Thanks to M2M and Smart Grid technologies, new energy usage data can be invaluable to help intelligently manage energy and reduce utility operations costs and consumer costs. However, new data means new privacy risks for consumers (residential, commercial, industrial, and agricultural), utilities, their vendor communities, and other entities that collect, transmit, use, and/or store that data. As noted in the new book Data Privacy for the Smart Grid*, the variety of entities with access to this data can blur privacy roles and responsibilities. Confusion about data privacy is not a good state of mind for consumers, utilities, vendors, or regulators. Privacy is an outcome of intelligent cyber and physical security technologies, policies and practices, and its protection has to become part of organizational cultures. Look at it this way. Utilities have worked diligently to instill “top of mind” safety procedures in their organizations, because of the many dangers associated with electricity, gas, and water services. We use this analogy in our guidance to utilities and vendors regarding data privacy. A cybersafety culture has to be embedded within utilities and vendors with access to energy usage data. Like safety procedures, regular exercises that identify all potential privacy risk and their mitigations must become an important habit of a cybersafety culture. Think beyond energy usage data too. EV charging, vehicle telematics, and digital health applications produce new data that has considerable privacy implications. Smart Grid technologies that are applied to water can produce new data about water consumption and waste water production that will have similar privacy concerns and risks, as well as other data that delivers personally identifiable information. How do you achieve a cybersafety culture? Here are three suggestions derived from our methodology:
- Try the “chain of data custody” exercise. Can you accurately map out the sensitive data gathered, used, transmitted, or stored in your business processes and who has access to this data? The exercise results may astonish you.
- Ask your employees who is the ultimate owner of energy usage data. If they don’t know, you have a training issue to address. The owner has ultimate control and decision-making authority over their data. Utility customers are explicitly identified as owners of energy usage data in some Sometimes energy usage data is narrowly defined as consumption data. As consumers transform into prosumers capable of generating kilowatts and negawatts (and new data), energy production data ownership must also be addressed.
European Utility Week serves as an excellent venue to obtain more global industry perspectives than what is typically found in most North American-based industry events. In the case of the 2014 event, it served to reinforce the conclusion that there are really three global metatrends in play for electric utilities. Three recorded interviews that I conducted during this conference highlight these metatrends, and some of the impacts to utilities.
First, the distributed generation (DG) genie is out of the bottle –centralized generation is no longer the only energy architecture. DG is one component of distributed energy resources (DER). The newly released Smart Grid Dictionary 6th Edition defines DER as Grid-connected or standalone generation, energy storage, or negawatt assets that are deployed in the distribution grid. DER assets can substitute for or supplement grid-supplied power. Jochen Kreuss, Head of Smart Grids Initiative, ABB discussed the challenges that DG, whether in the form of renewables, aggregated assets within a microgrid, virtual power plant (VPP), or independent asset creates for utilities in this interview. He also noted that communications infrastructures must be capable of helping utilities manage large numbers of devices. This is a critically important metatrend impact. The Smart Grid requires dedicated bi-directional M2M networks that can deliver the necessary security, reliability and speed to support bi-directional electricity transactions.
The second metatrend is the growth of big data and the impacts to utility operations. The four Vs of big data – volume, variety, velocity, and veracity – are stressing the existing siloed operations and legacy solutions common to utilities. At the same time, these asset-intensive businesses continue to add more equipment that pumps out more data, exacerbating the problem. Peter Sigenstam, Vice President and Head of E.ON Innovation Centre Distribution and Daryl Rolley, Executive Vice President, Global Sales for Ventyx, an ABB company, discuss how E.ON’s proof of concept project called Smart Grid Control Center creates more flexible grid operations for both generation and demand in this interview. This project finds inspiration for data management optimization in industries that range from consumer goods and financial services to automotive manufacturing (particularly robotics) and oil and gas operations. As one example, E.ON recognizes that the retail sector has extensive experience in creating customized suggestions to cross-sell or upsell customers, which could help this utility tailor its service offerings to customers.
The third and final metatrend is the rapid culmination of the impacts the first two trends exert on utilities. Xavier Moreau, Strategic Marketing Director for Schneider Electric reflected on these trends and other important drivers that are triggering fundamental transformations within utilities, as well as in how utilities view and value the grid edge in this interview. What is particularly interesting is the combinatorial nature of some DER – it can include different forms of energy (think thermal as well as electrical), and controllable loads that are the subject of demand response (DR) solutions and services. That points to additional complexities to microgrid and other DER management as well as managing the data produced by these new assets. He mentioned an ongoing project with DONG Energy focused on island microgrids that integrate very high levels of renewables and incorporate data from sources including weather to provide reliable power. Utilities will have to become smart too, in terms of re-engineering processes, reskilling employees, and revising corporate cultures to accommodate de-carbonized and DER-based electricity grids.
