managed business services for smart metering

8/6/2019 Managed Business Services for Smart Metering

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Energy, Utilities & Chemicals the way we see it

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Managed Business Servicesfor Smart Metering

Add Value Faster by Removing the Complexity of

Managing Multiple Vendors


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Utilities apply classic economic incentivemechanisms to smart meter programs to

influence vendor and supplier behaviors.These include a number of positive andnegative incentives such as performancebonuses, milestone incentives, rate cards,bonds, and termination conditions. Thechallenge lies in attempting to align andmanage these incentives across a networkof vendors and suppliers and remove theasymmetric information issue. Thesignificant size and complexity of theseprograms have forced utilities to shiftattention away from their corecompetency of electricity delivery to

managing legal and commercialframeworks needed to align incentives.Today, it is commonplace for a utility tohave a dedicated full time commercialteam assigned to a smart meter program.

A Managed Business Service approach tosmart metering is an option that improvesthe Principal-Agent problem for a utility.It shifts the burden of managing inherentasymmetric information conditions acrossmultiple vendors to a single primary

service provider, allowing the utility torefocus on its core competency ofdelivering electricity. Outcomes areoptimized by reducing multi vendorcomplexity to a single contract betweenthe utility and primary service providerthat is directly based on overall businessperformance and objectives. Managingmultiple vendors and suppliers is theresponsibility of the service provider,which has expertise and experience withthis model.

Introduction

High costs, rapidly changing

technologies, and shifting energymarket dynamics continue to impactSmart Meter programs and challengeconventional business models used byutilities to implement and manage theseprograms. Traditional accounting andregulatory rules that govern theseprograms have limited the commercialand delivery options available toutilities, constraining their ability tofully optimize quality of service, costsand benefits. The typical capital centricgovernance models used for these

programs, whereby the utility acts asthe commercial and delivery principalmanaging multiple vendor agents,results in sub optimal quality of service,inflated costs to ratepayers andlengthened timelines for implementations.These inefficiencies in achieving aprograms goals and the limitedcapacity for a utility to manageeffectively under these conditionsreflect the classical economic model ofPrincipal-Agent problem.

Standard Principal-Agent theorystates that a Principal will hire one ormore Agents to achieve an outcomethat it either cant achieve on its own orcant maximize without support fromAgents. The challenge with operatingunder this model is that the selfinterests of all parties are never fullyaligned and a Principal never has fullvisibility into an Agents self interests,creating a condition of asymmetricinformation. In order to align Agent

interests to its goals and optimizeperformance, a Principal must developincentive mechanisms that willinfluence Agent behavior.


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Managed Business Services or Smart Metering Add Value Faster by Removing the Complexity o Managing Multiple Vendors 3

What Is MBS?

Large scale smart meter programs andtheir subsequent support operationsrequire a complex network of stakeholdersto implement and manage. The traditionalhierarchical commercial and deliverymodels employed by utilities to govern

these programs carry structural risks thatprioritize efforts on cost, stakeholder andschedule management. Although theseprograms represent fundamental businesstransformations to a utility, the resultingprincipal agent relationships applied tothese complex programs do not inherentlymaximize service and value creation, nordo they align the rational choices of theagents (Vendors) to the key principal(The Utility).

A smart meter managed business service

transforms a utilitys meter to cashlifecycle into a series of services measuredagainst business based goals. A utility canfocus on service and value creationthrough a shared governance model thatshifts and shares risks with a service

partner. Costs become predictablethrough unit based pricing models overfixed contract periods. The serviceprovider is responsible for sourcing,installing, operating and refreshing thesmart meter infrastructure and systems,thereby minimizing upfront investments

and technology risks to the utility.

On average, an end to end smart meterprogram can require five to ten vendorscovering various services and productsincluding meter operations, systemsintegration, telecommunications, fieldservices, and meter infrastructure. Underthis scenario an experienced serviceprovider has clear advantages over autility. The service provider will havelong term relationships with vendorsacross multiple smart meter and utility

programs in various geographies. Thisexperience, intimacy and ability to re-usecommon work products and processesacross programs results in superiorprogram and operational performance.

Figure 1 : Traditional AMI Program Delivery

Utility

Other

Utilities

Field

Service

Vendor

Telecom

Vendor

Meter

Vendor

EndUse

Customers

RegulatorITVendor

Systems

Integrator

Internal

Transition

Ongoing

Meter

Operations

Service Flow

Data Flow

Cash Flow

Electricity Usage


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Services can be defined as discreettransactions, allowing the utility toenable them as needed. This flexibilityprovides better alignment to long termsmart meter, smart grid and customerservice strategies. The utility only needsto invest in necessary services needed atany point in time.

The most effective managed businessservice models mutualize or share

common processes, technologies andoperating models across utilities througha shared service model. Mutualizationresults in lower service costs, alignment toindustry standards, and standardization oftechnologies & processes. This benefit isparticularly important to small andmidsized utilities that face challengesin launching smart meter programs

because of the significant upfrontfixed cost requirements.

Figure 2 : The MBS Governance Model

MBS Provider

Meter

Operations

Systems

Integrator

Telecom

Vendor

Field Service

Vendor

Meter

Vendor

Utility

End UseCustomers

Figure 3 : The MBS Delivery Approach

Service Flow

Data Flow

Cash Flow

Electricity Usage

EndUse

Customer

Sub-Vendor Sub-Ve

ndor

Utility#1 Utility#2

EndUse

Customer

ManagedBusin

essService


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Additional Benefits of an MBS

A MBS approach can improve the valueof a smart meter business case by better

linking a programs costs to its businessbenefits. A utility and service providerwill share the commercial and deliveryrisks through a common single set ofbusiness based service requirements. Fora utility, the result is a tight coupling ofits service provider to program objectivesand results that would otherwise be achallenge to achieve.

