As many predicted, the Telecommunications Act of 1996 has reshuffled the deck of more than a few industries. Not only are cable operators and telcos desperately trying to figure out how to play the new hands they've been dealt, but various members of the utility industry have taken their seats at the table and are beginning to wager some interesting broadband bets.
Obviously, it's early in the game, and nothing is certain. But, the stakes are high, and the possibilities are endless.
One of the most intriguing scenarios has cable operators and utilities, if not joining hands, at least sharing HFC pipe to usher in a whole new era of two-way energy management services. The increased alliance activity has come about despite some pre-deregulation misconceptions by both parties that still persist to some degree.Talk is cheap, overbuilds aren't
According to some, as the move toward deregulation gained momentum over the past several years, people in both the cable and utility industries had trouble predicting the impact of the pending legislation.
"I think the biggest pitfall, which first came out about two years ago," says Matt Oja, vice president of marketing for Scientific-Atlanta's Control Systems Division, "was that a lot of the cable companies saw utilities as the proverbial pot of gold at the end of the rainbow, just waiting to be picked up. Some operators thought the utilities needed them, and they could charge whatever they felt necessary."
While some cable operators were transfixed by the utilities' legendary deep pockets, some powerco executives thought, and still think, those deep pockets can catapult energy providers into the broadband arena as full-blown, full-service (data, voice and video) providers.
"There is a lot of rhetoric in this arena, a ton of it," says Lester J. Larsen Jr., a TCI consultant and head of Larsen Consulting International. "And you have lots of utilities saying, `Gee, this looks exciting with deregulation, let's build our own infrastructure.' There are groups within these utilities who want to pursue this direction. But, by the time it gets to the senior executives, most of those plans are killed. It's pure economics, and the economics dictate that this is a huge investment. Most utilities are not going to try and take the telephone and cable companies head-on."
While Larsen's view rings true for many, if not most, utilities, there is ample evidence that utilities are not going to be held hostage by the up-front economics of building a two-way, interactive network-and cable operators are beginning to realize that.
As S-A's Oja notes, "I think they (cable operators) have become a little more pragmatic about it now. What they are beginning to realize is that the utilities are serious, and if the cable companies can't establish a working relationship with them, they'll do something else, either with someone else or on their own."
The concept of establishing automatic or two-way, interactive energy management services, at least from a utility's perspective, goes far beyond getting some unexpected value from a technological gimmick. For utilities, it doesn't get more basic. It comes down to economic survival.
For the first time, utilities can go head-to-head and compete with each other. "Lean and mean" has become the mantra of the industry. To do that, they have to cut costs and retain customers by providing not only better service, but more services. As a result, the number of trials and installations of automated equipment and systems in the industry continues to surge.
In its latest, biannual Trials & Installations Report (Dec. 1995), the Automatic Meter Reading Association (AMRA) notes that more than 180 utilities "report deploying (in 1995), or planning to deploy (in 1996), almost 10 million units for automatic meter reading, load management, distribution automation, supervisory control and data acquisition, and outage and tamper detection, as well as (to) provide other automation capabilities."
Of that total, AMRA reports the vast majority (9.9 million units) are actual installations, as opposed to trials (63,678 units). The driving force behind these installations and trials is the reduction of labor-intensive meter-reading costs through automatic meter reading (AMR). But many utilities are staunch proponents of the "more is less" philosophy when it comes to cutting costs to stay competitive. By providing more two-way, interactive services, they've come to realize there is a potential to save literally tens of millions of dollars that are currently slated for expanding power generation and/or transmission facilities.
Fortunately, a number of cable companies have already seen the light and are more than willing to help utilities get into their "lean and mean" routine.It takes two to tango
Tele-Communications Inc. (TCI), Microsoft and Pacific Gas & Electric (PG&E) are moving ahead on the development of their Energy Information Services (EIS) system trial in Walnut Creek, Calif. Begun in 1995, the trial currently has 50 homes up and running on a system that incorporates PG&E's software, Microsoft's "point and click" operating system and TCI's digital set-top and wireless remote. System capabilities allow consumers to: view energy usage in real time; schedule heating/cooling systems in several modes (i.e., normal, temporary, vacation); control lighting schedules; track energy billing at any time (and actually pay bills in the trial's third phase); and program the system to react to pricing signals sent by the utility so that various services (e.g., heating/cooling) turn off or turn on according to the cost of energy during high or low energy use periods.
