50 Years of Growth, Innovation and Leadership

Customer-centric Utility Companies:

Monetisation Strategies for the High Smart Metering Investment

A Frost & Sullivan White Paper www.frost.com

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Key Takeaways..................................................................................................

Introduction .................................................................................................... Smart Metering: Future-Proof Investments towards Customer Centricity................................

Managing the High Investment........................................................................

Empowering Customers through Interactivity ..................................................

The Financial Reality of Achieving Smart Energy ............................................

Making the Smart Energy Benefits a Reality ...................................................

5 6 5

Shaping Customer Strategy with Technology.................................................. 13 Centralisation Saves Costs and Decreases Complexity .................................... 13 Real-Time Rating............................................................................................. 13

The Orga Systems Energy Solution ................................................................ 12

Monetising the Smart Metering Investment ................................................... 11

Coping with the Data Explosion...................................................................... 10

Scalability and Reliability................................................................................ 14 Integrating Gas and Water............................................................................... 15 Billing, Invoicing and CRM .............................................................................. 14

The Last Word ................................................................................................. 15 Abbreviations AMI CIS AMR CRM DER GHG DSO

Advanced Metering Infrastructure Automatic Meter Reading Customer Information System Distributed Energy Resources Green House Gas Distribution System Operator Meter Data Management Net Present Value Time of Use Customer Resource Management

MDCS Metering Data Collection System MDM NPV TSO TCO TOU MDMS Meter Data Management System Total Cost of Ownership Transmission System Operators

CONTENTS

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KEY TAKEAWAYS Advanced metering enables the two-way communication between electricity generators, transmission companies, distributors, retailers and consumers about how and when to produce and consume power. The smart metering investment payback period will be long, and the benefits are unevenly distributed throughout the electricity value chain. Storing tariffs off device in a centralised catalogue and centralising rating enables the deployment of cheaper, less sophisticated smart meters. Promoting visual benefits from smart meters is important, because consumers will bear the cost, directly or indirectly.

Customers interactivity is effective. Utility companies are finding that consumers react to dynamic variations in price and that the installation of energy management systems further enhances the efficiency of price signals. The three greatest smart metering challenges faced by utility companies today are: Coping with the data explosion Managing the high investment

Utility companies may need to invest in upgrading their legacy billing systems in order to reap the maximum benefits from their smart metering investment. Real-time rating is essential to dynamic network management and revenue assurance up- and downstream.

Developing a vision for how to monetise the high investment

Back-end solutions must be future-proof, scalable and reliable, because the legal requirements are prone to changing.

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INTRODUCTION Energy is scarce, not necessarily available where it is needed, and the worlds energy needs have never decreased. Citizens and their governments are increasingly aware of the effects of climate change, linking it to floods and other natural hazards that appear to be worsening.

Governments across the globe have become keen on smart energy, and many nuclear generation programmes have been re-evaluated following the Fukushima disaster. Finally, money is available to modernise old, incapable energy infrastructures.

The key business drivers behind the smart grid and smart metering adoption are improving collection rates and reducing fraud, but large-scale roll out of smart meters would not have happened without government regulation.

The adoption of the Kyoto Protocol in December 1997 was a breakthrough in the fight against climate change. In Frost & Sullivans opinion, the protocol represents one of the earliest and strongest drivers behind smart energy, because it has made governments intervene directly with regulation and subsidies, aiming to reduce consumption and to favour the generation of electricity from renewable or low-GHG sources. This has given rise to the smart grid development which, in turn, drives the adoption of smart meters on a larger scale. The key business drivers behind the smart grid and smart metering adoption are improving collection rates and reducing fraud, but large-scale roll out of smart meters would not have happened without government regulation. In the long run, the industry will see benefits from its smart energy investment, but the payback period will be long. In the short run, it is essential that DSOs and energy retailers do all they can to monetise the investment.

Typical Electricity Value Chain in a Deregulated Market

Transmission (TSO)
Transports highvoltage electricy from Generation to DSO. The first buffer to ensure supply continuity, stability and security. Smart Grid requires Transmission to integrate distributed energy resources to meet its primary role of balancing demand and generation supply.

