- Industry: Energy & Utilities
By: Jeff Smith
At White House’s Water Summit last month, American Water (a large, private water distribution services utility) announced a joint partnership with Commonwealth Edison (or “ComEd”, the electric distribution services provider in Northern Illinois) to pilot the use of ComEd’s smart grid network to transmit and deliver its water meter data. This pilot will explore an increasingly common theme in utility sector: When and where should utilities open up their advanced metering infrastructure (AMI) platform to deliver additional customer and marketplace services?
First, let’s start by outlining the key drivers an electric utility sector’s grid modernization efforts. Utility AMI platforms allow central communications with thousands (if not millions) of smart meters across cities and outside our homes & businesses through a field area network (FAN). The core value of the AMI investment is to allow utilities to drive efficiencies in meter reading, meter turn-on/off activities, customer interaction and outage management responses.
The inherit advantage of utility AMI platforms is that they usually have full market coverage across the customer base. In a connected world, this means that the utility AMI network intersects with a wide number and diversity of third party devices – sensors, controllers, and meter – commonly called the "Internet of Things" (or IoT, for short). Examples include:
- Homes – home area networks, responsive or ‘smart’ lights, appliances & thermostats
- Businesses – information networks, process and energy equipment, water leak detection
- Cities – parking occupancy sensors, connected streetlights, environmental sensors, flood-monitoring, water meters, gunshot detection
The intersection between a utility’s AMI network and the IoT is both a technical and commercial issue. Technically speaking, utility AMI networks can connect to third party devices in two ways: (1) providing network credentials to third part devices so that they can speak through existing end-points (e.g., the smart meter), or (2) adding network interface cards directly into devices (effectively adding new end-points).
Commercially speaking, utilities must consider how to structure these IoT services based on the benefits and scope of each application. Some applications can provide universal benefit for all customers (standard recovery) and others will deliver ancillary services to specific customers, which may be competitive or require special rate riders. When considering IoT application services, a utility must establish the regulatory path. Many utilities have, or are demonstrating that AMI costs are prudent to the rate base. Then the questions arise whether incremental costs would be competitive against other market options for the IoT service, and how the additional revenue streams would be applied to the AMI capital cost recovery.
From our experience working with clients in this space, it comes down to seven key areas:
- Regulatory Path – identify the mechanism for cost recovery of core-service AMI/FAN infrastructure usage
- A Solid Business Case – justify the costs, benefits, and value proposition for delivering and supporting an IoT application for third parties
- Reliable, Interoperable Communications – connect to the physical devices and understand the impacts (if any) that this new IoT application could have on core operations of the electric utility
- Asset Management Processes – organize and integrate the device information into back-office systems
- Security Standards – maintain encrypted communications with IoT devices to the same level of existing end-point standards, while not accidently opening any security holes when the IoT application interfaces with the third party systems
- New Business Processes – Document operations & maintenance plans to run the new technology service going forward to support the third parties while not adding too much additional operational complexity for its own network
- People – develop the governance framework and resources to manage the new service offering, whether in a new stand-alone group or is embedded within existing utility departments
The IoT sector is facing increasing competition from technology vendors and incumbent network service providers, who are investing in this space. It’s unclear the extent to which utility providers will become a substantial market player in IoT services. The fact remains, utilities acquiring smart grid technologies have an opportunity to explore IoT service offerings that benefit their customers and business model. By focusing on their inherent strengths – connected assets, complete market coverage, customer billing relationships – utilities are well positioned to justify providing IoT services.