So, what is the

SMART GRID?

THE “LEGACY” UTILITY GRID

Consists Of: ! Generation ! Transmission ! Distribution ! Metering

Electric Utility Technology …has not changed significantly in 100+ years

SMART GRID is the Industry’s attempt to MODERNIZE

BASIC SMART GRID COMPONENTS

Communications Infrastructure ! Connecting electrical delivery assets

! Advanced Metering Infrastructure (AMI) ! Transmission, Distribution and Generation

Enhanced Computing Systems ! Enhanced Supervisory, Control and Data Acquisition (SCADA)

! Monitoring and controlling generation, transmission & distribution ! Meter Data Management (MDM) ! Billing & customer management systems

GRID MODERNIZATION: “SMART GRID”

Enhanced Computing

Systems

Communications Infrastructure

THE SMART GRID VISION AND PROMISE

Improved Efficiency ! Better control and automation means ! Less energy lost due to inefficiencies ! Faster detection of problems

Better Customer Services ! Advanced meters ! Provide real time usage information to customers ! Remote meter reading connect/disconnect ! Extend services into the home via a Home Area Network (HAN)

Support Increased Renewable & Distributed Generation It is YET TO BE DETERMINED whether the

Smart Grid will Deliver on these promises

Later…

More on that

have in common with the

INTERNET

… So what does the

SMART GRID?

THE UTILITY GRID & INTERNET SHARE A COMMON HISTORY

Railroads ! Established transcontinental rights of way

Telegraph ! Leveraged railway rights of way

“LEGACY” UTILITIES Telecom ! Leveraged railway/telegraph rights of way ! Extended a “web” into communities ! Delivering services to homes & businesses

Electric Utility Grid ! Embraced the Telecom model

A WORD: ABOUT THE VERTICALLY INTEGRATED BUSINESS MODEL

These businesses adopted a 19th century Vertically Integrated model: ! They owned the distribution infrastructure ! They owned the services being delivered ! They “owned” the customer

The Utilities naturally evolved into MONOPOLIES And became subject to Government Regulation

THE WIRELESS “REVOLUTION” Broadcast TV & Radio

The First Challenge To The 19th Century Model ! Wireless lacked dependency on rights of way established by railways ! Airwaves became the first “shared” communications infrastructure ! Requiring government regulation to coordinate usage of wireless spectrum

! CONTENT became the service being delivered HOWEVER ! Broadcasters still owned content delivered over their “networks” ! Cable TV filled service gaps re-establishing the legacy Utility model

MEANWHILE THE PRE-INTERNET COMPUTING INDUSTRY WAS EVOLVING

Computing resources were centralized ! Centrally managed mainframes ! Proprietary systems ! Point to point, proprietary computer networks

Large computer companies provided a complete solution

Adopting the same 19th Century, Vertically Integrated Business Model used by Utilities

THE INTERNET DISRUPTION

The Internet Protocol standard was established in 1982 ! Enabled disparate private & public networks to interconnect or “peer” ! Established public standards bodies to insure interoperability ! The WWW emerged in the early 1990s

It enabled distributed and disruptive business models ! Threatened Vertically Integrated utilities and businesses ! Created entirely new models for delivery of services and content

Best Of All

It Empowered The Customer and Enabled Innovation

INTERNET REMAINS A THREAT

Powered by massive speculative investment ! Well funded Start-Ups continue to establish new business models

Internet threat to broadcast & entertainment industries ! De-centralizes the ownership & distribution of content ! Enables direct relationship between consumers & content creators

Internet threat to telecom & cable industries ! Offering cost, feature rich, competitive services

THE COMMON INTERNET THREAT TO LEGACY PROVIDERS & UTILITIES: LOSS OF DIRECT RELATIONSHP WITH THE CUSTOMER

Have to do with the

INTERNET

… So AGAIN. What does the

SMART GRID?

