Smart grid: what it really means to utility companies

Andy Roehr is a vice president in Capgemini’s Smart Energy practice, where he works with clients to help them prepare their businesses for a rapidly evolving energy and environmental economy.

An energy veteran, Roehr has helped utility companies work through electricity deregulation and led the team responsible for the JTSIN-OASIS, a secure Internet platform that allowed transmission customers to create reservations for capacity on the nation's power grid.

I spoke with him about his work advising utilities in the deployment of "intelligent" infrastructure, a.k.a. the "smart grid" -- and how they can surmount the considerable social, economic and political hurdles in the way.

SP: Capgemini has its hands in many industries. Explain for a moment what its energy practice does.

AR: Cap's been in the energy and utility business a long time. With "smart" [infrastructure] we took a step back. Taking a classic vertical approach really didn't make sense the way the industry was evolving. We see an ecosystem play. By that I mean we're as comfortable working with auto manufacturers, to help them understand their role in EVs, as working in the classic utility space. We had to break out of the classic vertical [model] and revamp our thinking.

We focus on three areas: smart meters, the smart grid -- we focus on the distribution area -- and then the smart home.

San Diego Gas and Electric: we've been running their smart meter program for several years. We manage the overall program, so that everything happens on time and on budget, manage vendors, organizational change management.

For a lot of companies, we do what we call "up-front thinking." We're their technology filter. That's very front-end, even before they get to mass deployment.

There's a desire to get into that post-operations business, but they're considered a core operation in most accounts.

My responsibilities are out in the field. I run delivery for our North American products. I run a team that occupies the thought leadership and expertise roles. I spend a lot of time out in the industry, a lot of time with regulators. I own the "OK, now go make it real" part.

Working all over the U.S., what does a "smart grid" mean? The answers in California, Ohio, Massachusetts can be very different. What are the problems you're solving? In southern California, you're dealing with draw. In Texas, you're dealing with incoming population. In Massachusetts, you're dealing with aging infrastructure and a new renewable mix.

That's one of the issues we wrestle with: people don't understand. As an industry, we haven't done a good enough job. We talk about "smart grid" as a monolith.

SP: Let's talk about the state of the industry for a second. What are you seeing?

AR: California will continue to be an area of significant activity. They've made significant investments that they can and have to leverage. They are being aggressively progressive in regulatory approval. It puts them very much out front.

Pennsylvania is coming on line: PECO, First Energy, Duquesne are beginning smart programs.

The $2 million question: where is everybody else going to go? We are in a lull. Everyone [in the utility sector] is waiting to see what the real value propositions are. It takes a bit of time so we can drum up the data.

The other thing is, people are looking at these huge bills -- $150 to $300 in some of these jurisdictions. That's a lot of money, and people are being held reasonably accountable: are we getting out of it what we're putting into it?

People are asking about pilot programs to manage demand. Can we do it without putting a meter in? We're having those dialogues. They're productive, but they take time. The regulatory process takes two or three years just to approve a pilot.

Investor-owned utilities are not going to spend money to frankly reduce the amount of product that their end consumer buys without having a very specific directive from their regulator. They put their shareholder at risk otherwise. It becomes a regulatory cycle issue. You want to give full voice to constituents.

On the municipal side, it's different. They see utilities as revenue generators. We we work with them to identify solutions and business models. If you're in the Pacific Northwest and get 90 percent of your busload from hydro [energy], and it costs 2 cents a kilowatt-hour, people are asking, if we could curb demand here, we could sell that to our neighbors down in California.

The investor-owned utilities -- big IOUs like Progress, Duke, PG&E -- if you go through those major [utility companies], you get about the Top 10 [in the U.S.], and they represent 30 to 40 percent of points of service in North America. And then you've got municipalities and co-ops, who are very small but represent the other half. Co-ops are being the most progressive.

SP: The lay of the land seems rocky. What's your strategy to address it?

AR: We've been playing this from a couple of directions. We've been working with the big IOUs because they're the proving grounds for the rate models and technology we've been talking about. We don't want to pay multiple times to learn the same lesson.