Generation
Produces electricity from a variety of energy sources. Smart Grid requires Generation to incorporate distributed energy resources and renewable energy sources.

Distribution (DSO)
Transforms electricity to low voltage and distributes readyto-use energy to consumers via retail companies. Second buffer in the grid to ensure voltage stability and typically also responsible for metering activities. Smart Grid allows Distribution to receive better downstream information on demand to act on its network optimisation needs.

Retail
Sells electricity and other utility services directly to consumers. Smart Grid allows Retail to be more customer-focused in order to manage churn. Also allows Retail to offer additional services in the future, to increase customer satisfaction.

Consumers
Consumption of electricity. Payments based on meter readings. Smart Grid allows consumers to become small-scale producers of electricity when they can choose to postpone consumption or sell excess electricity back to the grid.

This white paper looks at the various opportunities afforded to DSOs and retailers from advanced metering infrastructure, discusses some of the pain points and challenges that must be addressed, and suggests solutions to overcoming these challenges.

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SMART METERING: FUTURE-PROOF INVESTMENTS TOWARDS CUSTOMER CENTRICITY Although smart metering is not necessarily an initiative spearheaded by the electricity distributors and retailers themselves, Frost & Sullivan is convinced that they can be future-proof investments, when implemented with current and future needs in mind.

Cost reductions make obvious contributions to the amortisation of the smart metering investment, and it is important that utility companies work towards saving costs. Simply creating a smart metering overlay to pre-existing processes will prevent utility companies from realising the full cost savings. Information and power silos must be broken down, and that probably means that utility companies will need to invest in modifying or replacing many of their legacy ICT support solutions.

A utility company must become customer orientated in order to reap the maximum benefit from its smart metering investments. Utility companies (that once were regarded as natural monopolies) have a legacy culture that could be an obstacle to achieving customer centricity. So far, with their legacy infrastructure, utility companies in even the most competitive markets have had no choice but to follow an old-fashioned, brandcentred strategy. A paradigm shift from a brand-centred way of thinking (i.e., managing product portfolios) to a customer-centred way of thinking (i.e., managing customer portfolios) is clearly the way forward. By all accounts, energy companies need to complete the same journey that the worlds telecom operators embarked upon back in the 80s in order to stay relevant to their customers and build long-term shareholder value. Much of the technology needed to realise the customer-centric vision already exists. Making the Smart Energy Benefits a Reality

Smart grid applications like advanced metering enable the two-way communication between the electricity generators, transmission operators, distributors, retailers and consumers to make decisions about how and when to produce and consume kilowatt hours. Almost all smart grid benefits are a result of this communication, and none of it is possible without an advanced metering infrastructure. On the retail side, emerging technology will allow customers to shift from old fashioned fixed tariffs to time-based pricing or even event-based demand response. Customers are influenced by economic incentives, and energy retailers will be able to provide those incentives to shape customer behaviour. Another advantage, mainly for large energy customers with small-scale generation capabil ities, is the ability to closely monitor, shift, and balance loads, making them an integrated part of the grid. Standard feed-in tariffs are always lower than retail tariffs. In the U.K., for example, the feed-in tariff is 3.1 pence per kWh, whereas the retail tariff for a large customer will be more like 10 pence per kWh.

Almost all smart grid benefits are a result of the two-way communication between the value chain partners, and none of it is possible without an advanced metering infrastructure.

Customers with small-scale or micro-generation capabilities will maximise energy consumption when their own energy generation peaks, whereas it could be more frost.com 5

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rational, from a load distribution perspective, to sell a larger part of the locally generated energy back to the grid to be consumed in the local area. Again, this involves sophisticated energy management systems, incentives in the form of temporarily increased feed-in tariffs, and a viable trading market.