The EIS system is currently using a television interface, but is switching to a PC interface as it expands into nearly 1,000 homes later this year. While stating, "Eventually, we want to get back to the TV when the interactive networks are in place," Steve Phillips, director of EIS at PG&E, says for now, the PC interface will operate through TCI's @Home service accessed through cable data modems.
Phillips reports there's "not that much" retrofitting to bring homes on line to the EIS system. However, they do replace the electric meter and the register on the gas meter. "We're trying," states Phillips, "to lower the entire cost of the installation down to between $300 and $400. That's our goal. Right now, we're somewhere around $2,000."
The trial, says Phillips, has set three goals for itself and its partners. The first goal is to determine the value of EIS through target-marketing services consumers are willing to pay for, documenting both the demand side management (DSM) component's ability to shift peak loads and the reduction in operating costs resulting from elimination of manual meter reading and billing.
Secondly, the trial is trying to develop a network-independent interface and a business case for national deployment of the system. The third goal is to determine how they might bundle services. This might include determining basic and premium packages, developing new high-value, low-cost applications and determining whether there is any new technology needed to complete the system.All together or step by step
With all the various utilities, cable operators and vendors scurrying around to develop interactive energy management equipment and systems for HFC networks, there's also the question of just how comprehensive these solutions should be. Some are taking the incremental approach, while others seem to be pursuing a more ambitious one-box-does-all approach.
Cox Communications Inc., Nortel and Virginia Power have joined forces to see if they can get it all together-voice, data and video-in one box. Initiated nearly a year ago, the trial will have roughly 24 units in the field by this summer. The three partners are working on developing an integrated communications device that incorporates Nortel's Cornerstone cable modem technology, to provide voice, high-speed data services, switched digital video and energy management running across the same communications platform.
"The idea," explains Steve Becker, Cox's director of broadband communications, "is that you put one box on the side of the house. If you've got a voice customer there, you plug in a voice card. If you've got a data customer there, you plug in the data card, etc. With one service it's basically the same price as the stand-alone solution. With two services, it's cheaper than buying two individual solutions because you're sharing a lot of the same resources."
Meanwhile, Scientific-Atlanta, whose Control Systems Division has been developing load management products for the electric utility industry for the past 20 years, is taking a slightly different approach that's aimed specifically at cable-powerco alliances. S-A's new Maingate System, which is scheduled to debut this coming fall, is aimed at cable operators and utilities that are looking to initiate new revenue streams sooner rather than later.
A key part of this approach, says S-A's Oja, is giving cable operators and utilities an incremental buildup of services, instead of trying to provide an expensive box that does it all. Maingate, explains Oja, is "meant to work on an HFC backbone for the utility's benefit, but not necessarily require that a cable company invest extra dollars beyond what is required for the utility."
Oja believes utilities are looking for business models that make sense, and partners that are in it for the long haul. And while there are some wireless ways for them to deliver energy management services, for utilities, "There is nothing that gets their attention like high bandwidth, two-way broadband networks. Nothing."Going it alone
One of the nation's most ambitious energy management trials is the result of a utility holding company striking out on its own "to help utilities position themselves for the future" with its own integrated communications-based network.
CSW Communications, a subsidiary of Central and South West Corp., has attracted nationwide attention with its development of what it calls the Customer Choice & Control(TM) (CCC) service. The ongoing CCC program began nearly two years ago in Laredo, Texas. Even though CSW's network now passes 5,000 homes, the trial currently involves 1,000 homes, with 2,500 homes targeted for trial buildout. According to William (Bill) Morrow, CCC managing director, when CSW was planning the $9 million trial, it looked around the country and was uniformly unimpressed with the scale of what was being done at the time.