THREATS TO THE ELECTRIC UTILITY INDUSTRY

De-Regulation ! Utility ceases to own the customer

Distributed Generation ! Poses technical challenges

Behind the meter independence ! Micro Grid ! Onsite generation

UTILITIES FACE A SIMILAR “INTERNET LIKE” THREAT:

LOSS OF DIRECT RELATIONSHIP WITH THE CUSTOMER

THE DOUBLE EDGED SMART GRID SWORD

As with the Internet, an Unspoken conflict exists between investment community and the legacy business models:

Utility Objectives ! Retain control of customer ! Manage uncertainties as industry evolves ! Reduce overhead costs and increase margins

Start-up Investor Objectives ! Establish new businesses & technologies behind the meter ! Exploit Utilities inability expand into new energy services

Venture Funded Start-ups Seek to Create “Internet

Like” Disruptions on Smart Grid NOT NECESSARILY IN A UTILITIES BEST INTEREST

THE HOME AREA NETWORK

SMART GRID PROMISES TO EXTEND CONTROLS INTO THE HOME

HOME AREA NETWORK BATTLEGROUND Smart Meter Networks are inadequate ! Equivalent to a paging network ! Cannot offer services competitive to the Internet

Most HAN businesses are venture funded start-ups ! Establishing disruptive business models that exploit Smart Grid

Home Automation Industry is a mess ! Residential energy management doesn’t justify its own network

Cyber Security Issues Abound ! Consumer threatened by Utility invasion of privacy ! Connecting HAN to Smart Grid is a HUGE SECUIRTY RISK to Utilities!

IT IS EXTREMELY UNLIKELY THAT THE UTILITY HAN WILL DELIVER ON ITS VISION

IT BEGS THE QUESTION…

What does the Smart Grid want with my toaster?

CONSUMER CONCERNS ABOUT PRIVACY

…PALE IN COMPARISON TO THE RISK TAKEN BY UTILITIES BY EXTENDING SMART GRID INTO A HOME AREA NETWORK!

OTHER SMART GRID CHALLENGES Smart Grid enhancements on distribution infrastructure ! Regulators have begun to scrutinize value and ROI

Commercial & Industrial Customer Sophistication ! Far exceed utility Smart Grid today ! Beginning to deploy onsite generation to offset or even replace grid

Lack of Common Smart Grid Communications Standard ! No Internet Protocol equivalent for connecting disparate infrastructure

SMART GRID TODAY IS IN ITS INFANCY ITS AT THE EQUIVALENT STAGE AS THE PRE-INTERNET ENTERPRISE

CLIENT/SERVER (CRM)

DISTRIBUTED (SCM)

INTERNET (SAAS)

MAINFRAME (ERP)

CLOSED/PROPERITARY OPEN/COMMON LANGUAGE

1ST GENERATION

2ND GENERATION

3RD GENERATION

TODAY

PROCESS/B. OFFICE EMPLOYEE/F. OFFICE SUPPLIERS CONSTITUENCIES

HISTORY OF ENTERPRISE SYSTEMS

STOVEPIPE

INTEGRATED

RESOURCES

RELATIONSHIPS

CLIENT/SERVER (BSS)

DISTRIBUTED (SMART-GRID)

INTERNET (MICROGRID)

MAINFRAME (OSS)

CLOSED/PROPERITARY OPEN/COMMON LANGUAGE

1ST GENERATION

2ND GENERATION

3RD GENERATION

?????

UTILITIES UTILITIES CONSTITUANCIES

HISTORY OF UTILITIES SYSTEMS

UTILITIES

TODAY’S MARKET

REACTIVE

PROACTIVE

STOVEPIPE

INTEGRATED

A DIFFERENT VISION OF THE SMART GRID Disruptive Businesses Will Continue to Threaten Utilities ! Distributed Generation & District Energy

!  Replacing remote generation & long haul transmission

! Management of “on site” & customer owned generation facilities

Home Area Network Bubble ! Questionable return on investment ! Consumer privacy concerns prevent it from “going viral” ! Security challenges will significantly restrict deployments

!  Likely limited to one way meter data and alerts

! Internet based services over existing consumer LAN will prevail

ITS INEVITABLE THAT THE UTILITIES RELATIONSHIP WITH THE CUSTOMER WILL CHANGE!

RECOMMENDATIONS FOR SMART GRID SUCCESS " Embrace Trend To Move Generation Closer to the Load • Partnerships with larger energy customers • District Energy For Residential

" Execute a practical modernization strategy • Modernize delivery & distribution infrastructure

" Leverage Existing Internet Protocol Standards • Creating new standards will take a decade or more

PRACTICAL MODERNIZATION AS OPPOSED TO SMART GRID HYPE

IN THE END…

NOT A TECHNOLOGY

SMART GRID IS A BUSINESS STRATEGY