On the distribution side, smart grid applications enabled by smart meters (demand response through real-time data exchange) enable better management of demand and quality (e.g., feeder voltage regulation and phase balancing). Receiving real-time consumption data from consumers, distributors can match supply to demand, and energy generation companies may be able to decommission expensive and polluting back-up generation facilities. Central Maine Power has found that smart meters alert it automatically to households affected by outages (e.g., after a big storm), allowing it to store power more quickly. Gteborg Energi now instantly knows when a meter malfunctions, as opposed to only checking the meter once a year, when they were read manually. These, and many of the other benefits, may be difficult to appreciate for the individual energy consumer. In Frost & Sullivans opinion, it is important to promote visible benefits from smart meters, because the smart meter deployment cost will be borne by the electricity consumers (either directly through a charge or indirectly through the electricity tariff, or through taxes). In Denmark, for example, consumers know that the cost of distribution and metering makes up 40 per cent of their energy cost against only 25 per cent for the actual electricity (the remaining 35 per cent is made up of various taxes), because it is specified on the bill.

In Frost & Sullivans opinion, it is important to promote visible benefits from smart meters, because the smart meter deployment cost will be borne by the electricity consumers, directly or indirectly

Customers must feel that they are getting something back. Otherwise, it becomes a political problem, which can undermine the smart energy transformation. The Financial Reality of Achieving Smart Energy Frost & Sullivan estimates that as much as US$500 billion will need to have been spent by 2020 to transform traditional electricity systems into intelligent energy grids around the world.

Utility companies across the value chain may receive government support to realise this investment, but many equally rely on strong business cases, including positive cost and benefit arguments, to prioritise various initiatives within their Smart Grid Visions. Every utility that Frost & Sullivan has ever interacted with knows that the payback period will be long, but that does not mean that payback is not a huge concern. Also, utility companies do not expect all types of investment to have equally long payback periods. They will expect a separate business case for their IT investments showing much shorter payback periods, down to four or five years even.

This is especially important for electricity companies in South East Asia. Having only upgraded electricity meters in the past 10 years, electricity companies in Malaysia, Thailand and the Philippines require a significantly stronger business case for upgrading to smart. Capital expenditure concerns aside, utility companies are also wary of taking on additional operational expenses that weigh on already thin margins. On the contrary, utility companies expect a trend towards opex reduction as a result of work process changes in a smart metering environment.

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Empowering Customers through Interactivity

On the previous pages we have seen how the worlds energy challenges can really only be addressed through the consumer by controlling consumption. Sometimes, that means increasing consumption, especially in countries where wind farms are the mainstay of the sustainable energy policy. Spain now covers 17 per cent of its energy needs through wind power, producing some 43,000 GWh per year, the highest in the world after China. Denmark and Portugal cover an even higher proportion of their energy needs21 per cent and 18 per cent, respectivelythrough wind power. Although Latin American wind power adoption has been very slow, the installed generation capacity in Brazil grew by 53 per cent in 2010.

Controlling energy consumption sometimes means increasing consumption, especially in countries where wind farms are the mainstay of the sustainable energy policy.

Obviously, there is no controlling when the wind blows, and it will continue to blow at night when energy loads are low, so we must also consider efficient ways of storing that otherwise unused energy. Electric vehicles are one way of storing energy and incentivising massive energy consumption so that motorists will recharge their vehicle batteries when there is a peak in energy generation. Many countries consider the proliferation of electric vehicles to be a prerequisite to a successful development of wind energy.

DONG Energywhich generates half of the electricity consumed in Denmark and is the worlds largest offshore wind farm operatorhas signed a deal with the American-Israeli company Better Place, covering a massive roll out of electric vehicles and recharging stations in Denmark.

Utilising Distributed Energy Resources to relieve generation pressures is also another strategy to address energy constraints. The smart grid roadmaps in South East Asia are equally tied to an emerging trend of DER from small-scale producers, such as residential consumers, to be integrated into the electricity grid. The recently announced smart grid roadmap in Thailand reflects this thinking, as electricity companies aim to better manage their generation sources to meet consumption demand.

None of this would be possible without smart energy applications enabled by smart meters. Incentivising customers by offering them carrots and not sticks is a good

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strategy. Customers should feel what they are doing is worth the effort and in the best interest of the environment and society as a whole.

