The Infosys Utilities Blog seeks to discuss and answer the industry’s burning Smart Grid questions through the commentary of the industry’s leading Smart Grid and Sustainability experts. This blogging community offers a rich source of fresh new ideas on the planning, design and implementation of solutions for the utility industry of tomorrow.

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April 26, 2019

Utility Regulation: some considerations for the future

Utility regulation is generally complex, no matter where in the world it exists. By nature utilities tend to be a monopoly in the areas they serve, as there is generally only one utility connection of each type (water, electricity, gas, telecom) serving a property. Governments are rightly concerned that customers receive good service and value for money, however does the regulation need to be complex, and are there issues that are not being addressed through regulation?
 
Utility regulation is commonly split into two areas, the first being customer service. Various qualitative and quantative measure are used here. For quantative measures, time of response to queries, and the avoidance of repeat queries, are generally used. Qualitative measures are based on some form of structured survey of customers who have contacted the utility. Companies are then ranked against each other, and in some cases these rankings used as incentive mechanisms (i.e. the top ranked gains incentives, the bottom ranked loses incentives).
 
The second area is investment. This covers new or replacement assets (capital expenditure, or CAPEX), and maintenance of existing assets (operational expenditure, or OPEX). Sometimes these are combined in net present value (NPV) or similar calculations to give 'benefit over time' values (total expenditure, or TOTEX). Recently there has been a focus on base operating expenditure (or BOTEX), however this is really a subset of OPEX. Regulators ask utilities to prepare business plans for future investment over a period, scaling risks (e.g. asset failures), issues (e.g. population growth, climate change) and opportunities (e.g. improved quality) against expenditure options. After some discussion between regulators, the utility, customer bodies, other regulators and government (local and/or national), a business plan is agreed for the particular period. The utility is then measured against this plan by the regulator.
 
However is this overly complex? Whilst the customer measures are simple, in reality most customers regard a utility as a 'fit and forget' service. As long as clean water comes out of the taps, the toilets flush, the lights come on and the gas flows, then they are happy, subject to them paying what they regard as a fair price. The prime focus should therefore be on providing a reliable and safe service. Reliability of service forms part of regulation in some cases, but not all. In terms of investment, the main factors that affect cost are the distance to provide the service and the number of units provided. So for each customer, the more units provided and the further this has to travel, the more that service will cost. There is therefore a curve that can be drawn against units and distance per customer, with companies below the average curve performing more efficiently.
 
All of the above mechanisms do miss a key issue, and that is ageing assets, an area largely not addressed by current regulation. Many utility assets are old, and replacement cycles very long. For example there are electricity cables over 75 years old, and water mains and sewers over 150 years old. Current replacement rates mean that water mains would only be totally replaced after 150-200 years, and sewers 400-600 years. The replacement cycles for electricity and gas are similarly long, with transformers often only replaced after 80 years. Are such timescales realistic, or are we building up problems for the future? A good measure for any utility would therefore be the 'residual life of assets'. Across their asset base this 'residual', or time before failure, should at least be maintained, or ideally improved, so that burden is not placed on future generations. However more research is needed on rate and probability of failure, so realistic asset life for each type of asset can be determined. There has been some work in this area (such as condition based risk management and pipeline integrity management), and modern tools such as AI and Computer Vision may be a great help in such research and analysis.
 
So is current regulation fit for the future? I would argue that we need to both simplify measures with regard to customer service and investment, as well as building new measures to ensure that the utility is looking after their assets for future generations. We need to address these issues very soon, otherwise we may find that we are increasingly chasing asset failures. Fixing things before they break is generally much cheaper, and avoids a lot of pain for us all.

July 20, 2017

Utility Procurement - a New Vision

Innovation is part of the 'DNA' of Infosys, and we are always being asked to innovate by our clients. All too often however the procurement process constrains our ability to offer that innovation. The deliverables are given strict bounds, and we are only able to offer specific solutions. For example, the need may be for improvements in asset management, but the tender constrained to configuring and installing a particular software package. Whilst in a few cases that may be due to a poor procurement strategy, in most cases it is due to the constraints, both regulatory and corporate, that control how procurement can be undertaken.


Does it have to be this way? I believe that clients could procure in an innovative way, that allows their suppliers to show their ability to offer novel ways to solve problems. The process could be two stages, the first a simple pre-qualification exercise to determine a shortlist (as is currently undertaken), the second to deliver an outline design of the solution, where the client pays a small fee to the tenderers to get into far more detail than current tenders allow. This will enable the supplier to demonstrate their ability to deliver innovation, and the client to both understand that ability, and know how the supplier performs in a work situation. Such a process would enable to client to tackle much larger issues than generally covered in a tender, and indeed a few utility clients are already using a more agile approach. I will demonstrate with an example in asset management.


