orgasystems-fs customer-centric-utility wp 2012sep 0

7/29/2019 OrgaSystems-FS Customer-Centric-Utility WP 2012Sep 0

1/16

A Frost & Sullivan

White Paper

www.frost.com

50 Years of Growth, Innovation and Leadership

Customer-centric Utility Companies:Monetisation Strategies for the High Smart Metering Investment


2/16

Frost & Sullivan

CONTENTS

Key Takeaways.................................................................................................. 3

Introduction .................................................................................................... 4

Smart Metering:

Future-Proof Investments towards Customer Centricity................................ 5

Making the Smar t Energy Benefi ts a Real ity .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 5

The Financial Reality of Achieving Smart Energy ............................................ 6

Empowering Customers through Interactivity.................................................. 7

Managing the High Investment........................................................................ 8

Coping with the Data Exp losion...................................................................... 10

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

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

Shaping Customer Strategy with Technology.................................................. 13

Centralisation Saves Costs and Decreases Complexity.................................... 13

Real-Time Rating............................................................................................. 13

Scalability and Reliability................................................................................ 14

Billing, Invoicing and CRM .............................................................................. 14

Integrating Gas and Water............................................................................... 15

The Last Word ................................................................................................. 15

Abbreviations

AMI Advanced Meter ing Infrastructure

AMR Automat ic Meter Reading

CIS Customer Information System

CRM Customer Resource Management

DER Distr ibuted Energy Resources

DSO Distr ibut ion System Operator

GHG Green House Gas

MDCS Metering Data Collection System

MDM Meter Data Management

MDMS Meter Data Management System

NPV Net Pre sent Value

TCO Total Cost of OwnershipTOU Time of Use

TSO Transmission System Operators


3/16

frost.com3

Frost & Sullivan

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:

Managing the high investment

Coping with the data explosion

Developing a vision for how to monetise 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.

Back-end solutions must be future-proof, scalable and reliable, because the legal

requirements are prone to changing.


4/16

frost.com4

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.

Frost & Sullivan

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 appearto 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 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.

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.

Produces electricity

from a variety of

energy sources.

Smart Grid requires

Generation to

incorporate

distributed energy

resources and

renewable energy

sources.

Transports high-

voltage 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 andgeneration supply.

Transforms

electricity to low

voltage and

distributes ready-

to-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 allowsDistribution to

receive better

downstream

information on

demand to act on

its network

optimisation needs.

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.

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 tothe grid.

Generation Transmission(TSO)

Distribution(DSO) Retail Consumers

Typical Electricity Value Chain in a Deregulated Market


5/16

frost.com5

Almost all smart grid

benefits are a result of

the two-waycommunication

between the value

chain partners , and

none of it is possible

without an advanced

metering infrastructure.

Frost & Sullivan

SMART METERING: FUTURE-PROOF INVESTMENTS TOWARDSCUSTOMER CENTRICITY

Although smart metering is not necessarily an initiative spearheaded by the electricity

distributors and retailers themselves, Frost & Sullivan is convinced that they can befuture-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 themost competitive markets have had no choice but to follow an old-fashioned, brand-

centred 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 Smar t Energy Benefits a Reality

Smart grid applications like advanced metering enable the two-way communicationbetween 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.

Customers with small-scale or micro-generation capabilities will maximise energyconsumption when their own energy generation peaks, whereas it could be more


6/16

frost.com6

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

Frost & Sullivan

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.

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.


7/16

frost.com7

Controlling energy

consumption

sometimes means

increasingconsumption, especially

in countries where

wind farms are the

mainstay of the

sustainable energy

policy.

Frost & Sullivan

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 throughwind 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.

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-Israelicompany 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


8/16

frost.com8

Retailers can turn the

empowered customersto their advantage by

developing new

commercial offerings,

differentiating

themselves and giving

customers a feeling of

real choice

Frost & Sullivan

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:

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.

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 meteringchallenges. All utility companies regard the size of the necessary investment as a

significant pain point.

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


9/16

frost.com9

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.

Frost & Sullivan

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 expens-

ive to process than dailyprofiles.

Upgrades are often

necessary due to chang-

ing legal requirements. In

Sweden, almost 4 million

meters require additional

investment to enable in-

creased 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.

In Frost & Sullivan's opinion, there is a clear picture of "minimalistic," non-future-proofinvestments 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.

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 tohome energy automation tools, meaning that the old fashioned, fixed tariffs live on for

years, while the utility companies struggle to amortise the AMI investment.

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.


10/16

frost.com10

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.

Frost & Sullivan

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. Finnishlegislation, 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. Thisalso 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.

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.

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.

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.


11/16

frost.com11

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.

Frost & Sullivan

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 billswere 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.

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.

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 customercalls 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.


12/16

frost.com12

Frost & Sullivan

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 intheir 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.

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 real-

time rating and multi-dimensional tariff dynamics to a utilitys existing infrastructure and

closing the gap between AMI and back-end systems.

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 multiple10 millions easily.

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 feed-

in 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.


13/16

frost.com13

Unless rating is

centralised, the vision

of making each

consumer an integrated

par t of the smart grid

cannot be fully

realised.

Frost & Sullivan

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 downto 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 SouthEast 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

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.


14/16

frost.com14

In Frost & Sullivansview, the only future-

proof 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.

Frost & Sullivan

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 24/7-

based 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 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.

Billing, Invoicing and CRM

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.

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.

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


15/16

frost.com15

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.

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 theinvestment.

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.

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 oppor tunities

by using the customertouch points to up-sell

and cross-sell products

and services.

Frost & Sullivan


16/16

+44 (0)20 7343 8383 [email protected]

http://www.frost.com

Silicon Valley

331 E. Evelyn Avenue, Suite 100

Mountain View, CA 94041-1538

Tel +1 650 475 4500

Fax +1 650 475 1570

Frankfurt

Clemensstrae 9

60487 Frankfurt a.M.

Tel. +49 (0)69 7 70 33-0

Fax +49 (0)69 23 45 66

London

4 Grosvenor Gardens

London SWIW 0DH

Tel. +44 (0)20 7343 8383

Fax +44 (0)20 7730 3343

ABOUT FROST & SULLIVAN

Frost & Sullivan, the Growth Partnership Company, partners with clients to accelerate their growth. The company's

TEAM Research, Growth Consulting, and Growth Team Membership empower clients to create a growth-focused

culture that generates, evaluates, and implements effective growth strategies. Frost & Sullivan employs over 50 years

of experience in partnering with Global 1000 companies, emerging businesses, and the investment community from

more than 40 offices on six continents. For more information about Frost & Sullivans Growth Partnership Services,

visit http://www.frost.com.

For information regarding permission, write:

Frost & Sullivan

331 E. Evelyn Avenue, Suite 100

Mountain View, California 94041-1538

Auckland

Bangkok

Beijing

Bengaluru

Bogot

Buenos Aires

Cape Town

Chennai

Colombo

Delhi / NCR

Dhaka

Dubai

Frankfurt

Hong Kong

Istanbul

Jakarta

Kolkata

Kuala Lumpur

London

Mexico City

Milan

Moscow

Mumbai

Manhattan

Oxford

Paris

Rockville Centre

San Antonio

So Paulo

Seoul

Shanghai

Silicon Valley

Singapore

Sophia Antipolis

Sydney

Taipei

Tel Aviv

Tokyo

Toronto

Warsaw

Washington, DC

orgasystems-fs customer-centric-utility wp 2012sep 0

Documents