Today, almost all electricity consumers pay a fixed price per kWh, independent of the cost of production at the time of consumption. More sophisticated tariff plans may offer prices that decrease with consumption. In micro-economic terms, consumer consumption of electricity is inelastic in short timeframes since the consumers do not face the actual price of production. If consumers were to face the short-run costs of production (like petrol prices going up and down, for example), they would react to these short-term price signals and change behaviour accordingly. In Italy, 1.5 million ENEL customers have taken up time-of-day tariffs, even before liberalisation, reducing consumption by 5-10 per cent and shifting 1 per cent of loads from peak to off-peak. When loads are controlled by demand management systems, customers often do not notice a thing because loads are controlled where power can be interrupted for short periods of time, without impairing convenience. In France, for example, ERDF uses price signals to control the operation of 12 million electric water heaters, deeming the system very efficient. Retailers can turn the empowered customers to their advantage by developing new commercial offerings, differentiating themselves and giving customers a feeling of real choice:

Retailers can turn the empowered customers to their advantage by developing new commercial offerings, differentiating themselves and giving customers a feeling of real choice

Personalised tariffs, crazy tariffs (tailoring the tariff plan to individual customers, like mobile telecom operators do today) Time-based tariffs (TOU, off peak/on peak, etc.) Dynamic tariffs (frequent changes, reacting to price signals)

Bonuses/rebates (rewards for maintaining a desired behaviour)

Real-time credits and other benefits (benefits offered in real time for taking an immediate, desired action)

MANAGING THE HIGH INVESTMENT On the previous pages, we looked at the rationale behind the AMI investments. At the macro level, these investments are obviously wise, but at the micro level, they create significant challenges and pain points for the utility companies.

In the Australian state of Victoria, the smart meter roll out to 2.4 million households is reported to cost A$1.6 billion ( 1.3 billion). In the U.K., the governments estimate is 11billion ( 13 billion). With other regions reporting similar figures, the AMI business case is not strong, and the investment goes way beyond the capital cost of the smart meter roll out. Seattle City Light believes that AMI, as a standalone application, will never show positive NPV and that benefits are only realised when AMI is integrated with other

As part of its syndicated research into utilities and smart energy, Frost & Sullivan has surveyed DSOs and energy retailers across the globe about their smart metering challenges. All utility companies regard the size of the necessary investment as a significant pain point.

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systems. In other words, in order to make money with AMI, one must spend a lot of money on system integration.

ENEL, which has achieved the largest smart meter roll out in the world, finds that unintelligent networks risk becoming bottlenecks, which will almost invalidate the smart meter investment if utility companies fail to also invest in the network technology that will allow optimal management of the energy distribution.

Due to the weak business case, the majority of smart metering implementations are strictly regulation-driven and the size of the investment is highly dependent upon the regulatory requirements. One hundred per cent coverage is significantly more expensive to achieve than 80 per cent coverage, and hourly load profiles are more expensive to process than daily profiles. Upgrades are often necessary due to changing legal requirements. In Sweden, almost 4 million meters require additional investment to enable increased reading frequencies. Sweden rolled out smart meters early, with some utility companies opting for basic AMR because the initial legal requirement was for monthly readings.

There may be immediate savings from remote reading, but these do not apply to utilities that already have AMR implemented or in regions where labour is cheap. In Maine, lawmakers even allow households to opt out, and 1 per cent of Central Maine Power's customers have done that.

The problem of the high investment is aggravated by a typically unequal sharing of benefits and risk between retailers and DSOs, and by a long delay before the benefits start to kick in. "You could have a real rebellion if smart meters push up customers' rates," as Southern California Edison puts it. In many places, tariff changes need some form of regulatory approval, sometimes even by elected bodies such as city councils. It becomes impossible to crank up peak pricing until consumers have greater access to home energy automation tools, meaning that the old fashioned, fixed tariffs live on for years, while the utility companies struggle to amortise the AMI investment.