This example tender could be phrased "Devise a solution that will deliver an x% reduction in asset management costs, whilst producing a y% improvement in performance, without increasing overheads." In the pre-qualification, tenderers would need to demonstrate experience in such areas (although not necessarily in the same industry), and provide good and pertinent references: this would allow the client to shortlist. Tenderers could also consider partners to add to their bid, for example instrumentation suppliers and installers. In the tender, the client would allow a certain sum for each tenderer to produce their innovative solution, with sufficient access to client staff to determine constraints, both technological and business. This phase would of course need to be undertaken under non-disclosure agreements to protect all parties. Once the 'tender' is completed, the client would be able to select a supplier with a much greater understanding of that supplier's ability to innovate in a way that will benefit their business.


Whilst this system may seem strange to some in utility procurement, it is similar to those employed in areas like architecture, that have allowed buildings such as the Sydney Opera House to be developed. Do we want our future to be full of bland boxes, or Guggenheims?

March 14, 2017

The Security trap

Security in IT is very important. Unauthorised access to confidential information can cause major disruption to companies, and to individuals lives. Some disruption can have life changing impacts to finance and reputation. Even 'lesser' security issues, such as viruses, can cause massive damage to company systems. Breaches to Operational Technology (OT) systems (such as SCADA) in utilities could cause countrywide failures, and put lives at risk. IT security is therefore quite rightly taken very seriously by governments, organisations and individuals.


However IT security is just one amongst the many risks we all face on a daily basis. Even a major breach of a utility OT system would not have the impact of an atomic bomb, and yet the world managed to increase overall wealth, and made great strides to reduce poverty, throughout the Cold War, under the threat of mutually assured destruction. IT security is therefore just another risk that we all have to manage.


Unfortunately in too many organisations IT security is used as a reason not to implement technological improvements. For example, video conferencing between computers, and even mobile devices, is something many of us use regularly, however video conferencing between organisations is very rare, generally because of 'IT security' concerns. Sharing of information is frequently blocked, and yet shared information often increases knowledge and opportunity for all of the participating organisations. For example, Transport for London (TfL) made most of the information for its transport systems (e.g. timetables) publically available: there are now a plethora of 'apps' to help travellers plan their journeys, all of which have been produced at no expense to TfL, and increase customer satisfaction.


I believe it is a duty of those of us in the IT world to ensure that IT security is managed appropriately, and not used as an excuse to block the business and personal benefits that our innovative technology can bring. Like any other risk it should be managed appropriately and balanced against the benefits. We cannot let the few who would wish to take advantage of us through IT security breaches constrain our future.

May 22, 2013

UK Parliament All Party Parliamentary Water Group Innovation event May 2013

Yesterday I went to the UK Government All Party Parliamentary Water Group evening meeting on securing sustainable water resources for the future. This short event was chaired by Nia Griffith, Member of Parliament for Llanelli, with talks by Dr Dan Osborn, NERC (National Environment Research Council) and RCUK (Research Councils UK) lead at Living with Environmental Change and Chris Phillips, Chief Marketing Officer, i2O Water.

Dr Osborn talked about the World Economic Forum identifying water supply crises as one of the largest global risks, thus with many new challenges and markets appearing: this from a global market of £500 billion, and about £120 trillion in assets. UK research bodies had budgets of £120 million in this area, with for example Councils spending £13 million on drought research.

Mr Phillips described the world wide success i2O were achieving with their innovative pressure management solution and their close links to research (they are based in Southampton Science Park). He felt that, if properly established, UK water industry competition could lead to a boost in research funding.

A number of interesting discussions were then held. A large number felt that the cyclic, and sometimes short term, nature of work in the UK water industry made innovation difficult for the supply chain, as with tight margins and fluctuating workloads such investment was not feasible. Many felt that the UK needed to increase innovation, and learn from other countries, however generally it was perceived that UK expertise was still valued. Others highlighted the achievements of SMEs in the world water market, indeed UK SMEs, as well as contractors and consultants, were quite successful in the other countries. One gap identified was that the UK was not always as successful in turning research into effective solutions for the market, and more government and industry support was needed in this area. The only negative note was when Nia Griffiths asked if anyone from the utility companies had any comments: no-one from a utility had attended the event!

The official event concluded promptly as Nia Griffiths had to vote, however informal discussion carried on for some time. Overall I found the event very helpful, and believe such meetings should be encouraged in the industry.