By Robert D. Neilson
We've been hearing about the value of information for a long time. After all, it was futurist authors such as Alvin Toffler in the '60s and '70s, and John Naisbitt in the '80s who began opening our eyes to the implications of an economy increasingly driven by information and services instead of manufacturing. The personal computer revolution and explosion of the Internet further propelled this paradigm shift in which billowing smokestacks and noisy assembly lines have given way to computers, databases, modems, and URLs as the new face of capital in an information-driven economy.
So the information-value proposition isn't exactly breaking news, and thousands of companies have prospered mightily in recent years by structuring their business on the basis of that proposition. But while other industries move ahead at warp speed to maximize the value of information they collect or manage, utilities and energy-related businesses are still trying to find the right gear on the road to realizing the full value potential of the information they collect and manage. While a small number of companies are beginning to put the value of information to work for themselves and their customers, the energy industry as a whole has yet to discover the true value of a commodity that is abundantly available in its own backyard. Nor has the industry deployed the technology to extract the material and capitalize on its value.
I'm speaking, of course, of metering data. For utilities and energy service providers (ESPs) doing business in a deregulating marketplace, the value of this information has become explosive, especially for their customers. But word hasn't really gotten out. Yes, there was a day when meter data offered little real value beyond basic customer billing. But that has changed radically.
Today, in an increasingly competitive marketplace, energy providers are beginning to deploy advanced data collection and management technologies to improve operational efficiency, to market and deliver new and innovative services their customers want, and to provide information that enables commercial and industrial customers to manage their energy costs and to run their businesses more efficiently. What is the value of this information to companies that deploy technology to collect it? Even the most conservative models demonstrate that a batch of metering data that may have cost $1 per month to gather, can consistently yield five- and ten-fold returns with the right technology, customers and business plans in place. But by using outdated technology to collect nothing more than consumption data for billing purposes, utilities, ESPs and end-customers are, at best, breaking even on the information-value proposition.
The Telecommunications Model
The telecommunications industry went through a similar struggle and transformation. For years the focus of telecommunications carriers was call delivery - the ability to deliver a telephone call from one place to another, whether across town or around the world. But as the industry matured, telecommunications companies also began to focus on information services and information delivery. Of course those companies now offer a variety of services the end-customer desires, such as Caller ID, Call Waiting, and voice messaging. New information also provides a clearinghouse function that enables customers to switch long distance carriers. The delivery of these and many other added-value information services has been made possible by a confluence of technological advancement, industry deregulation, and the ability of telecommunications companies to make revenue-generating use of the information technology can now deliver.
While analogies between the telecommunications and utility industries are far from fresh and don't always hold water, a strikingly similar pattern of industry deregulation and technological innovation is taking place in the utility industry. Today, by deploying advanced technology, energy-related companies are able to collect advanced metering information and put it to use in ways never imagined a decade or two ago. Utilities and their customers can use this information to run their businesses more efficiently, or market new value-added products and services to customers. But utilities, ESPs and their end-customers are only just beginning to recognize the new value of energy information.
Two Sides to the Meter
Perhaps the best vantage point from which to fully understand and appreciate the new value proposition for meter data and energy-use information is to cut the meter in half, resulting in a new perspective of the "customer side" and "utility side" of the meter. To break it down even further, each side presents two areas of opportunity, the first of which covers applications and practices that enable a utility or customer to manage itself better as a business, while the second area covers opportunities to develop and market new services to customers. Together these quadrants and categories represent four distinct areas of opportunity in which to maximize the value of information and achieve a strong return on technological investment. Yet today, without advanced data collection technology in place, the vast majority of energy providers are only able to exploit one, perhaps two, of these areas of opportunity at best.
Let's take a look at each of those areas and how utilizing advanced data collection technology to gather daily, interval and off-schedule reads, along with outage and power quality data, can dramatically extend and increase the value of the meter data they collect.
The Customer Side
In an increasingly competitive marketplace, in which an expanding cast of market participants compete for the end-customer's business, the ability to deliver the products and services that customers need and want can mean the difference between success and failure.
Beyond regular consumption billing, the collection of daily or interval reads, as well as outage and power quality information, is essential to providing the services customers will require to run their businesses more efficiently. By developing a body of data that paints a clear picture of usage patterns, utilities and energy service providers can help their customers efficiently manage energy usage by time of day or season of the year. For example, customers who have access to advanced energy usage data can achieve significant operational cost savings by structuring their business operations and schedules to take advantage of times when energy rates are most favorable. Energy usage information also enables the customer to pursue bulk purchasing and aggregation opportunities, and to choose the rate option that will best suit their needs.
At the same time, advanced data collection technologies allow utilities and ESPs to deliver new products and services their customers want. Advanced data collection technology enables customers to select a specific billing date that optimizes cash flow. The delivery of bundled services to end-customers not only packages valuable products that they desire and are willing to pay for, but also provides an option for bundled billing (electric, gas, water, cable, phone) to simplify accounting processes. By delivering power quality information or outage monitoring and notification services, the customer can protect inventory more effectively, something insurance companies note in setting premiums.
Submetering
Submetering applications provide yet another frontier of opportunity for utilities and energy service providers. By deploying submetering technologies in a commercial or industrial customer's facility to break down energy consumption, energy providers can present detailed data about usage patterns for various pieces of equipment and production areas during different times of the day. This information can also be used to create detailed, customized billing. Again, the value lies in the information. The data enables customers to manage their energy consumption more efficiently, a benefit that goes quickly to their bottom line. Submetering a customer's facility not only provides the opportunity to provide aggregated and disaggregated data to that customer, but also positions the provider to offer energy-use consulting services to their key customers.