In Frost & Sullivan's opinion, there is a clear picture of "minimalistic," non-future-proof investments proving costly to upgrade, caused by a lack of proper regulation regarding minimum functional and technical requirements. Interoperability is a particular concern in highly competitive markets. In the U.K., British Gas estimates that 150,000 users churn every week, so interoperability issues can quickly wipe out any savings made elsewhere.

In Frost & Sullivan's opinion, there is a clear picture of "minimalistic," nonfuture-proof investments proving costly to upgrade, caused by a lack of proper regulation regarding minimum functional and technical requirements.

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COPING WITH THE DATA EXPLOSION Utility companies have never seen anything like the amount of data that becomes available after a full smart meter roll out, and most companies are not yet able to handle that data explosion. Again, the explosion is created artificially, by regulation. Finnish legislation, for example, will require hourly meter readings by 2013. Many legacy billings systems arein the words of a U.S. West Coast retailer antiquated, set up to issue bills every second month, based on estimates. A typical retailer will usually have 5 per cent to 10 per cent of its customers that are commercial and have always required short billing cycles. When the remaining 90 per cent to 95 per cent of customers also require frequent data readings and two-way settlement of Critical Load Pricing between retailer, customer and DSOs, many existing billing systems will be overwhelmed. Inflexibility also leads to challenges in ensuring accuracy of price signals, billing and revenue assurance.

It is common for utility companies to still rely on manual processes to import and export meter data; validate and rate data; generate invoices; and reassure collection. This also means that many utility companies do not use the data they have available. Most utilities recognise that getting fine-grained data creates lots of opportunities for them, but they must learn how to use it.

The ideal situation is one in which basic billing processes are retained without significant overhaul of internal workflows, but technological evolution translates to a work environment that is new to most utilities and their employees. Everyone must work faster, based on real-time information, and workloads may increase both in the front and back office. Increasing customer complaints are a pain point for all utility companies. Customers, used to stable bills, query the readings, especially during winter. The billing department passes the enquiries on to the metering department for checking.

In Frost & Sullivans view, many pilot AMI deployments have focussed on technical issues rather than on integration issues. This was manageable with a small group of customers, but with mass AMI roll out, the challenges faced by utilities are an unknown quantity.

The integration of legacy infrastructure and new systems is a very complex process, often requiring specialist middleware, software customisation or add-on applications to convert metering data into formats that can be processed by existing CRM and billing systems. In countries with many pre-paid customers (e.g., 12 per cent to 15 per cent in the U.K.), the need to switch between pre- and post-paid over the air adds a further level of complexity. Generally, there needs to be a seamless software stack from one end of the smart metering system to the other.

Most billing environments are retailer-centric, regardless of who owns the smart meter. To achieve accurate pricing signals between DSOs, retailers and customers in a smart grid environment, it is important that the retailer have the billing system integrated into its AMI system to accurately settle its charges with its DSOs. Then, when the retailer begins to provide additional services such as energy management, load management services, and innovative tariffs and customer feedback, the integration of benefits back into the grid becomes critical. Frost & Sullivan expects that not even the utility companies accustomed to providing such services to their large customers will cope.

In Frost & Sullivans view, many pilot AMI deployments have focussed on technical issues rather than on integration issues. This was manageable with a small group of customers, but with mass AMI roll out, the challenges faced by utilities are an unknown quantity.

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MONETISING THE SMART METERING INVESTMENT A very limited vision of monetising their smart metering investment is a pain point for almost all utility companies. They typically feel that it is too early to evaluate revenue and savings opportunities, and that these are long-term prospects.

A common issue is that the industry has failed to educate and incentivise consumers. Consumers fail to understand that smart meters are just one AMI component which, again, is a part of the smart grid environment, to the advantage of society as a whole. Retailers are also guilty of pushing other productsand higher tariffswhen offering smart meters. In the U.K., for example, early smart meter roll out has been spearheaded by first:utility. Customers who sign up for the smart meter-compatible tariff pay 12 per cent more per kWh for electricity, compared to first:utilitys lowest tariff. The ability to monetise the investment has been further hampered by the bad publicity that has surrounded many smart meter deployments. In California, PG&E got slammed with a class-action lawsuit, alleging that malfunctioning smart meters led to 300 per cent increases in bills. Incidentally, PG&E won the case, as the court established that the bills were accurate.