For example, some of the mostcommon objectives for smart meter

programs include improved energyconservation and efficiency, improvedcustomer service, reduced operating

costs, and improved revenue protection.Each of these objectives is measureddifferently by different vendors. Havingsingle common view of these objectiveshas a major impact on the successfuloutcome of a program.

In addition to the direct benefits outlined inthe Principal-Agent model, a smart metermanaged business service model can:

Beneft Detail

Increase speed to value Mutualization o common tools, technologies,

processes and operational unctions

Acquire and retain industry leading

experience and expertise

Industry demand or experienced resources is

growing aster than the available resource base. A

utilitys ability to attract and retain employees is a

signicant and real challenge.

Increase purchasing power by leveraging

economies o scale

Economies o scale gained through multiple utilities

sharing common service platorms improves

purchasing power and makes available cheaper asset

prices not typically available to smaller utilities.

Improve fexibility or the introduction o

uture state or enhanced servicesUtilities can reocus on their core competency with

more attention ocused on innovation.

A MBS can infuence technology roadmaps and uture

state unctionality o products and equipment.


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Risk Mitigation

Utilities that self manage theimplementation and operation of smartmeter programs ultimately incur thesole burden of managing and mitigatingrelevant delivery and commercial risks.Traditional governance models used forsmart meter programs are hierarchical,placing final responsibility on a utility,not the prime contractor.

A managed business service providesutilities with an opportunity to sharerisks with a service provider under amore balanced governance model thatshares responsibilities across bothparties. The utility and its serviceprovider assume equal responsibilitiesto manage and mitigate delivery,commercial and strategic risks.

Under a managed business servicemodel, a utility gains a number ofdelivery, commercial and strategic risk

mitigation elements. Key risk mitigationfactors include:

Deliveryn Experienced people and access to

difficult to find experiencen Standardized and proven solutions,

architectures, support operations andbusiness processes

n Support provided by an establishednetwork of technology andequipment suppliers

Commercialn Business based service measures

linked to business outcomes withrisk/reward mechanisms

n Cost certainty through predictablepricing models

n Simplified commercial environmentwith a single prime contractor

Strategicn Technology currencyn

Alignment to regulatory andlegislative changesn Relevancy to global industry

business methods

Applying traditional delivery andcommercial approaches to large scalesmart meter programs result in inflatedcosts and a limited ability to make midstream changes once a program isunderway. Utilities are forced to spendlong lead times in planning programsbefore an actual kick off, and build

multiple layers of time, resource andcost contingencies into their programs.A managed business service approachprovides a more flexible structurewhere ideas can be tested and replacedwith much lower investments of time,resources or money.

Figure 4 : Traditional vs. MBS Benefits

TIME

Traditional AMI Project

BusinessBenefit

Value Of MBS

MBS Approach


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Conclusion

As stated earlier the MBS approach tosmart meter programs strengthens the

principal agent bond by better linkingcontracts to anticipated businessbenefits and creating principal agentrelationships and sub relationships thatbest align to the desires to the overallobjects of the utility. A smart meterservice provider is in a better positionto create a stronger Principal-Agentrelationship with sub-vendorscompared to a utility. Globally, MBSapproaches to smart meter programsare rapidly growing with manyjurisdictions purposely developing

market conditions for MBS successbecause of the proven improvements toprogram objectives, costs and value toboth the utility and its customers.

By recognizing the significant businesstransformation triggered by smart meterprograms, a utility opting for a MBS

approach gains the flexibility to morebroadly share risk, reduce costs, andaccelerate the realization of businessvalues. The MBS model reduces theconstraints of the Principal-Agentproblem allowing utilities to focus ontheir core business of providing reliableelectricity to its customers.


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Copyright 2011 Capgemini. All rights reserved.

www.capgemini.com/smartenergy

Michael [email protected]

William [email protected]

Smart Energy ServicesExperience Reduces Risk

Capgeminis Smart Energy Services is helping over 43 million utility customersworldwide with 30 Smart Meter and Smart Grid programs. Our team has extensiveutilities industry experience with an unequaled track record for successful innovationand delivery. We support utilities and their customers by delivering sustainable energyefficiency and environmental solutionstransforming utility operations and customerfulfillment. Our commitment is strong with more than 7,000 professionals dedicated to

the utility sector. More information is available at www.capgemini.com/smartenergy

With 112,000 people in40 countries, Capgemini is

one of the worlds foremost providers ofconsulting, technology and outsourcingservices. The Group reported 2010global revenues of EUR 8.7 billion.

Together with its clients, Capgeminicreates and delivers business andtechnology solutions that fit their needs

and drive the results they want.

A deeply multicultural organization,Capgemini has developed its own wayof working, the Collaborative BusinessExperience, and draws on

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With EUR 915 million revenue in 2010and 12,000 dedicated consultantsengaged in Energy, Utilities andChemicals projects across Europe,North America and Asia Pacific,Capgeminis Energy, Utilities &Chemicals Global Sector serves the

business consulting and informationtechnology needs of many of the worldslargest players of this industry.

More information is available atwww.capgemini.com/smartenergy

About Capgemini and the

Collaborative Business Experience

managed business services for smart metering

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