Energy, Utilities & Chemicals the way we see itA 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 innovative programs beinginitiated at large utilities throughoutNorth America.Until recently, utilities often undertookmetering or demand response projectsseparately. Today most utilities embarkon Advanced Metering Infrastructure(AMI) projects which include bothmetering technology as well as DemandResponse (DR) functionality and oftenadvanced in home devices such as In Home Displays (IHDs) andProgrammable CommunicatingThermostats (PCTs).Todays Smart Metering The Challenges and Key Benefits of AMI, Demand Response and Smart Grid2These are often further integrated withother infrastructure improvementsbuilding toward the highly capableSmart Grid. Leading North Americanexamples of these efforts are HydroOnes Smart Zone Project in Ontario,Duke Energys smart grid effort, theExelon/ComEd led work in Chicagoand the Pennsylvania utilities emergingresponse to Pennsylvania Act 129.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 systemsecurityone that will drive marketefficiency while supporting economic,environmental and social priorities.Certainly this is a tall order. But Capgemini believes utilities can meet all of their priorities (and likelyrealize a host of other benefits) if theapproach they adopt in managing peakdemand and system security includes:...we increasinglyrecognize how burningcarbon-based fossil fuelsadversely affects theenvironment. Momentum is building on many fronts to limit carbon emissions.Government, majorcorporations, citizen groups and utilities alike are promotingenvironmentally-friendly,green solutions.Benefits that motivate consumers to embrace conservation and load managementBusiness cases that look beyond the meter-to-cash process for benefitsto justify investments in advancedmeters, communications and datamanagement infrastructure Transparency in the market thatenables consumers to align in blocksof load that system operators dispatchmore effectively as part of an efficienteconomic dispatch modelThough the utility industry is oftenaccused of being slow to adopt andchange-resistant, studies conducted by Capgemini continue to suggestotherwise. When 120 senior executivesfrom utilities across North Americawere surveyed by Capgemini and Platts,the majority of the respondents citedAMI as the leading new technologyinterest. This interest has continued tobuild momentum. In fact, an extensivesurvey of North American regulatoryexecutives conducted by Capgemini in collaboration with the NationalAssociation of Regulatory UtilityCommissioners (NARUC) and theCanadian Association of Members ofPublic Utility Tribunals (CAMPUT)found that two out of three (67percent) of the surveyed executiveseither viewed AMI as fundamental totheir energy future or were activelyreviewing the issue.The State of the MarketThe compliance-based industry in which utilities operate simply doesntoffer 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 consumersAMI program that emphasizes apositive and impactful customerexperience will be a key driver.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.Among the most prominent examplesare the increasingly prevalentRenewable Portfolio Standards (RPS) enacted by many NorthAmerican jurisdictions.Regulated rates are not tied towholesale markets where utilitiespurchase all or a portion of the power they sellIn some wholesale markets, prices are set based on the rate 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 consumptionDespite these current realities, anumber of factors are converging thatwill encourage and enable utilities,regulators and consumers to adoptinnovative approaches to demandmanagement and market efficiency.Among these enablers, a well craftedEnergy, Utilities & Chemicals the way we see itTodays Smart Metering 3U.S. Renewable Portfolio StandardsSource: Energy Insights 2009 NA Utilities Industry Update and CapgeminiThe current state of the electrical infrastructure in North America is notsustainable. To change itscourse, utility companiesmust embrace a freshapproach to managing peak demand and system security.4Global 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 that adoptionof 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 the power 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 crossroadsfacing adecision that will be crucial to their futures.The OpportunityMake smart metering programs thefoundation of Smart Grid or IntelligentNetwork initiatives. Look beyond themeter-to-cash process to generate valuefor 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. Theyusually 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. 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 servicesRefining grid planning processes toimprove the efficiency and effectivenessof investments in the grid Improving grid monitoring and controlprocesses to improve reliability, powerquality and reduce lossesProviding new value-added services toconsumers that generate new streamsof revenue and incomeIn addition to leveraging investmentsover a larger benefits base, performancemeasures for market participants mustbe better aligned; we must create a win-win environment. Good examples of this include the decouplingunderway in a number of areas to allowdistribution companies to separate theirrevenue from consumption. Decouplinggives distribution utilities incentives to truly embrace conservation anddemand response programs withoutjeopardizing their ability to earn a