We're also developing interesting business models to help folks who don't have access to capital in this economy and still be able to deliver improved services, and pay on a per-meter, per-month basis, instead of issuing a $50 million check up front. It's both an intellectual property thing and a commercial flexibility thing.

It's not a question of can or can't. States and municipalities have to run a balanced budget by law. A lot [of them], as a result, have bonding limits. So there's only so much money they can borrow. You have a finite point. So the conversations we're having with folks, even if you have a lot of capital, do you want to put it in new schools or new wires? We give them a way of doing both.

Without the base infrastructure, all the fun things we do go by the wayside. It's great to educate people, but if you can't provide power to people…

It's a financing issue, but it's also a skills and expertise issue. They don't have a lot of those [smart grid-prepared] employees today. They're looking for someone who can ultimately deliver to a service level and bring that expertise to the table quickly.

SP: And globally? What's it look like overseas?

AR: It's apples-to-oranges on a good day. It's apples-to-potatoes otherwise.

The nature of the European Union has given them an ability to come up with a single point of view on what they want to do, whether it's carbon or smart grid. They have a smaller number of regulatory units to deal with, and they have a transnational regulator that has teeth.

In the U.S., we have 51 regulators, the FERC, and all those co-ops that aren't subject to a regulatory body. To say someone's ahead or behind, it's not really an honest question. There's no definitive end point. You can't say, "This is a smart grid and I'm closer to it than you are." It's how close you are to your objectives. Europe's done a good job incorporating renewables but they're going to hit that instability issue. Some nations have backed away from comments about retiring nuclear and coal [plants] because they realize they might need it.

SP: What do you tell the guy at the bar who doesn't buy into cleaner energy? The smart grid?

AR: Renewable generation is inevitable. There is a social objective to using a lot of carbon. That's a good thing. The investment is really going to be predicate on what problems they're trying to solve. They'll be different.

But there are some commonalities. If electric vehicles go across the country, every one of those chargers needs to be managed and monitored by that utility. That's going to drive power quality distribution and automation, real-time monitoring.

A customer observation would be, when I turn my light on, is my power going to be any better? Brighter? How am I going to know it's better?

The discussion we haven't had is in the negative: if we don't do these things on our 80-year-old infrastructure, and we plug in a third electric vehicle on a transformer, that transformer is going to blow up.

We're not talking about the down side. We're talking about deploying solar panels [instead].

One implication for the business model [today]: how are we going to pay for all those wires? The fundamental business model is going to change as people who can afford it move off the grid. Those who can least afford it are hit all the time with ever-increasing costs. Huge issues out there.

How do we define success today? You turn the switch on, and utilities have done their job. What we don't want to tell people is, that may not happen in the future unless we spend a lot of money.

In February in Texas, we had rolling blackouts just because it got cold. That's insane -- 800,000 residents at a time? Businesses, houses, nursing homes without heat? You go down some nasty paths there. Do that again, in the summer, where the second biggest cost input to a water purifier is power to the pumps?

SP: So how do you sell it to consumers, then, when they aren't directly exposed to the B2B pain behind the scenes?

AR: We do have some rules out there that trip these things. But we're living on investments that were made post-war, in most cases. My house was built in the '50s. There's a transformer, wires, poles -- they were sunk there 50 years ago. We'll have to have the dialogue of what it costs to rebuilt.

We've kind of been getting a free ride. Utilities have been doing a good job keeping them online. They've been good at managing your assets. It's consumer vs. rate-payer. Rate-payers use your product because you're the only one in town. Consumers have a choice. We're not really there yet, as an industry.

In some places electricity is so cheap, where you're getting hydro at 2 to 4 cents a kilowatt. If someone doubled your bill, would it be that bad? We have an education issue. We need to talk honestly about things that don't work. We need to have a dialogue, and it's going to cost money.

In order to make these investments, we need a long-term policy that will protect these investments. The Average Joe has a vested interest in us coming up with a responsible answer.

This post was originally published on Smartplanet.com