Submetering the meters in apartment complexes allows property managers to direct bill each tenant for their actual usage. In addition, the disaggregation of water and electricity usage information on a tenant-by-tenant basis enhances conservation efforts and energy usage analysis. Utilities and ESPs are only beginning to scratch the surface of the added-value opportunities presented by submetering technology.
The Utility Side
Step over to the "utility side" of the meter and you've stepped into the land of hidden value. Most often, utilities perceive that the true value of advanced data collection falls almost entirely into the meter reading and billing operations, where technology dramatically increases efficiency and improves customer service. That's all very true but there's more to the story on the "utility side." In fact, most utility managers and executives are quite surprised when they find out the range of benefits and value daily reads provide with respect to the utility's effectiveness as a distribution company.
With frequent data collection capability, operations can be improved significantly in a number of different areas within the utility. Detailed information about loads in different parts of the service territory enhances distribution planning and maintenance. This load data can quickly reveal improperly sized or rated equipment in a specific area of a service territory. The equipment can then be replaced and maintenance can be planned more effectively and scheduled more efficiently.
Power outage and restoration notification capability not only isolates problem areas more quickly, it also improves the dispatch and management of field crews to restore power and enhance customer satisfaction. Furthermore, outage data, coupled with power quality information, can be gathered and stored to develop historical patterns and exceptions that can assist in identifying and resolving problem areas within a service territory, ultimately providing better overall system reliability.
Advanced data collection solutions certainly improve meter reading operations, but the benefits ripple to all sides of the company and beyond. By eliminating estimated reads, customer complaints go down, thereby reducing the number of calls to the call center. In turn, billing adjustments, and the time-consuming transactions associated with them, are also reduced, bringing new order to the revenue cycle.
The sales and marketing side of the utility or energy service provider also benefits from advanced data collection. The information can be stored to discern historical patterns and exceptions. When combined with other databases, this information can be used for customer segmentation, enabling utilities and ESPs to target specific products, rate structures or bundled services to appropriate customers with pinpoint accuracy.
The Big Return
Advanced data collection can also pay huge dividends on the supply side of utility operations. For example, by employing technology to read electric meters daily instead of monthly, a utility is able to develop a body of data that enables precise load forecasting throughout its service territory. This data can be used to perform daily reconcilement and settlement of energy usage enabling on-the-money forecasting. This allows a utility to manage its peaks so efficiently that it can avoid the budget-wrecking spot market energy purchases and their associated penalties. By enabling utilities to reconcile energy usage daily, perform extremely accurate forecasting, and quickly settle what was used versus what was scheduled, advanced data collection takes a lot of the risk out of the energy business and adds dollars to the bottom line. Just think about the economic benefits that will result from a 2 percent to 5 percent overall increase in forecasting accuracy.
The Cascading Effect
The full value potential of information becomes readily apparent when you look at the multiple uses for the same batch of information. For example, daily reads deliver value to multiple departments within the utility as well as to third parties and the end-customer. Let's take a look at the some of the specific applications for a single piece of metering data and the value it delivers:
Whether increasing operational efficiency, marketing new services, or targeting customers, advanced metering data now delivers value-added applications never imagined a decade or two ago. As these examples demonstrate, the same batch of metering data delivers increasing value across the utility and beyond. However, in evaluating AMR systems and developing business cases, utilities too often take the narrow view, limiting their appraisal to operational benefits strictly associated with meter reading and billing. When viewed in a wider context, advanced data collection solutions and the information they deliver not only prove much more compelling, they prove indispensable to cost-conscious companies operating in increasingly competitive markets.
New Players
But the new value proposition for advanced metering data doesn't stop there. Up to this point, we've only discussed rapidly expanding uses and applications for information. At the same time, a deregulating energy market is rapidly changing and expanding the number of market participants. Just as the uses for metering data are increasing, so is the number of users. Think of the Internet. Once a government-funded cooperative research effort that enabled a handful of scientists and researchers to communicate with their counterparts at other universities and at defense contractors, the Internet has exploded in the last five years to become a revolutionary medium for publishing and commerce that is used by hundreds of millions of people worldwide. And it's growing daily.
While the scale differs, the lesson does not. There was a time when metering data was collected no more than once a month and had little use to anyone beyond the utility's billing office. No longer. Deregulation of the energy industry is rapidly increasing the number of data users and market participants who require advanced data and information.
They are placing greater value on this commodity as each day goes by. These market participants include energy service providers, retail power marketers, consultants, billing services, and an expanding C&I customer segment, just to name a few.
For energy providers that gather advanced metering data, this expansion of market participants and data users represents a tremendous value-added opportunity. Like a hit television show, advanced data can be "syndicated" to multiple users, significantly enhancing its value after collection has taken place. And with advanced technology deployed to collect data in the most efficient and cost-effective manner possible, energy providers can establish for themselves a strong competitive position to serve as the information supplier to a host of new participants in the energy marketplace of the 21st century.
The Bottom Line
The explosion of new applications for advanced metering data, coupled with the proliferation of users who can make use of that data, has forged a new economic reality in today's energy marketplace. Information has become a commodity with explosive value potential that stretches far beyond customer billing.
In industry, technology is the bridge between the idea and the fulfillment of its potential. By collecting sophisticated energy-use data more frequently and efficiently than ever before, today's data collection solutions have transformed this value proposition into bottom-line reality. After all, deregulation is really about customer choice. As deregulation moves from exception to norm, information - the ability to gather it, manage it, distribute it and maximize its value both within a utility and beyond -will be a key arbiter of success in the energy marketplace of the 21st century.
Robert D. Neilson is vice president for strategy and business development at Itron Inc. ET