Navigant Research Blog

Ameren and ComEd Face Tougher Reality after Illinois Regulator Weighs In

— June 8, 2012

Two Midwest utilities are smarting after the Illinois Commerce Commission issued new rulings: Ameren Illinois had its smart grid proposal rejected by the ICC, and Chicago-area giant ComEd had its revenues cut by $169 million for 2012.

In Ameren Illinois’s case, the commission voted 5 to 0 to send the plan back to the utility because the $625 million proposal lacked the required details and did not clearly show how the new technology would benefit consumers.  Ameren has not indicated what its next step will be, but a spokesman said the company is looking forward to cooperating with the ICC. That’s a sure sign that it will return with a new proposal that satisfies the need to show clear benefits to consumers.

Citizens Utility Board, a consumer watchdog group, had opposed Ameren Illinois’s plan as weak on specifics, and its previous arguments appeared to have had at least some influence on the commission’s ruling.

Meantime, the ComEd ruling is more complex.  For 2012, the reduction in revenue to ComEd will hurt the company’s bottom line. ComEd says in a regulatory filing that the ruling will cost parent Exelon Corp. 16 cents a share this year, and an additional 8 cents to 10 cents per share in 2013 and 2014.  For ComEd customers, however, the ruling is expected to mean lower rates in 2012.  But a new rate structure, which went into effect late last year, will allow for higher rates starting in 2013 when consumers are expected to pay $3 more a month, on average, as the utility continues its $2.6 billion smart grid upgrade over 10 years.  So, while ComEd loses expected revenue in the near-term, it will still get to recover costs with higher rates later on.

The new rate structure – based on a complex formula aimed at encouraging smart grid investments – is itself controversial.  Previously, the ICC had full authority to reduce ComEd rate hike requests, but now the commission plays a lesser role.  The ICC can still question costs, but cannot change the formula for determining how those costs are calculated, according to a Chicago Tribune report.

These two decisions by the ICC show how difficult the path ahead can be for utilities embarking on smart grid projects, at least in Illinois.  Incomplete or vague proposals will not cut it, as regulators and consumers continue to take a hard look at how smart grid investments will – or will not – benefit consumers.  And, similarly, regulators are going to keep rate hikes somewhat in check as smart grid deployments move forward.  That’s not a surprise, really.  It reflect the ongoing push and pull between private utilities driving new technology and regulators doing what they can to allow for innovation while protecting broad public interests.  The road can be bumpy for all the players, but in Illinois, where I once lived, that’s expected.


Does a Devilish Startup Have an Answer for the Internet of Things?

— June 5, 2012

A new startup aims to advance the idea of the “Internet of Things” in a way that could have a significant impact on the energy business.  Electric Imp was formed in 2011 by former iPhone hardware engineering manager Hugo Fiennes, former Gmail designer Kevin Fox, and veteran firmware engineer Peter Hartley.

Their idea is that products from dishwashers to doorbells to blenders will include slots for “Imp cards,” which will enable users to wirelessly monitor, control, and get alerts from everyday devices.  Electric Imp acts as the web interface in the process, handling cloud services in the background.

The Imp card has an embedded processor and communicates over standard Wi-Fi protocols, including encryption.  The card itself has a familiar SD card form factor.  It’s similar to an Eye-Fi card used in digital cameras for automatically uploading photos to computers, tablets, or phones.  But in this case, the device is controlled via a cloud service that sends alerts when energy rates are cheapest for running a washer, for example, or kicks on lights when certain conditions are met, among other possibilities.

The Imp cloud service acts as the central hub for each device.  In order to set up a Wi-Fi connection, the company uses patent-pending technology called Blinkup to enter SSID and password information on iOS and Android smartphones; this data is beamed wirelessly to an Imp’s light sensor by quickly pulsing the handset’s screen on and off.

The company, based in Los Altos, California, is in talks with equipment makers to get them to build the slots into new products.  The Imp cards themselves will retail for $25 each.  The company plans to release a developer preview bundle in June, with the first compatible devices expected later this year.

Though Electric Imp is an early startup, with little proven in the way of a business, it has a strong management team plus $7.9 million in Series A money from Redpoint Ventures and Lowercase Capital.  If Fiennes and his team can make sense of connecting devices and the Internet beyond what we see today, I wouldn’t bet against them.  The big challenge will be to get manufacturers on board quickly enough and at a scale to make a difference.  And that can be quite a demon to overcome.


