Everybody's talking about electric utilities dabbling in telecommunications. That's fine. But how about vice versa? Maybe what we've really got is telephone companies (and cable television, too) getting into energy. That's different. A whole lot different.
Swing Your Partner
The last few months have seen a flurry of deals and strategic alliances between telephone or cable companies and electric utilities, all aimed in some way at marrying energy services with information technology and software. I can think of at least five:
s Entergy + First Pacific Networks
s PSE&G + AT&T (also includes Honeywell, GE, Intellon, American Meter, and Andersen Consulting)
s Tampa Electric + IBM
s SoCal Edison + Cox Cable
s PG&E + Microsoft + TCI
These alliances promise a cornucopia of energy services: automatic meter reading, remote on/off switching, residential demand-side management, temper (energy theft) detection, outage detection, customer surveys, real-time pricing, power-quality monitoring, and distribution system automation (SCADA services via broadband could save telephone charges over the public switched network).
But those features all serve the electric side. What's in it for telcos and cable companies? (Better yet, what's in it for Microsoft, which seems to own a piece of everything except a telephone network.)
Paul E. Spaduzzi, energy consultant for Cox Cable Communications, suggests ulterior motives: "Telcos want to get into energy because energy plus information equals real-time pricing. That makes for greater efficiency, giving electric consumers the cash they'll need to buy other services on the information highway" (that telephone companies are itching to sell). And then there's cable television.
"Enthusiasm among cable companies for telephone service is unbelievable," says Spaduzzi. But market penetration holds the key. "Cable serves only about 65 percent of households," Spaduzzi notes, while electrics reach just about everybody (em which is what you need for a switched service like telecommunications. Thus, cable companies see energy management services as an entry into telephony. Are cable companies really interested in energy? Spaduzzi notes that electric utility transformer failure represents the biggest single cause of cable TV outages. So yes, there's a possible synergy. Maybe.
Cree Edwards, vice president of business development for CellNet Data Systems Inc., a company that designs and builds wireless meter reading systems for electric utilities, tends to agree: "It's not so much that electrics are getting into telecommunications as it is the other way around."
At Itron, which also markets wireless meter-reading technologies, you'll also hear a word of caution. Robert Neilson, vice president of marketing, points out that meter reading, load control, and data acquisition break down into two markets. First, you've got to collect the data from your meters. Second, you want to transport the data to the utility. What works for one job might not work for the other.
Neilson sees wireless radio frequencies as ideal for gathering utility customer data from meter to interim collection point, even if that collection point resides in a smart box located within the customer's home. It's that last 25 feet (em from collection box to the meter (em that forces costs up. Fiber or coaxial is too expensive for this leg, says Neilson, unless the utility really wants to enter the video or telephone business. But for transporting data back to the office, utilities can profitably employ a wide variety of media (em
including fiber or coaxial (em depending on cost.
"Identify your need; then make the technology pay for itself," advises Neilson. He's not against fiber to the home, but questions whether utilities need it for meter reading. "With the available compression techniques, wireless meter reading is well-suited for load control or real-time pricing," says Neilson. "Especially for gas meters, where the power supply must come from low-power batteries."
Edwards, at CellNet, acknowledges that broadband offers muscle for data transport, but notes that most of the costs actually lie in data format conversion, which is made easier and cheaper via wireless networks. "If utilities want to go into broadband," says Edwards, "then fiber and coaxial is the way to go." But are electrics really ready to compete in that market?
"They're chasing phantom markets," says Edwards. "I can't see electric customers paying for these superhighway services."
These alliances focus on retail energy service, which remains largely a regulated monopoly. That fact carries important implications for electric investment in superhighway projects.
Wholesale power is becoming (has become) a commodity business. People like Robert Mango (manager of derivative products at Niagara Mohawk) or John Woodley (senior trader at Morgan Stanley) will talk your ear off on how financial commodity markets will shrink wholesale electric margins down to nothing.
Now the wholesale market is exactly where the new power marketers and brokers have been earning their living (em using databases, software, and risk-hedging to siphon off profits. But as margins evaporate, these marketers will probably turn more to the retail side. Is that why some of these electric utilities are seeking out alliances with telcos and cable companies (em to put their own software in place before they get squeezed out again by the marketers and brokers?
One of the interesting things about the PSE&G project with AT&T is how the utility has managed to share the risk with other partners. In this case, AT&T is heading up the project, but is drawing on many other prominent customers with niche expertise, such as Honeywell (for thermostats), General Electric (for two-way electronic meters), Intellon (for chips and the in-home local area network), and Andersen Consulting (for a user-friendly, computer-customer interface). PSE&G will not build its own fiber network. Instead, it will lease either fiber or coaxial cable, linked to its own gateway in the telephone central office. PSE&G won't enter the telecommunications business as a competitor.
I asked Ralph Izzo, a vice president at PSE&G, "You're assuming, aren't you, that you can fight off competition from marketers by playing their own game in retail distribution." Izzo paused and listened carefully. I continued.
"But if electric distribution remains a regulated monopoly, isn't it possible that state regulators will force utilities to disclose or share customer profile data collected on the information superhighway, for the reason that distribution information is clothed with a public interest? What happens if you can't keep your data proprietary?"
Izzo nodded and smiled. "We're looking at
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