The good news is that while these metatrends are common to utilities around the world, some utilities are finding the opportunities, and not just the challenges created by these trends. These utilities are actively deploying pilots or full-scale implementations of DER and/or microgrids, exploring the use of sophisticated analytics to aid decision-making, and leveraging grid operations solutions for proactive, not reactive responses.
The New York Public Service Commission’s Reforming the Energy Vision (REV) report should be required reading for all electric utility executives. As referenced in last week’s article, this document presents a well-structured framework to forge new utility business models and new electricity market models that leverage Smart Grid technologies, policies, and financial innovations. It pivots the discussion from if US-based utility business models will change to when those changes will transpire, and identifies what arethe objectives of these changes.It also serves as a starting point for utilities everywhere to construct model transformation roadmaps with regulators and other important stakeholders.
The REV report identifies five primary policy objectives within the significant transformations envisioned. What do these policy objectives hold in store for utility contact centers? Here’s an analysis of the most important implications of this vision for utility contact centers, making this article required reading for all management resources responsible for customer service and marketing functions:
- Objective 1 – Increasing customer knowledge and providing tools that support effective management of their total energy bill. Utility contact centers can be powerful sources of consumer education and engagement – particularly when management designs consumer-centric business processes and invests in technologies to support customer service representative (CSR) transformation into trusted advisors for energy matters.
- Objective 2 – Market animation and leverage of ratepayer contributions. Utility contact centers can help leverage ratepayer contributions when consumer-centric business processes also incorporate upselling and cross-selling possibilities that take advantage of consumer analytics.
- Objective 3 – System-wide efficiency. Utility contact centers contribute by relying on sophisticated analytics to segment prosumers by geography, home ownership, and other variables and target recruitment for utility negawatt programs such as demand response (DR) or energy efficiency (EE), and kilowatt programs to site distributed generation (DG) assets on the customer side of the meter.
- Objective 4 – Fuel and resource diversity. Using the same business processes and technologies as noted for Objective 3, utility contact centers contribute to identifiable diversity in resources through selective prosumer recruitment for kilowatt and negawatt program participation.
- Objective 5 – System reliability and resiliency. Utility contact centers promote this objective through proactive outreach and interaction with prosumers to ensure participation in kilowatt and/or negawatt programs that support short or long term reliability and resiliency objectives.
What steps should a utility take to ensure that it has the right prosumer care operations in place? There are a number of practical actions described in the Smart Grid Consumer Focus Strategy ebook (http://www.smartgridlibrary.com/shop-smart-grid-library-books/consumer-focus-strategy/) that I co-authored. Here’s one suggestion that every utility should embrace. Build trust. I have a very competent auto service shop. Through years of interaction I know they are reliable and reasonably-priced. They earned my trust by focusing on the long term relationship – the lifetime consumer value of my continued business. They refrain from selling maintenance services my car doesn’t need. They communicate proactively and in terms that I understand. And in return, I enthusiastically refer new business to them. I trust that they look out for my best interests as well as my friends’ interests. If utilities want to become and remain trusted advisors to consumers and prosumers about energy services, they will have to embrace processes that build trust and grow the lifetime value of their consumer base.
Trust strengthens the bonds between utilities and their consumers and prosumers, and trust influences their choices. Stronger bonds and more choices lead to greater lifetime consumer value for utilities and enable easier expansion into negawatt and kilowatt programs and services beyond basic electricity sales and into new business model territories. The utility contact center functions as a prosumer care organization that is a utility revenue center instead of a cost center. That wasn’t mentioned in the REV report, but that shift from cost to revenue center will be one of the greatest transformations that the Smart Grid will exert on utilities.
Common industry consensus holds that Smart Grid technologies and policies will enable utilities to deploy new products and services in the pursuit of safe, reliable, and cost-effective electricity. Aspects of utility operations will become easier – such as identifying outage locations using smart meters or preventing service disruptions with closer monitoring of equipment conditions. But as far as the customer service organization is concerned, the Smart Grid means business as usual. Utilities will adjust to include social media channels for inbound and outbound communications along with traditional voice, email, and webchat, but that will be the extent of change.
