Capturing change

AN INTELLIGENT UTILITY REQUIRES MEASURING VALUE

Published In: Intelligent Utility Magazine September/October 2009

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AN THE UTILITY INDUSTRY EMBARKS ON THE JOURNEY toward a smart grid/intelligent utility, it will be well served to remember the old saying: ''If you do what you have always done, you will get what you have always gotten.'' New outputs, we all know, require new inputs. The transformation to an intelligent utility will not be made by repeating the management practices, measures and strategic initiatives that have carried the industry this far.

TRANSFORMATION AHEAD

Contrary to what many think, utilities have been very good at change. Any business that survives for a century or more must be good at change. But, it is also important to note that utilities undertake changes to business processes differently from most other businesses. Their business is capital intensive, highly regulated and risk averse. In that environment, the approval process for any kind of transformative change is, by design and necessity, rigorous and unyielding. Transformative changes are closely scrutinized to help ensure that impacts to other parts of the business are understood and managed. If the risks can't be managed, utilities rarely move forward, which is one of the reasons service has been reliable and affordable for so many decades. In their unique operating environment, utilities manage the risks associated with transformative changes very well and we have been grateful for it.

With that backdrop, we must understand that the management and measurement processes utilized by utilities often presume that customers, regulators and utilities share the same interests in risk avoidance. While that has been largely true over the past several decades, we find ourselves in the midst of some dramatic changes on the regulatory and customer fronts. Customers and regulators now seem willing to accept more risk, and perhaps more initial costs, in exchange for more control and more efficiency down the road. In fact, the federal government is stepping forward with substantial amounts of money to fund portions of the transformative changes that are necessary to move toward an intelligent utility. Similarly, customer groups are also stepping forward with their own investments in distributed energy sources such as solar and wind. This evolving environment has created a situation in which management and measurement practices of the past are suddenly becoming less effective and utilities are forced to consider how to adapt.

GOVERNANCE + ARCHITECTURE CHANGE

Investments in the smart grid/intelligent utility space will require a higher degree of IT and business alignment than what has often occurred in the past. The transformative changes that accompany these investments will require a much higher degree of integration and interaction between business units, the various software systems utilized by them and the data and information that are generated, stored and utilized. Utilities will be well served to understand and, if necessary, improve the alignment between the business units and IT before investing in smart grid/intelligent utility technologies. In short, effective strategic and operational planning processes have never been more important.

Likewise, governance of technology investments will become paramount to an effective internal control system. IT systems are at the core of any effective control environment-as many companies discovered during implementation of controls related to Sarbanes-Oxley. The rise of the intelligent utility will coincide with an expansion in the use of IT systems to capture, integrate, utilize and preserve information from an expanding number of automated systems. Utilities will be mindful of the need to ensure proper security, access and use of these systems. They may elect to meet those needs through the implementation of a formal control framework such as the Information Technology Infrastructure Library (ITIL) or the Control Objectives for Information and related Technology (COBIT) frameworks, or through the use of hybrid or ad hoc systems. Regardless of the solution deployed, there is little doubt that an effective control framework will increase in importance. It is better to evaluate and enhance the governance framework prior to making large investments in technology.

A proper planning and governance framework will help ensure that future automation initiatives are properly designed and that the architecture underlying them is adequate for current and future needs. Utility automation efforts of the past have, in many cases, been designed and architected as stand-alone solutions, or perhaps with a small degree of integration with adjacent systems. The automation efforts of the intelligent utility/smart grid space will not be as myopic. The intelligence within an intelligent utility comes from the way in which information is captured, shared, promulgated and utilized by various end users. The design and architecture, including the degree to which there is integration and interaction between the various systems, will be what makes that intelligence come alive.

Consider, for example, a meter data management (MDM) solution, which utilities are implementing with increasing frequency to capture interval consumption information. If that MDM solution is integrated with operations and energy supply, the information about customer consumption at periodic intervals throughout the day can be used to plan maintenance programs, ensure adequate energy supply and help gauge the effectiveness of demand side management programs. The ability to share that kind of information will depend greatly on the design and architecture of the MDM solution, as well the related systems within those business processes. With little doubt, it can become complex, which is why planning, governance and architecture are so critical.

MEASURING SUCCESS

CIOs have long been evaluated and measured based on benchmarks and comparative measures. These measurements are often heavily focused on costs, as opposed to value. Some high-level measures include IT costs as a percentage of company revenue, IT employees as a percentage of deployed meters and application costs per user. These measures help CIOs and companies understand how the cost of their IT services compare with other companies. Although valuable to a degree, these measures do little to help a company understand if, and how, their IT investments are helping to make the business more efficient and consumer friendly. In the changing political environment created by the movement toward an intelligent utility, it will become prudent for companies to deploy measures that get at the heart of what is important-namely, if the utility's investments in technology are meeting the goals of regulators, customers and investors/ owners.

Unlike prior comparative measures that focused heavily on cost comparison, the new measures will become increasingly focused on value. Some examples may include hard and soft dollar savings achieved, number of manual touch-points reduced, response times to unplanned events and a host of similar possibilities. Many companies have already started moving down this path with mixed degrees of success. In the intelligent utility environment, we consider it highly likely that regulators, customers and investors/owners will understand the value achieved for their investments. And that value, as we discussed earlier, will depend heavily on the quality of the planning, governance and architecture. Utilities that are not measuring value today may very well be encouraged to do so in the near future.

As investments in technology increase, the importance of properly servicing those investments after implementation will likewise be elevated. Identifying the right service measures and the right level of resources necessary to provide effective maintenance for these systems will be difficult, yet critical. Potential service disruptions due to IT outages may transcend simple ''annoyance'' and land squarely in ''critical.'' The more processes that depend on automation, the more important that automation becomes to meeting the needs of regulators, customers and investors/owners. Utilities will need to be careful to ensure that the right service metrics are in place and that proper resources have been committed to meeting those metrics.

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