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Smart Meters’ Operational Gains

Since Google and Nest announced the creation of the Thread Group in early August, many observers have been asking whether this latest technology for home automation will undermine electric utilities’ efforts to manage communications with devices in the home. Many utilities got behind Zigbee and other protocols to serve that role, to access thermostats and for other functions within the home. Tens of millions of smart meters have been installed with Zigbee technology. The Thread Group announcement clearly competes with those efforts.

Quite honestly, though I have worked with electric utilities for 32 years, I never expected them to win the home automation fight. They have several major limitations. Utilities don’t have much experience being nimble in the marketplace. Instead, their historical focus has been on deploying equipment and services that are solid and reliable and will last for many years. They then back that up with maintenance and operational procedures that ensure high performance. Utilities do that very well, but doing so does not teach them to take risks or to deploy cutting-edge technology, which will be key to kick starting the home automation industry.

Technologies will change rapidly as the home automation industry grows. For example, consider the Internet of Things (IoT), a new network that will enable connections to small devices and sensors in homes and within communities. Countless numbers of devices in businesses and homes, on the street and possibly even in the air will be communicating over the IoT. In the future, meters and sensors and other utility equipment will also likely communicate over that network. They will securely coexist with hundreds of millions of other devices in every major city. There are no standards yet for the Internet of Things, but Zigbee and several other similar technologies are not candidates for that standard because they don't support the throughput needed by IoT. Though utilities will likely make use of this network, they are minimally involved with IoT efforts and will probably have little effect on how the IoT marketplace develops.

Utilities have to justify whether they can include technology costs in their rate base. Because such decisions are made in public, they can’t surprise the marketplace like Google and Nest did. Instead, they have to go through public meetings to even get permission to spend ratepayers’ money on a technology. Yes, they can spend non-ratepayer funds on such ventures, but that money is very dear to utility management and they are not likely to risk stock dividends and other returns to fund a speculative new network like the IoT.

The utilities do not have a good track record when it comes to entering new marketplaces. For example, in the 1990s many utilities thought they could enter the security alarm business. At another time utilities thought they could become communications providers and dreamed of reselling use of the fiber-optic strands in their power cables. In almost every such instance, these ventures were market disasters.

So what should utilities do about all these smart meters and about their efforts to engage customers? The obvious answer is not glamorous, but it makes a lot of sense – smart meters should be used to improve utility operations. Detecting problems, minimizing repair times, managing work orders, optimizing the work of staff, improving communications with customers, enabling distributed generation and controlling net-metering.

Before the next major storm, earthquake, financial meltdown cyber-attack or terrorist attack, we need all our utilities to operate smart networks. They need smart meters everywhere feeding a smart electric grid or smart gas or water system.

And let's not forget about all of that data. To enable all those smart applications, the utilities and their suppliers will need to hire large numbers of data scientists. Very few of these people now work for utilities or their suppliers. The utility industry will have to compete with investment banks, IT companies and Internet providers for such staff. This won't be easy because those industries are highly competitive and know how to attract the best candidates with big bonuses, an alternative not readily available to regulated utilities.

Utilities have more than enough work to do to get ready for the smart grid and to become smart utilities. Instead of wasting time and money trying to not be utilities, they should refocus their efforts on enhancing what they already do so well.

It’s about time that we accept the simple fact that some other industry will be driving the growth of home automation. We have a role to play in that process, but we will mostly be followers, whereas highly inventive firms such as Google will be the leaders.

I am not being negative. Let’s be honest with ourselves. The move to smart metering and the smart grid and all that effort to manage data has taught us how to better deal with new technology, and every utility that made those changes has clearly improved its customer service. That's the real benefit of upgrading our technologies.

Howard A. Scott is managing director of Cognyst Advisors.

Howard Scott - PH. D.'s picture

Thank Howard for the Post!

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