Joven Luspo, Lodestar Corporation, USA
Energy supply has become a fundamental challenge for all energy providers in recent years. Compounded with the rising cost of fuel, heightened environmental concerns and an increasing global population, managing the balance between energy supply and energy demand has become more and more complex. In an attempt to counter some of the current industry challenges, some markets have resorted to creative means in order to curb our appetite for energy.
According to a recent report by Energy Insights, the USA Energy Policy Act, 2005 contains multiple provisions dealing with time-based rates, smart metering and demand response. It requires utilities and retail energy providers to offer and provide all customers, upon request, with time-based rates within 18 months of enactment.
Additionally, utilities and energy retailers must provide a time-based meter to any customer requesting such a rate. The section also requires State Public Utility Commissions to conduct an investigation into time-based metering and communications, and issue a decision on whether or not it is appropriate for electric utilities to provide and install time-based meters and communications devices for each of their customers.
This, coupled with other provisions that direct the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE) to conduct studies related to demand response, will most likely result in a number of states adopting mandatory requirements for smart metering. Energy Insights expects these provisions to significantly accelerate the deployment of smart metering systems, which include solid-state meters, two-way communications networks and meter data management applications.
The issue is further complicated by the amount of energy we now consume. At the same time that generation plant construction has dwindled because of emission concerns, our energy consumption has increased. As a society, we consume much more than our parents did – we have larger homes, bigger televisions and more appliances, all designed to make our lives easier. Furthermore, the growth in population multiplies the already increased energy consumption. What is more, many of the same people demanding legislation of energy production, own many of the same “necessities” as everyone else.
One way to balance the energy scale is by enticing consumers to get smarter and more responsible about using power through managing their own consumption. There are initiatives in the marketplace that suggest – or even mandate – to measure and price consumer’s usage at an hourly or even sub-hourly level. Different prices throughout the day mean that not only do we pay for the energy that we used, but we also pay for when we used that energy. The goal is to alter consumer’s energy usage behavior by shifting their high-energy activities to periods when demand is lower. This, hopefully, also promotes a more conservative consumer. When consumers understand how they use energy and when it is more cost effective to do so, they will ideally use their energy when financially motivated. If enough consumers change their behavior, lower efficiency and higher cost generation plants will not have to come online as often in order to satisfy the demand.
Hourly or sub-hourly billing
The optimal way utilities will be able to work within these market trends or mandates is a system that integrates meter data management (MDM) with billing. Such a system can quickly apply hourly or sub-hourly prices to usage and accurately calculate bills – a classic billing solution is too simplistic to be able to manage the hourly data with different price points. When prices begin to rise during the day, an integrated system can apply these prices to the consumer’s forecasted usage and signal consumers of a possible impending excessive energy bill.
MDM solution handles large volumes of meter data to enable increased accuracy, flexibility and scalability
Such a system can also be used to detect possible revenue protection violations because of energy theft. Complex filters may be installed to identify and alert users when these revenue violations are suspicious or even absolute. It can also analyze consumption patterns and warn users of possible revenue violations. Revenue protection functionality protects the company from revenue violations or theft by allowing utilities to analyze consumption patterns and flag those that are outside of defined tolerances.
Currently many industrial customers and large commercial customers use advanced interval meters to support real-time optimization of energy usage and complex billing contracts related to demand response.
Furthermore, interval metering samples of all customer types have been used for 25 years to develop fair and equitable energy prices based on actual cost-to-serve each customer type. However in North America, most residential and commercial meters do not measure usage on an hourly basis, although discussions about smart metering are underway in many states.
Once smart meters are installed and more data are measured, the next step will be pricing the energy on an hourly basis. Although an exciting and promising solution to the energy supply concerns, the influx of data and complexity of pricing and billing present a daunting challenge to utilities.
Let us also not forget about the Sarbanes Oxley Act of 2002, and its requirements as it relates to data management. It requires accountability in changes to meter data. More specifically, software housing meter data needs to include auditing features to document the ‘who, what and when’ of all changes. Utilities should include this functionality as part of their requirements.
Scalability & flexibility
The constant change in market rules means the system must be sufficiently flexible to adapt to these changes without upsetting the balance already in place. Software with hard coded rules will prove to be less flexible and not as cost effective as a solution that is easily adapted to the changing and future market rules. Utilities need the flexibility to add reports and processes at any time. Similarly, a system that is not scalable or is incapable of keeping up with the pace of a rising level of data will also prove to be a burden. A scalable and flexible system utilities will avoid costly reinvestments.
The technology should not limit the number of interval meters, customers or complexity of validations. The system should easily integrate with other systems, leveraging the investments that are already made. Overall, utilities require the infrastructure that supports their business needs as they exist now and as they evolve over time.
MDM at work
One of the leading energy distributors in North America has an intrinsic understanding of the importance of MDM. It has more than two million meters serving residential, and commercial and industrial (C&I) customers. The company manages the lifecycle of meters and instruments and it also processes interval data (15-minute interval) for approximately 3000 of its C&I customers, in order to generate billing determinants to an interfacing legacy billing system.
In an effort to reduce energy costs and the number of power plants needed, one of the energy provider’s key aims is the implementation of a large-scale automated meter reading (AMR) system that will be fully in place by 2010. This means that 4.5 million meters will need to be replaced with smart meters by then. In order to comply with this mandate, electric utilities need to either buy or build their own meter data management solution to work with these new meters. The new solution must be able to work with dramatic increases in data volume in conjunction with decreased delivery times to users of that data to enable effective demand response.
CCS helps energy companies drive costs down and increase efficiency in critical business operations
Even before this mandate however the company implemented its own MDM system for its own internal requirements. The company had been using three legacy systems that served meter data management and meter management business areas on a 30-year old mainframe.
Thus, not only did the energy provider have to contend with working with large data sets, but the cost of operating this mainframe when it had only a small number of applications residing in it became too burdensome for its IT department at the time. To reduce this cost, the energy provider sought to migrate the three legacy systems from the mainframe. At the same time, it wanted to improve business processes such as reporting and data access capabilities. The company needed to conduct billing for 8000 C&I customers (3000 of which are interval meters), produce reports and implement custom processes for servicing meters. For example, inventory needed to be tracked for the two million meters that it operates. Finally, the energy provider wanted a system that was easy-to-use, scalable and could adapt to any market changes.
Outcome and added benefits
Since the energy provider has completely migrated all of the legacy systems that used to reside in the mainframe, it will experience not only reduced operating costs going forward, but also better access to data than it had in the mainframe-thereby enhancing revenue reporting and monitoring capability.
An added benefit to having better access to data and easier-to-use tools is that users are enabled and don’t have to rely so much on the IT department – especially for ad-hoc reports and mass data updates. It is strategically positioned in the market and will offer the MDM solution as an ASP to other electric, water or gas distribution companies in key markets. This move provides the energy provider with a revenue stream and additional shareholder value. They will be able to expand into other business areas to serve additional customer segments, additional geographic areas and additional commodities.
The energy industry transition to hourly usage information, dynamic pricing and consequently customer-controlled demand responses is a natural transition to open and competitive markets. As has been experienced in all prior monopolistic industries, increased innovative customer options will come with a more efficient market, which in time has proven to lead to reduced costs.