Weighing the impact and keeping it simple
- Posted on June 1, 2011
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MANY OPPORTUNITIES EXIST FOR UTILITIES AND THEIR customers as a result of smart grid investments. But there is a delicate balance between the level of investment to make and the ultimate impact it will have on improving utility operations and customer service.
I recently discussed this delicate balance with Guy Ausmus, senior vice president of business planning and strategy at Northern Indiana Public Service Company (NIPSCO).
Focusing on customers' basic needs
According to Ausmus, when you consider energy delivery in its simplest form, customers have two very basic needs when it comes to their utility provider. "They want their power to be there whenever they need it, and they want it at a competitive price," he said.
"As we've seen in many cases, having a fully functioning smart grid system is extremely capital-intensive. For the everyday residential customer, we don't see a large population necessarily wanting to monitor real-time pricing information throughout the day, thinking about whether or not it's a good time to run their dishwashers or turn down their air conditioning units.
"Instead, this segment of customers might benefit more from an advanced metering infrastructure (AMI), which is slightly different than smart meters," he said. "An AMI would enable us to make the grid more reliable, because we would have the ability to capture timely information about grid conditions, utilize modeling and mitigate future failures within our transmission and distribution system. Having this infrastructure would also provide more stability in terms of electric spending-a benefit that would also be realized by our customers."
Balancing large versus small
On the other hand, Ausmus added, "A fully integrated smart grid system provides a two-way stream of information that enables real-time optimization and response to match our demand with supply-something that is particularly important to our largest customers in the steel industry. By adding AMI to that, these customers could also track and understand their energy use and reduce their overall electricity costs."
I asked Ausmus what advice he would provide to other utilities as they attempt to engage their customers with smart grid solutions.
"When it comes to developing programs and engaging customers with smart grid, keep it simple," he said. "It's nearly impossible to gain acceptance if you make it difficult for customers-no matter their level of energy sophistication- to understand what's available to them."
Ausmus also pointed out that in a regulated environment, it's extremely important that a utility's regulatory body share the same vision for the future of smart grid, and that potential cyber security concerns are addressed-such as the famed Stuxnet computer virus.
Lowering the cost of action
He also thinks that utilities should not lose sight of labor costs. "Almost anything smart grid can do, you could do with additional labor. In other words, all smart grid does is lower the cost of action," he said.
"And so it's all marginal cost, marginal revenue. If the marginal cost/ marginal benefit balance just isn't there, we shouldn't move forward so rapidly. So, I see this eventually evolving over years and years, bleeding into the fabric of our utilities, rather than just `boom', one day it's there."
Keeping it simple
Utilities are increasingly attempting to better engage their customers to ensure the success of smart meter and smart grid deployments. But how best to do this? I asked Mark Webb, director of policy and business evaluation at Dominion Resources, what advice he would provide other utilties as they attempt to engage their customers with smart grid solutions.
According to Webb, it's important to keep your message simple. "I think utilities need to convey to the customers that they will be involved to the extent that they want to be involved," he said. "Ultimately, the customer will have the opportunity themselves to engage and analyze their power usage, and if they're concerned about the environment, they'll also be able to see how their energy usage impacts the environment."
Webb thinks that the typical utility customer is smart enough to realize that all of the capabilities of the smart grid may not be known yet. "We need to show them the immediate benefits, the simple benefits, and then explain what some people think is possible over the long term. Many of those things will come true and some may not, but certainly things will become possible that we haven't even thought of yet," he said.
Analyze customer segmentation
Customer segmentation is another area that Webb thinks utilities should be analyzing. "When we talk about customers, at least in our regulated electric territory, our customers are not a monolith in terms of their viewpoints," he said. Like many utilities, Dominion has a diverse economy across its region, from Virginia's high-tech corridor to the tobacco regions of southern Virginia, and each of these subregions is quite unique.
The utility is also cognizant of the generational gaps that exist in its market.
"We have many senior citizens who are very much concerned that these smart grid investments could lead to mandatory time-of-use rates that impact their lifestyle, but we also have many younger people who are not only accustomed to using new technologies, but desire them," Webb said. "I think that somehow utilities have to find the middle ground to prepare for the people who are the new customers coming in, and at the same time be mindful of the concerns of older customers who may be less comfortable with new technologies."
Rethinking asset life
I asked Webb what regulatory changes may be needed in the future to accelerate smart grid development on utility systems. He thinks that utilities and commissions may need to rethink some of the expected depreciable life of assets. "I think that some of the software and solutions that will be components of the smart grid may not last for the 30 to 40 years that we're accustomed to," he noted.
"I also think that we're going to need to come up with a way for commissions to understand benefits that may be in the future, and may not be demonstrable in the near term. Looking at models like the Internet, or the build-out of wireless networks, and trying to envision the benefits that consumers will derive, may not be provable under the tests that utility commissions are used to applying with the typical cost-benefit analysis."