This is also reflected in the experiences in South East Asia. Malaysias TNB has introduced smart meters for larger industrial customers and rolled out new billing systems during the past few years. While it improved revenue collection, customer satisfaction fell and negative media coverage increased. Bill shocks resulted in many consumer complaints, and media coverage of bill shocks further fanned customer dissatisfaction. With very little retail competition and little movement towards it, customers perceive smart meter savings to be negligible. Without being able to demonstrate meaningful customer savings, and with regulators increasingly considering opt-out programmes, no customer is going to accept covering the cost of the smart meter if there is a choice.

Finally, there are utility companies admitting that they are not good at proactive and adequate customer service in a smart energy environment. This may be the greatest challenge of them all. In Australia, retailers estimate that 50 per cent of all the customer calls they receive regard billing, and they see the level of queries expanding with increased customer involvement. Oddly enough, most utilities in the world seem to regard increased customer involvement as a problem rather than an opportunity. Frost & Sullivan would argue that smart metering is an opportunity to increase transparency and install confidence, and that increasing the touch points with customers is actually key to monetising the investment. On the following pages we shall see what this can mean in practice and look at some of the good experiencesalbeit limited onesutilities are making.

In Frost & Sullivans view, utilities recognise that monetising the smart meter investments is about introducing new services to customers, intrinsically linked to new tariffs, but few retailers have made real progress. Many retailers complain that they are prevented by law from modernising their tariffs, and others fear the pressure from various advocacy groups regarding the elderly, privacy and health concerns. Naturally, as we saw in the previous chapter, many legacy systems will need to be upgraded or replaced before more granular tariffs can be offered to different customer segments.

Frost & Sullivan would argue that smart metering is an opportunity to increase transparency and install confidence, and that increasing the touch points with customers is actually key to monetising the investment.

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THE ORGA SYSTEMS ENERGY SOLUTION In the previous chapters we have seen how real-time billing, new services and enhanced customer interaction are key to addressing the most pressing smart metering challenges faced by utility companies today. We also saw that most utilities will need to invest in their advanced metering infrastructure ICT systems. There are several solutions on the market today that can help utilities overcome the limitations of their inadequate legacy systems. The OS.Energy solution from Orga Systems is a good example of how such a solution can address the challenges.

OS.Energy provides real-time pricing, charging and advanced account management capabilities, paving the way for successful customer interaction and self care. Existing billing processes, invoicing, payment and collection handling stay untouched but can, at any point in time, be added as an option. OS.Energy combines an event-action model and a rule-based pricing and rating engine to manage dynamic tariffs and account balances in real time. The system scales linearly from 10 thousands of metering points to multiple 10 millions easily.

Orga Systems Smart Energy Billing solution, OS.Energy, enables dynamic pricing and real-time rating of metering data, using a centralised product and tariff management. The centralisation of processes means that DCOs can deploy less sophisticated meters, which are both cheaper and easier to maintain. A meter investment reduction of 25 per cent is realistic, and in the U.K. alone, that could reduce TCO by almost a billion Pounds. Pre-integrated with leading MDCS and MDM suppliers, OS.Energy connects the metering network to the CIS, CRM and other customer support systems, adding realtime rating and multi-dimensional tariff dynamics to a utilitys existing infrastructure and closing the gap between AMI and back-end systems.

A unique feature of OS.Energy is its single, centralised product catalogue, in which all tariffs are kept, be they ToU, CPP, volume based, or dynamic and payment methods being pre-paid, post-paid or hybrid. Its integrated promotion capabilities allow for regular campaigns and instant promotions, considering targeted bonus, bundle or discount. Similarly, consumer micro-generation can easily be integrated by defining individual feedin tariffs, which can also be dynamic.

