the biggest saver is the simplest: avoiding dispatch for those 30% to 50% of trouble calls for which there are no utility side issues.

Meter events can be leveraged to automatically determine when a meter suffers an outage and when it wakes back up. AMI systems can process this information, infer the outage and notify the Outage Management System (OMS). Upon restoration, OMS can auto-verify the restoration status by requesting AMI and detect nested outages, if any.

Implementation mechanics will vary largely depending on specific AMI technologies, but what I found thrillingly fascinating is the possibility that Meter Data Management Systems (MDMS), as they mature, will act as virtual Distribution SCADA. When it comes to outage notification, there is a huge hiatus between a SCADA-sensed breaker and a Customer-notified site – any intermediate fault location has to wait to be determined by the OMS. This gap can be potentially bridged by MDMS by utilizing the network connectivity model against the meter events. So far, most MDM vendors have been shaky about encroaching into the prohibited space of OMS, - but time will tell.

A Case for Channel Strategy around 3rd Parties

When the Groupon effect toppling regimes around the world and iphone apps attempting to aid confessions for catholics, some utilities are still mooning on how to integrate internet and mobile in their comprehensive channel strategy. [Bit of a out-of-context stat – internet penetration in Egypt and Tunisia are 21% and 34% respectively, compared to 77% in the US (according to www.internetworldstats.com)].

Here is one more case for channel strategy.

In my tiny town with the population of 205K, there are 23 (mini-) firms dealing in energy efficiency – Energy conservation consulting, Energy conservation products and services, Insulation materials, Appliance installers, Builders and so on. If you survey the entire territory of a major utility, there are hundreds of such firms. These companies want to be found by the customers, and if possible, when they focus on their core service areas, they would want someone to handle their billing and payment functions.

Utilities have a tremendous opportunity to facilitate the relationship between these companies with the customers. When the utility websites can have their listings, utilities can insource their billing and payment capabilities to support these firms. Revenue model? – that’s a no brainer.

On Utility Branding

For last two years, IDC has been doing a remarkable job in ranking electric utilities by their Intelligent Quotient (IQ). I wonder if someone could do a similar ranking for utility branding. Traditionally, utilities are super rich in tangible assets, but how do they stand on intangibles? Moreover, with so much of investments (and hype and hoopla) around Smart Grid, has there been any change in brand asset value?

If you look through Y&R’s model for Brand Asset Valuation, it’s clear that Brand Strength must have been refueled by the smart grid investments leading to energized differentiation. However, have there been any boosts around Relevance, Esteem and Knowledge? How differently do the consumers really feel about their utilities now?

Twisted value net for utilities

An ominous theory has been wafting through the air for sometime – gypsies like Google will eventually shrink the utilities to some dumb wires. A utility company will be like a skinny skeleton wearing other people’s fleshes. Before my imagination rolls down the gory trail, let me come to the point...

Recently I had the opportunity to speak at a DeTech meet, facilitated by DEFG and hosted by San Diego Gas & Electric. The topic was how the inclusion of third party companies will change the current business models for electric utilities. Intensely intriguing.

Smart Grid and associated technologies are essentially unveiling the electric utility industry out of their burkas. In the last three years, venture capital spending in the advanced metering technologies has been over $1.5 B. In 2010 alone, about $2.75 Billion has been spent on smart grid products around advanced metering, demand response and distribution grid management.

In HAN (Home Area Network) ecosystem alone, there are more than 200 vendors. The network providers such as Verizon are opening up their backyards. Demand side aggregators like Enernoc and CPower are mushrooming with froggy leaps. Google is up on its mission to “organize the world’s information” through the PowerMeter. Microsoft is using Hohm as their homing beacon to make inroads. Do not forget Opower. Galvin  is up with Microgrids. The list runs on and on. Too many smarty pants in the room, - and utilities, like selfless hermits, are cannibalizing their sales through Distributed Generation, Demand Response and Energy Efficiency. Huh!