return on their investments indistribution grid infrastructure.The ChallengeUtilities that structure their smartmetering programs strictly from a revenue management perspective are selling themselves short. Theresmuch more to smart metering programsthan interval reads and time-of-use(TOU) rates. In addition to the business and strategychallenges, implementing SmartMetering creates unique technologyissues. New technology always involvesunknowns, but the greater challenge in implementing Smart Metering is thepotential impact on legacy applicationssuch as CIS, OMS, DMS, GIS, etc. Thelegacy applications will often requireboth software upgrades and datarefreshes. For example, with GeographicInformation Systems (GIS), manyutilities are realizing that they want to relate the new smart meters to thenetwork grid model which is normallystored in GIS. The GIS may havedeveloped the electric network as eitheran electric model or an asset model. If it was developed as an asset modeland not as a detailed electric model, theutility may find it very difficult to relatethe meters to the network or to use theresulting data for network operationsapplications. This often creates a need to upgrade the GIS software to enablecomplex electric network modeling and then a data refresh to establish the network model. Utilities should leverage their smartmetering programs to make near real-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. Buttodays utilities need to look beyond thetechnology into the opportunities andincentives 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 near real-time load data toimprove market 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.Energy, Utilities & Chemicals the way we see itEnd-to-End Smart Metering SolutionSource: CapgeminiTodays Smart Metering 56The other legacy applications will havesimilar challenges depending on theadvanced business applications planned.A system inventory will need to beconducted on each legacy system to determine any shortcomings infunctionality, architecture and data.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 Providing end-user customers best-of-breed technology to enable maximumconservation/demand response withminimal adverse customer impact Engaging other stakeholders in theirmarkets and developing consensusaround synergies, critical successfactors, required incentives andalignment of performance measuresFormulating a business solution that is capable of meeting todaysrequirements while being scalable to deliver on future demandOrganizing a team capable of implementing the chosen business solutionThe Smart Solution In Capgeminis view, effective smartmetering solutions share a number of key 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 Meter data collection systems: Two-way standards-based communication,multi-vendor solution compatible Backhaul communications system:Two-way, high bandwidth, utility or third-party owned Event management system: Interprets,filters and transfers event data tostakeholder systems which typicallyinclude OMS, DMS, CIS, and MDMS 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 designBefore embarking on a smart metering initiative,utilities should seek outpartners who will workcollaboratively with them to ensure the success of the initiative. Todays Smart Metering 7 Operational Services: Ability to manageall field installation and activationprocedures including meters, meterdata collection, communications andin-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 the way in driving market efficiencydelivering a positive and sustainableimpact not only on utilities but also onthe North American electrical system.The Power of PartnershipBefore embarking on a smart meteringinitiative, utilities should seek outpartners who will work collaborativelywith them to ensure the success of the initiative. Partners should have aproven track record, be prepared tosign up for end-to-end responsibilityand be willing to have a stake indelivering results. For superior results,utilities should look for partners withdeep industry experience in thesecritical areas: Program Management: Complex,multi-year, multi-program managementexperience with established methodsand tools System Integration: Expertise indeveloping and managing data models,service-oriented architecture, interfacedesign and development, configurationmanagement, solution documentationand end-to-end testing System Inventory: Strong capability to perform thorough end to endsystem inventories and collaborationto develop system integration andupgrade plansEnergy, Utilities & Chemicals the way we see itCopyright 2009 Capgemini. All rights reserved. www.us.capgemini.com/energyCapgemini, one of theworlds foremost providers ofconsulting, technology and outsourcingservices, enables its clients to transformand perform through technologies.Capgemini provides its clients withinsights and capabilities that boost theirfreedom to achieve superior resultsthrough a unique way of workingtheCollaborative Business Experienceandthrough a global delivery model calledRightshore,which aims to offer the right resources in the right location atcompetitive cost. Present in 36 countries,Capgemini reported 2007 global revenuesof US $13.6 billion and employs over88,000 people worldwide. More information is available atwww.us.capgemini.com. About Capgemini and the Collaborative Business ExperienceUTIL_SMMTRINGPOV_012309_004Gord ReynoldsPractice LeaderSmart Energy Servicesgord.reynolds@capgemini.com+1 416.732.2200