But this industry consensus lacks comprehension and vision about the revolutionary rise of the prosumer, as noted here and here. The traditional utility/customer relationship is changing as electricity consumers become electricity prosumers – producing kilowatts and/or negawatts through Smart Grid enabling technologies like distributed energy resources (DER) plays, long term energy efficiency decisions or short term demand response actions. Utility customer care organizations must change to accommodate these disruptive shifts from ratepayer relationships into interactions with consumers who have choices and new value for utilities.
What are these choices and what is the utility value? The coming changes are not limited to states that are fully deregulated and where consumers can switch retail energy providers at will. Consumers in regulated states have choices that have important consequences for utilities too. They may choose to participate or not in a demand response program or to install solar panels on their rooftops and switch to a net metering or feed-in tariff (FiT). Consumers become prosumers when they make these choices, and their decisions have value in the form of kilowatts or negawatts for utilities.
These changes are occurring as forward-thinking utilities and regulators acknowledge that the utility business model itself will change, as recently published in the New York Public Service Commission’s Reforming the Energy Vision staff report. Business model changes portend enormously important roles for contact centers as the strategic focal point for prosumer care, rather than traditional consumer care. Within the next 5 years, a growing number of utilities will be permitted to offer new services that produce new revenue streams beyond basic electricity sales. For instance, new services may allow utilities to leverage customer-side DER assets. Such services can create new lifetime consumer value for utilities that goes well beyond simple electricity sales.
The important role that prosumer care operations play in utilities is magnified as these operations transform into revenue centers rather than remain as cost centers. Prosumer care operations deliver the critical sales functions for utilities as their business models change. They help introduce new services and develop new revenue streams, and they most definitely will compete against new energy services market entrants. The utilities in the best position to transform into prosumer care operations are the ones that first plan to invest and transition into consumer-centric operations.
Consumer-centric operations can help transform utilities into the trusted advisors on energy matters for consumers. Trust builds loyalty, and helps avoid intermediation or dissolution of existing utility/consumer relationships by third parties such as Comcast, Verizon, or other new entrants in residential energy services. But a consumer focus is just part of the strategy to achieve prosumer care operations. Consumer value is redefined for utilities and has to be considered on a lifetime basis of what a consumer means to a utility. It is a sophisticated sum total of a utility’s electricity transactions (bidirectional sales and purchases) as well as investment requirements and investment postponements.
Lifetime consumer value calculations comprise a data analytics convergence of utility operational grid data with meter, CRM, and other traditionally backoffice data into the prosumer care operations center. It’s another important convergence brought about by Smart Grid technologies and policies. Unlike the typical utility IT/OT convergence that is evolutionary, this one is truly revolutionary because it enables a prosumer relationship that doesn’t exist in any other business. Among all the Smart Grid changes in the utility sector, this one will have the most direct impacts on consumers as their relationships transition into prosumer interactions. Utilities are well-advised to prepare for that.
There were three important reality checks in the energy sector last week. First, the Natural Resources Defense Council (NRDC) and Edison Electric Institute (EEI) issued a joint statement of eight recommendations aimed at policy-makers about redefining regulated electric utility business models and rate structures to accommodate privately-owned distributed energy resources (DER). DER is acknowledged to pose real threats to existing utility revenue streams. In the current business model, utilities make money by selling electricity, and any reductions in sales via DER hurts their bottom lines – the infamous death spiral. This explains in part why some utilities have been opposed to net metering and other programs that encourage distributed generation. Of course, some opposition also stems from the concerns about control of these assets in the distribution grid, but there are a number of Smart Grid technologies that are addressing these concerns by allocating operational intelligence and control in a distributed manner as opposed to a centralized command and control infrastructure. Utilities, as regulated monopolies, can’t make all the necessary business model changes on their own. Regulators need to participate with creativity and courage – creativity to go beyond “business-as-usual” and courage to effectively engineer changes in regulations and institutional mindsets.
Second, coal ash made the news again, in its usual dramatic way – another spill, another river fouled by a physical byproduct of burning coal. Duke Energy is the subject of a criminal investigation as an even regulatorily-lax state like North Carolina realizes that healthy rivers are rather essential to other businesses and even to residents in the state. The reality is that there’s no such thing as clean coal, and there’s no such thing as clean coal ash. Coal ash contains arsenic, selenium and other toxins that cause cancer in creatures across the ecosystem. Containment facilities for coal ash, like much of our aging infrastructure, are at the end of their engineered lifespans. Ratepayers in the utilities that choose coal for a fuel will probably see rate hikes to address improved containment, or suffer the consequences of continued pollution of ground water sources. Ratepayers in the utilities that continue to burn coal in the future should expect to bear the costs these very tangible byproducts.