Remember the value net by Brandenburger and Nalebuff? It becomes really interesting as you start plotting the newbies against the four pillars of the net. Not only that the list for Complementors and Substitutors start hanging below the bottom, - but in cases, the line of demarcation seems really slim. Sometimes, an entity could fall into multiple pillars. Take the example of DR Aggregators – are they Substitutors or Suppliers? Both, really. How about Distributed Generation? Talk about twisted value nets.

The question is - what should be the go forward strategy for utilities - compete, co-operate or co-opetate? I think co-opetition will be the name of the game. We will wait and see.

Texas nexus on Electric Vehicles

The auto show at the State Fair of Texas was not an iota less fascinating than the one for livestock. Spanning across 30o thousand square feet, it’s an orgy of cool cars – 2011 models of Chevy, Cadillac, Buick, GMC, Hyundai, Nissan, Ram and Toyota. Chevy Volt was probably the cynosure of the exposition.

I had the opportunity to attend both the VIP Reception (sponsored by Chevrolet) and the Panel Luncheon (sponsored by TXU Energy). It was reassuring to see how sincere Texas dignitaries are about Electric Vehicles and how effectively market participants are interacting with one another to make EV an early success in Texas.

As I touted in my last blog, two things have to go hand-in-glove to make EV justifiable to the cause – (1) high renewable portfolio standards (2) consumer incentives for off-peak charging. Texas is on track for both.

By the next few years, Texas will have more than 20,000 MW installed capacity of wind power; and Texas is building about $5 Billion worth of transmission lines (CREZ) from West Texas and the Texas Panhandle to the population centers. TDSPs (Transmission & Distribution Service Providers) in Texas are currently deploying 6.5 million smart meters, - which will provide the platform for dynamic pricing. Because of high night wind, off-peak energy will be greener.

Hail Texas! Here I come.

BTW – here’s Andy’s commentary on the panel discussion: http://smartgridsecurity.blogspot.com/2010/09/blazing-ev-and-v2g-trails-at-texas.html

Valuing Electric Vehicles...

Electric Vehicles have compelling value propositions in the US market. First, it can direct the dough away from OPEC to the pockets of US electric utilities. Second, it can create some cool jobs. Third, it will reduce demand for gasoline to further jack down oil price.

However, most people will not buy Electric Vehicle thinking – “Aha, let me bolster the US economy. Hey OPEC, you like the pinch, yeah?” Some of those saintly folks will buy EV because they are deafened by the carbon cry of our moribund planet, - and some of my miserly buddies will do it to save on fuel cost.

Well, emission continues: not through the tailpipes, but through the plant chimneys. Until renewables become a dominant mix in the generation portfolio, EV will only make just a little sense from the environmental standpoint.

But I think my cheap buds are wiser. EV, even in its diapers, can drive you up to 40 miles for less than 2 dollars. With dynamic pricing, this cost may go down to as low as 32 cents. If you are in Austin and you never have to drive more than 40 miles a day, your monthly fuel cost will be about $10. Pretty neat, indeed!

Coffee is not green

The buzz around greening has reached a point when it has become outright annoying. A year back, words like “environmental sustainability” and “carbon footprint” carried a lot of weight. If you could spit out those words in any coherent or even semi-coherent construct, people would look back at you as if you were a returning messiah. Now, - sigh!

I think “greening” is rapidly losing its cool as it has been taken as a silly excuse by many companies to reduce their OpEx. It's all about their green business case. It’s almost like – if you love your wife, give me a dollar.

If you are a habitual habitant of Sheraton, you must have seen those green tags tacked against your pillows. Well, at first sight, I was damned impressed. I get a $5 green coupon if I refuse a day’s room service. Cool! I went for it, with a simmering pride that I can save the planet a tiny bit through my towels and linens. Behold, the upshot – no coffee in my room! They did not replenish coffee in my room for green sake! I thought it was only about washing and drying, - what does coffee have to do with greening, anyway? Coffee is not green, it’s plain coffee!

I’d be curious to know Sheraton’s activity based costing for room cleaning. That’ll tell me their green business case.