Through the flexible integration of OS.Energy solution into existing ERP and CIS systems, utility companies can salvage much of their existing infrastructure. The configurability and scalability of OS.Energy makes it a future-proof billing solution.

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SHAPING CUSTOMER STRATEGY WITH TECHNOLOGY Smart meters are deployed under regulatory pressure in order to educate customers and influence their behaviour. Other than reducing energy consumption and incentivising micro-generation, the idea of monetising smart meter investments eventually boils down to the commercial offerings that a retailer is able to develop. As we have seen, these offerings go from something as simple as having variable tariffs for various times of day or load profiles to something more complex such as energy efficiency programmes. Utility companies must be able to apply granular tariffs to newly defined customer segments and to deal with individual customers on an individual basis. The notion of granularity is unheard of in most utility companies, but they have an opportunity to use AMIand the technology that surrounds itto shape the customer strategy they have been lacking. Centralisation Saves Costs and Decreases Complexity

Many utility companies have been installing the most sophisticated smart meters at a substantial cost, because the meter manufacturers have been telling them that this was the only option. Whereas this may be true when the legacy billing system lacks real-time rating capabilities, smart meters that integrate metering, tariff management and rating generally only work for a few static tariffs.

Decentralised rating also leads to increased complexity when millions of meters need to follow dynamic tariffs and rating parameters, because the necessary upload of new tariffs can lead to synchronisation errors. When tariffs are stored off device, synchronisation errors are eliminated; the billing process is streamlined; and revenue assurance is strengthened. This becomes a very useful proposition for electricity companies, especially in South East Asia, where electricity meters have been recently upgraded in the past 10 years with another two-thirds of their lifespan remaining. For example, MEA in Thailand will find bolt-on solutions that allow it to avoid a complete overhaul of meter infrastructure much easier to present as a business case. TNB in Malaysia also requires smart meter investments to surround its ability to further streamline billing processes and improve revenue assurance. Unless rating is centralised, the vision of making each consumer an integrated part of the smart grid cannot be fully realised. Crazy tariffs and personalised tariffs are not really available, and the most interesting monetising opportunities are not possible. A billing framework like OS.Energy, built around a centralised rating engine, allows utility companies to deploy low-cost smart meters and make money. Real-Time Rating

Unless rating is centralised, the vision of making each consumer an integrated part of the smart grid cannot be fully realised.

The rating engine is a critical component of the billing framework and a back-office bottleneck at many utility companies. Even in smart metering environments, it is common for the rating to take place on month-old data, because no real-time rating capability is present. The rating must take place in real-time or near real-time in order to empower the dynamic network management that is a prerequisite to many of the smart energy advantages we have described previously, not least revenue assurance up- and downstream.

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In a 3,000-customer trial, Connecticut Light & Power found that customers do react to price signals. Consumers facing the highest peak pricing responded the most, cutting their peak use by 16 per cent to 23 per cent, depending on other aids like smart thermostats and energy management systems. Real-time rating can provide incentives to customers for controlling loads all the time, allowing the utility to move to a more 24/7based demand response environment, where the utility can successfully request the shedding of loads or dynamically increase the feed-in tariffs in order to maximise the amount of micro-generated energy received in specific neighbourhoods.

This helps energy generation, distribution and retail companies deal with dynamically changing conditions in a completely new way. Demand Side Management becomes a true option to react to network dynamics that will become more unpredictable as more and more energy is generated from renewable sources. Scalability and Reliability We have seen how dealing with high investment and regulatory uncertainty are significant challenges for utility companies.

In Frost & Sullivans view, the only futureproof approach to addressing the challenge of regulatory uncertainty is for utility companies to focus on metering, billing and customer care solutions that are highly scalable.

In Frost & Sullivans view, the only future-proof approach to addressing this challenge is for utility companies to focus on metering, billing and customer care solutions that are highly scalable. That way, at a manageable opex level, they will be able to cope with the processing of greatly increased data volumes that could be brought about by factors such as a new regulatory requirement to process hourly readings, the introduction of new products and services, or large amounts of customers churning in following successful campaigns. In the long run, only optimised system design will ensure low TCO, and it is important to take a holistic view of the organisation. Short-term fixes to inadequate legacy systems may leave manual overlay processes in place that will push up TCO.