What the company saw was "small potato" trials (with 50 homes or so) and CSW officials had serious doubts about what could be learned on such a small scale. "Plus," notes Morrow, "you have your Ph.D.'s installing the equipment when you're doing so few, and you can go broke doing that. So, our approach was, let's go to Laredo. Let's build our own network. Let's do about 2,500 homes. Let's build in a subdivision that's 20 years old, one that's 15, one that's 10, one that's five years old and two that are brandnew. Let's a get a different range of what it takes to build networks across areas, as well as get different demographics. We go from middle-lower income to middle, to middle-upper, all the way up to high-income households."
The trial, which includes First Pacific Networks Inc. (FPN), American Innovations, Scientific-Atlanta, Echelon, Raytheon and Light Media, runs over CSW's own bi-directional 750 MHz HFC, CSMA/CD, mid-split network. While Morrow readily admits that a sub-split network may be needed for its upcoming Austin project which may include cable television (see below), he says the mid-split system in Laredo has taught the utility a great deal about return path dynamics.
Once the system is installed, customers use a Raytheon energy control unit, which is about the size of a battery-operated video game and can be plugged in anywhere in the home. Morrow says CSW worked closely with Raytheon to refine the design of this unit which took its cue from the ubiquitous ATM machines. While many people may still have trouble programming their VCRs, he notes the bulk of the population can go to an ATM and in 20 seconds get all the money their account will allow.
"We did a lot of focus groups in the design of the interface," explains Morrow. "We put a unit in front of them and said, `Make this room hotter.' And if they hit the wrong key consistently, next time we did a focus group, that was now the `right' key. That's what made sense to them."
With unit in hand, consumers take control of their energy consumption. A sliding kilowatt-hour (kwh) price scale has been established that varies with the overall demand on the utility's capacity. Conventional rates average out to about eight cents per kwh. In the CCC trial, the lowest price is 5.5 cents per kwh during off-peak hours, while the most expensive rate is 35 cents per kwh at peak periods, for example, between 4 p.m. and 5 p.m. weekdays.
The pricing schedule, notes Morrow, was not set arbitrarily by the utility. Focus groups were also used here. Surprisingly, focus group participants picked the most aggressive schedule with the highest prices during peak hours, because, says Morrow, it also offered the lowest prices during off-peak hours.
With the energy control unit, consumers can pre-program various appliances (AC, water heater, etc.) to shut down or scale back operations during peak hours. And the consumer always has the option to override the system by pressing just a few buttons. The unit, which offers both English and Spanish displays, can also be used to control water heater temperature, put appliances on a vacation setting and allows customers to monitor electricity rates and their bill at any time. Future services include bill payment from the home, additional appliance monitoring capabilities, and home security and Internet access (via Zenith modems). The CCC service is also being expanded to commercial customers as well.
CSW's success in Laredo has served them well. Recently, Austin, Texas city officials gave CSW the nod of approval (from a field of six competitors) and are now negotiating the building of a city-wide, fiber-optic network for more than $150 million in private funds. The proposed network would eventually provide energy management services for the 298,000 customers served by the municipally-owned power company, as well as cable, telephone and high-speed data communications. In fact, it was reported the company was already negotiating with cable and telephone companies at "the senior (executive) level" about using the network to deliver competitive services.
In anticipation of this and other future projects, CSW was the first company to file for (reportedly within five hours of its passage) and receive its designation as an "exempt telecommunications company" under the new Telecommunications Act.
Once the Laredo trial is completed, CSW has plans to take its system national. And that doesn't mean just to utility companies. Morrow reports the company "is in negotiations now where we would work with the local cable company" and is testing the system on a fixed wireless platform as well.
Lester Larsen, TCI's consultant on the Walnut Creek project, believes alliances that bring cable's "entrepreneurial, innovative, very aggressive (and) specially marketing focused" approach together with utility resources is a win-win situation for everyone.
"It's very important for cable companies to consider these types of alliances," says Larsen, "because of the revenue potential and the potential value of strategic relationships with utilities. There are several areas that are of interest for mutual discussion, areas such as powering. The needs of cable companies are going to increase substantially for basic powering. Areas like rights-of-way, those are negotiable issues. Areas like joint marketing. The potential of attracting new subscribers through packaging. The whole concept of the one-stop-shop now involves energy."