Third, the harsh winter weather highlighted the downsides of natural gas. It suffers from three vulnerabilities – it’s still a fossil fuel that emits dangerous gases into our already ailing atmosphere; it suffers from price volatility that results in unpredictable costs to consumers; and it suffers from an inadequate pipeline infrastructure to transport it to the locations with highest demand. A joint Stanford/Massachusetts Institute of Technology/National Renewable Energy Laboratory study recently assessed that natural gas is not as clean as its proponents claim. It emits methane, which inflicts even more long-lasting damage to our atmosphere than carbon dioxide (CO2). Natural gas is at a 4 year high in price – in a time of abundant supplies. These historic highs also reflect the lack of pipeline capacity to carry gas – resulting in localized price spikes in New York and New England regions. The infrastructure issues also contribute to leaks throughout the transmission system – again spilling more methane into our atmosphere. This is no bridge fuel to the future unless you like your bridges unpredictably volatile and unsafe.
These three reality checks help cut through the noise and disinformation produced by the fossil fuel industry and proponents of the energy status quo. The EEI/NRDC recommendations can help propel a transition to clean renewable sources of energy that don’t have downsides of poisonous byproducts or price volatilities that wreak havoc on environments or business and residential budgets. Ratepayers can help too by encouraging regulators to incorporate these recommendations into their policy decisions.
A singularity is a term that is used in mathematics, physics, and advanced artificial intelligence. The definitions vary based on perspective, but in simple terms, it signifies the point where old rules break down. This is exactly where electric utilities are now. We are witnessing a massive utility singularity. This event is brought on by a multitude of technologies, policies, and financial programs that will ultimately change today’s utility business model – whether investor-owned utility (IOU), municipal or publicly-owned utilities, and rural cooperative utilities.
This is not an obituary for utilities. Nor are utilities the only sector facing a great singularity. Consider the cable TV sector. It is confronting its own death spiral as it continues to increase subscription fees on a declining customer base and encounters non-traditional competitors like Netflix and Hulu. The current US cable TV business model based on supplying the overall deplorable state of bundled content that many consumers don’t want cannot survive. Will utility leaders be able to ponder some pattern recognition of their business model and possibilities against other business sectors and make smart decisions to survive and thrive through a singularity transition? I believe the answer is yes, but the number of utilities that do it will be like unicorns (the latest Silicon Valley buzzword describing startup companies that are exceedingly rare and capable of anything.)
The electric utility singularity has been looming for at least a decade. Some business model rules started breaking down years ago with initial policy steps towards deregulation and decoupling. Smart Grid technologies will be the real accelerant in terms of bending the revenues curves for utilities downwards. Just look at the rise of solar technologies in the form of highly distributed rooftop photovoltaic systems or packaged solutions of advanced analytics, user interfaces, and mobile devices that make nanogrid (home-based) energy management available to the residential masses.
Even if utility resources do not think non-traditional entities can ever manage a grid to the same reliability, safety, and cost-effective metrics as the utilities themselves, that won’t stop new entrants from trying. Some will fail, but many will succeed. The winners will be specialists who forge partnerships with complimentary solutions and create their own packaged hardware and software ecosystems. The winners will offer a different take on reliability. Instead of being measured on downtime, which is essentially what traditional utility metrics of SAIDI (System Average Interruption Duration Index) and CAIDI* (Customer Average Interruption Duration Index) measure, they will promise uptime.
Winners won’t be bound with the same constraints that are imposed on IOUs, municipals, or cooperative utilities. That’s unavoidable, but that doesn’t mean utilities don’t have opportunities to develop strategic agility if they want to be survivors. Here are three questions utility leaders should discuss internally and with important external stakeholders like regulators, public owners, and consumers:
- How differently would we organize and operate if we managed to uptime instead of downtime?
- Can we leverage a custodial stance on energy consumption data as a strength?
- What do we really understand about consumer choice and perceptions of quality?
The electricity business sector will look very different on the other side of this singularity. Utilities have a difficult journey ahead, but I’m optimistic that some will successfully make the transition.
* definitions for these terms can be found in the Smart Grid Dictionary 5th Edition.