Finally, back-office reliability is crucial in a smart energy environment. OS.Energy was developed from a billing solution that has been in operation for 10 years with an important Western European mobile operator with almost 5 million subscribers, recording only two hours of unscheduled downtime. In Sweden, billing accuracy was the main driver behind the early smart meter deployment. After deregulation, prices soared, and the utilities were criticised for unclear and inaccurate bills. Billing, Invoicing and CRM

Equally important is the integration of the billing framework with the customer-facing systems. The CRM system must receive all relevant information about all existing accounts and all possible occurrences, and the self-care customer systems must be equally sophisticated. British Gas has conducted research showing that customers who use self-care have a higher level of satisfaction than those who do not. Gteborg Energi collects hourly consumption data and makes it available via a Web interface. Its customers proactively call the company to express interest in using the facility, and this

All retailers interviewed by Frost & Sullivan about their smart meters roll out have said that the customer help desk was one of their major challenges because of a much higher amount of customer calls. Some consumers have experienced bill shocks, but these have not been caused by a malfunctioning smart meter, as customers tend to think, but rather by problems in the retailer back office. Ensuring that the billing system is ready, right from the beginning, is a way to avoid inaccurate bills, and upgrading to a billing framework that is pre-integrated with the metering network is a good approach.

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enormous customer interest in seeing their hourly consumption has positively surprised Gteborg Energi. AMI coupled with a sophisticated billing framework has also had a positive effect on revenue assurance at Gteborg Energi. Remotely interrupting the supply when a contract is cancelled and not reinstating supply until the new customer on the address enters into a new contract ensures that energy consumed is effectively invoiced. Sophisticated billing and customer care frameworks enable utility companies to craft granular customer strategies, creating loyalty and stickiness; enhancing customer satisfaction; improving revenue assurance; and introducing new revenue opportunities by using the customer touch points to up-sell and cross-sell products and services.

In many ways, utility companies are emulating the experience of the telecommunications operators following deregulation. They can use technology to address many of their challenges and pain points. Specifically, sophisticated billing and customer care frameworks enable utility companies to craft granular customer strategies, creating loyalty and stickiness; enhancing customer satisfaction; improving revenue assurance; and introducing new revenue opportunities by using the customer touch points to up-sell and cross-sell products and services. Integrating Gas and Water In this paper, we have mainly discussed advanced metering in relation to electricity, because it is its most common application.

In competitive markets, dual fuel offerings are common. Many utilities maintain separate accounts for electricity and gas with separate billing cycles. There will be no real operational savings unless gas and electricity are integrated into the same metering infrastructure, and it will be impossible to realise the full customer service potential. With rising water prices and unsustainable losses from leaky pipes, real-time water consumption data would be ideal compared to todays typical annual billing cycles. A billing framework like OS.Energy is flexible enough to integrate gas and water, and its centralised rating engine would be able to rate gas and water according to very different parameters compared to electricity. Linking into a utility companys existing CIS/CRM solution, customers would have access to all their utility accounts via a single interface.

THE LAST WORD There are two ways for a utility company to look at its smart metering investment: It can complain about being forced to deploy smart meters and minimise its efforts, or it can embrace advanced metering and put in its best efforts to make the most of the investment.

Utility companies across the globe are beginning to realise the potential of advanced metering, although many are not yet able to fully monetise the investment, due to legacy system constraints. The back-end link between the AMI and the customer-facing systems is especially critical, and upgrades and new solution deployments will be necessary. Several solutions on the market today will address the problem. Utility companies should partner with a reputable, stable and experienced solutions provider, guaranteeing the long-term involvement and support.

Frost & Sullivan is satisfied that OS.Energy from Orga Systemswhich we have analysed in this paperis a valid, high-performance billing and rating solution that will enable utility companies to meet their smart metering challenges. 15

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