Despite Looming Recession, Smart Meters Multiply Across Europe

— May 30, 2012

Two major European utilities recently revealed new details of their smart meter roadmaps, in which some 1.3 million new devices will be deployed – evidence that smart meter deployments across the pond remain strong despite a weak overall economy.

In Spain, giant utility Iberdrola has awarded contracts to seven manufacturers to supply 1 million meters as part of Iberdrola’s STAR (a Spanish acronym for Remote Grid Management and Automation System) project through 2018.  The suppliers include Landis+Gyr, Elster, GE, ZIV, Sagemcom, Sogecam, and Orbis.  Iberdrola did not say specifically how many meters each vendor would supply.

With these contracts, the project’s accumulated investment to date has reached $397 million.  Overall investment in the STAR project is expected to total more than $2.6 billion when completed, comprising more than 10 million smart meters.

Notably, Itron did not win some of the new meter business with Iberdrola, despite being the supplier of 100,000 smart meters (for the city of Castellón) in the first phase of the STAR project, which began two years ago.  Itron has explained that while it did not have meters certified in time for this round of awards, it fully intends to compete for the remaining meter business as early as next year.

Elsewhere in Europe, one of the largest utilities in the United Kingdom, E.ON UK, selected Elster as its supplier for the first phase of its smart metering rollout.  The utility plans to deploy up to 100,000 residential smart gas and electricity meters by the end of this year, and up to 200,000 more in 2013.  The deal could pave the way for more business for Elster since E.ON UK has said it intends to install 1 million smart meters by 2014.  Moreover, the utility overall has more than 5 million residential electricity and 2.8 million residential gas customers across Britain, and like other British utilities, it must meet the national government’s goal of having smart meters for all gas and electricity customers by 2020.

These new announcements point to ongoing growth opportunities in Europe for meter manufacturers amid a slowdown in major deployments in the United States and Canada (see Pike Research’s recent report, Smart Meters, for details).  This is not to say meter vendors should take their eyes off the ball in North America, because there are millions of homes and businesses still to be supplied with smart meters in coming years.  But the large-volume deals involving millions of devices are becoming fewer and the regulatory push is not quite as strong as it is in Europe.  So it makes sense for manufacturers to have a solid Euro strategy, particularly for Spain and the U.K. in the coming few years.  Both countries are moving ahead with large deployments and smart manufacturers will have strong bids ready to win their fair share of deals.


ComEd Plans Major Smart Meter Push

— May 29, 2012

Chicago-based utility ComEd filed plans recently with its state regulator (Illinois Commerce Commission) to deploy 4 million smart meters throughout northern Illinois over the next 10 years in a long-range bid to upgrade its system.

If approved by ICC, approximately 130,000 customers living along the Eisenhower Expressway would have the new meters installed as early as the end of summer 2012.  ComEd would then install 370,000 meters in 2013 and the following year some 500,000 meters would be deployed.  From that point, the utility would continue connecting new meters across its territory at that 500,000 annual clip until 2021.  (The utility has already deployed more than 131,000 smart meters in a pilot project that was completed in May 2011.)

The ambitious meter deployment – one of the largest in the country – would coincide with rate increases during the coming decade that will finance $2.6 billion in overall infrastructure upgrades, which include the new meter rollout.

ComEd expects, of course, to reduce operational costs by deploying the meters, which would be read remotely and not require sending meter readers to households or commercial sites.  The meters would also enable remote connect and disconnect of service, reducing the need to send a crew to a physical location for such purposes.  For customers, the new meters would enable them to take part in demand-response programs that could reduce their bills.

Clearly, ComEd has a roadmap to a full smart meter deployment, and now its cards are on the table.  But it needs to proceed with some caution here.  According to published reports, no one will be able to opt out of the deployment – at least not yet.  But if things proceed like they have in similar deployments in California and elsewhere, an opt-out program might be required.  As we’ve witnessed during Pacific Gas & Electric’s smart meter deployment in California, some vocal consumers won’t have anything to do with smart meters because of health-related fears or worries about privacy invasion.  And they were instrumental in getting PG&E to offer an opt-out option.  So, while ComEd’s plan may appear to be unfettered at this point, the potential for consumer backlash is valid, and the utility should have alternate plans – especially if the outcry is loud enough to stir local politicians.


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