What's so smart about smart metering?

Victor Richey, chairman, CEO and president of St. Louis, Mo.-based ESCO Technologies (NYSE: ESE) knows about smart technology.

His company, a diversified manufacturer that focuses on filtration and fluid flow, communications, and testing equipment, makes hardware and software to support advanced metering applications.

ESCO Technologies is in the middle of a wave of interest from utilities in building smart grids which can better monitor for power outages, provide accurate, up to date meter readings, and even control demand response systems.

The company boosted its smart grid offerings earlier this month when it closed its $319 million acquisition of Watertown, Mass.-based Doble Engineering, which makes diagnostic test solutions for the electric utility industry.

But ESCO isn't the only company making deals.

In October, Columbus, Ohio-based American Electric Power (NYSE: AEP) announced that it would work with Atlanta's GE Energy to develop, integrate and deploy an advanced energy delivery infrastructure and metering technologies (see AEP, GE Energy to work on smart meters).

That same month, East Hanover, N.J., energy management solutions provider Comverge (Nasdaq: COMV) acquired Englewood, N.J.'s Public Energy Solutions, a provider of energy efficiency products and services to electric utilities, for $13.4 million (check out Comverge buys Public Energy Solutions for $13.4M).

And Boston-based EnerNOC (Nasdaq: ENOC) expanded a deal to provide demand response services to Southern California Edison (AMEX: SCEDM), boosting EnerNOC's responsibilities up to 160 megawatts, up from 40 MW (read EnerNOC in 5 year deal with Southern California Edison).

ESCO Technologies' Victor Richey

In an interview, Richey, who started his career with ESCO in 1985, talks about smart grid technology, and why utilities are so keen on the new systems.

In your opinion, what is driving the growing interest in Advanced Metering Infrastructure (AMI)?

Several factors have combined to raise utility and regulatory interest in these topics. The consensus is now stronger than ever for industry wide deployment of AMI as the electric industry leaders announced at the recent EEI annual meeting. The Energy Policy Act of 2005 required each State regulatory authority to look at AMI. Legislation and regulatory rulings favorable to AMI at both the federal and state levels, and in Europe and Australia are announced daily.

A key driver for this consensus is public policy interest in improving the cost-responsiveness of consumer behavior. Meter systems are needed to provide the hourly cash registers for time-based pricing, which conservatively delivers $25 to $100 resource benefit per meter per year. Compared to other resource options, this is the clear winner: cheaper, cleaner, quicker, and safer.

We are seeing growing evidence that customers can, and will, respond to time varying pricing and that once they experience these prices many customers will prefer them to standard pricing options.

There has also been a near universal acceptance that demand response is essential to mitigating market power and price volatility in competitive wholesale markets. This can reduce the need for new generation capacity, improve reliability, and address climate concerns.

With the decreasing costs associated with AMI deployment and the growing recognition of the operational benefits that utilities can achieve when AMI is effectively integrated into utility operations, the utility marketplace is beginning to recognize the advantages that AMI technologies have to offer.

Improved outage detection, restoration, and management also represent a potentially large benefit stream. AMI systems with two-way communications can be used to “ping” a meter when the system detects an outage or when a customer calls regarding an outage to determine whether or not the outage is on the customer's side of the meter, thereby avoiding a field crew dispatch. In the case of storm related outages, crews can be dispatched to the outage location or site of the problem as opposed to searching for the problem.

The combination of efficiency and demand response, operational benefits, improved outage detection and management, improvements in transmission and distribution planning, and cost savings and improvements in customer service and billing are all tangible benefits that ESCO Technologies is bringing to the industry.

The above speaks to activity in North America. What, if any, insight can ESCO provide with relation to the global market space?

Well, much like the North American market, European (in general) and Australian utilities are seeing legislation and regulatory rulings that support deployment of AMI systems.

In developing markets there is more of a push towards AMR to account for non-technical losses and to improve cash collections. Features such as prepayment, tamper detection and remote disconnect are driving forces. As utilities consider the value that an AMR system offers, it is a natural extension to consider the added benefits that a more advanced AMI system will provide with two-way communication capabilities.

The term Advanced Metering Infrastructure is commonly used in the industry, but is often described in different fashions. How does ESCO define AMI?

Automated Meter Reading (AMR) is primarily focused on replacing manually read meter operations. AMI includes not only automated meter reading at a frequency of hourly or less, but also promises a communications network between advanced meters and utility business systems that allows collection and distribution of information to customers, the utility itself, and other parties. It brings together elements of a meter network where data is accessible for direct customer use, as a data source for home or business displays, or “smart” thermostats, controls, and appliances.

As a supplier of AMI products, ESCO offers meter-to-head-end system components, displays and control devices, and meter data management software with analytics to make data meaningful. Meaningful data is required to support utility business processes and to help a utility's customers manage their energy usage and costs. All of this, together, is an AMI solution that achieves the targeted results.

While the term AMI is widely accepted to include the provision of operational benefits and customer information, there are nuances to the term that various regulatory and industry trade organizations have applied in an attempt to provide better definition. For example, concepts on AMI have been articulated through the Federal Energy Regulatory Commissions (FERC), the Demand Response and Advanced Metering Coalition (DRAM), and the California Public Utilities Commission (CPUC).

Through these collective interpretations, we have noted that the term AMI typically involves utilities having the ability to record at least hourly customer consumption and other usage measures, to have that data communicated to a central collection point, and to support two-way communication. In addition to meter data, this type of configuration should be able to offer outage detection, remote connect-disconnect, and power quality or grid monitoring capabilities. It is important that an AMI system support implementation of rate options, critical peak pricing, and hourly pricing for all customers. Customers should have access to personal energy usage data, be provided with education and energy management information, customized billing, and receive improved complaint resolution.

Most recently, the concept of AMI has been expanded to specifically focus on the degree of "openness" of the system architecture. Open architecture, while not yet a released standard, is now recognized as a critical trait in truly advanced metering infrastructure architecture.

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