Despite significant hype, most of the benefits of a digital grid thus far have been reserved for utilities themselves, instead of consumers and business customers. However, the authors argue, it's only a matter of time.

1. ONLINE AUGUST 12, 2013
strategy+business
Waiting for the Digital
Electrical Grid
Why haven’t utilities made more progress?
BY EARL SIMPKINS, JOSH STILLMAN, AND DON DAWSON

2. www.strategy-business.com
1
You’ve probably heard that digital technologies are
revolutionizing electrical systems across the coun-
try, promising new services and lower prices for
customers. Your local utility may have installed a “smart
meter” at your house. And maybe the power company is
sending you monthly notices comparing your electricity
consumption to that of your neighbors.
But unless you work for an electric utility, you
probably haven’t seen many, or any, concrete benefits
from the smart grid. Your bills haven’t come down,
power outages haven’t decreased, and nobody’s offering
you any of those innovative services—like home
automation—that the digital grid is supposed to spawn.
What happened? Many in the utility industry won-
der if the hype around digital grid technology outpaced
individual utilities’ ability to deliver, or got ahead of reg-
ulatory willpower to support the needed investments
(through rate hikes). The first wave of smart-meter
installations fueled expectations that falling rates and
amazing new services would soon follow for businesses
and consumers alike.
Those expectations haven’t been met. So far, the
main beneficiaries of the technology have been utilities.
Automated metering infrastructure, where implement-
ed, has made power companies more efficient, but those
savings for utilities haven’t translated into significant
reductions in customers’ bills.
The lack of obvious customer benefits opened the
door to a range of concerns, mostly unfounded, about
the health effects, costs, and privacy implications of
automated metering. Consumer backlash ensued, slow-
ing smart-meter deployment in some states and under-
mining utilities’ messages about the consumer benefits
of the digital electric grid.
The truth is that customers won’t see meaningful
benefits until utilities fully digitize and integrate their
infrastructure. Notwithstanding the hoopla, smart
meters are only a starting point. A genuinely smart grid
requires a panoply of new hardware and software
throughout the power distribution network, where the
real benefits of the digital grid will be realized.
Utilities have only begun to install these network
components. Full rollouts of digital grid technology will
take several years. The pace will vary from state to state
and utility to utility. Different benefits will materialize at
different times for different customers, based on the type
and timing of the technology deployed. To further com-
plicate matters, the technology is still evolving as new
systems, devices, and vendors offer integrated solutions.
Much will depend on each utility’s inclination and
ability to make the necessary investments. Industry
studies suggest that full digitization of the entire U.S.
electrical grid could cost between US$338 billion and
$476 billion, many times the estimated $8 billion
Waiting for the Digital Electrical Grid
Why haven’t utilities made more progress?
by Earl Simpkins, Josh Stillman, and Don Dawson

3. invested in digital technologies so far. Bigger utilities are
likely to move faster and invest more than smaller ones,
because the investments represent a significant portion
of any utility’s balance sheet and equity. In most cases,
the pace of investment must also be balanced against the
value to the customer.
But resources aren’t the only issue. Utility invest-
ment decisions will depend to a great degree on the will-
ingness of state regulators to add digital infrastructure
costs to customers’ bills. Regulatory attitudes, in turn,
will mirror public perceptions. Regulators who sense
widespread demand for a digitized grid are more likely
to approve cost-recovery efforts, and thus accelerate
deployment. Utilities can stoke public demand for the
digital grid if they do a better job of communicating the
immediate and long-term benefits.
Despite these hurdles, the digital grid is coming
incrementally, and it will transform your experience as
an electricity consumer in fundamental ways. Early ben-
efits will include greater reliability and more-transparent
pricing. Down the road, digitization will lead to supply–
demand integration; rapid product and service integra-
tion; and eventually a fully automated, resilient,
“self-healing” electrical network.
Benefits of the Digital Grid
As a business or home utility customer, you are prima-
rily concerned with reliability and price. You want lower
electric bills and fewer, shorter power outages. The dig-
ital grid offers real benefits in both areas. Initially, digi-
tization will make your utility more efficient, and give
you more and better information about your electricity
use. Eventually, it will change your relationship with the
utility and turn electricity from a commodity into a tool
for making daily life easier. These changes will occur in
several principal areas:
Reliability. Preventing, mitigating, and resolving
power outages is still a central challenge for utilities.
Nothing angers customers more than a power failure.
Digital technologies hold the promise of fewer, shorter,
and less-extensive outages.
For example, automated notification of outages is
one of the first digital grid technologies to be deployed
by utilities around the country. No longer do power
companies have to wait for customers to call in and
report a loss of service. The network infrastructure itself
detects outages and alerts the utility, which can imme-
diately dispatch service crews to restore power. This
avoids the costly and time-consuming process of send-
ing restoration crews into the field to patrol power lines
in search of trouble spots. At the same time, notifica-
tions automatically go out to customers through the
Web and social media, followed by progress reports and
estimates of when power will be restored.
Over time, utilities will implement self-healing
capabilities that reduce the frequency, scope, and dura-
tion of power outages. Sensing mechanisms in the net-
work will sniff out trouble before it causes an outage,
enabling the utility to take preventive steps. Other tech-
nologies will limit the number of customers affected by
an outage by eliminating the need to shut off power in
adjacent areas while crews work to restore service.
Digitization also facilitates better voltage manage-
ment, which should cut down on outages, especially in
industrial areas where power use is heavy.
Pricing. Digitized electrical networks will give cus-
tomers the information to manage their power con-
sumption and cut their electric bills. The system tells
2
Earl Simpkins
earl.simpkins@booz.com
is a partner with Booz &
Company based in Dallas. As
part of the firm’s energy,
chemicals, and utilities prac-
tice, he specializes in helping
electric and gas utilities
address strategy and opera-
tional issues, including busi-
ness transformation/
performance improvement,
mergers and acquisitions
(including integration), supply
chain, utility operations, and
customer operations. He also
co-leads the practice’s cus-
tomer service platform.
Josh Stillman
joshua.stillman@booz.com
is a senior associate with
Booz & Company based in
Dallas, and is part of the firm’s
energy, chemicals, and utilities
practice.
Don Dawson
donald.dawson@booz.com
is a partner with Booz &
Company based in Dallas, in
the digital business and
technology practice. He leads
the firm’s energy, chemicals,
and utilities digital business
and technology practice in
North America, as well as
co-leading the energy, chemi-
cals, and utilities customer
service platform.
Also contributing to this article
were Booz & Company partner
Joseph Van den Berg and sen-
ior associates Art Davidson
and Jag Mukherjee
www.strategy-business.com

4. www.strategy-business.com
customers how much power they’re using at various
times of the day, and how much electricity costs at each
time interval. This information reveals opportunities to
save money by shifting more power usage to the hours
when rates are lower. Although few consumers relish the
prospect of turning on the dishwasher at 3 a.m., home
automation technology eventually will take over the
chore of managing power consumption for optimal pric-
ing. And as more people spread out their consumption,
price spikes at times of peak demand could moderate.
Skeptics may scoff, but digital grid technology is
already saving money for some consumers in Texas.
Energy companies in the state have set up a Web portal,
Smartmetertexas.com, that provides pricing and usage
data that consumers need to monitor and manage their
electricity consumption. Winners of an energy saving
contest sponsored by the companies say the website
helped them take steps that cut their electric bills.
Supply–demand integration. Digitization turns tra-
ditional one-way power distribution channels into two-
way streets. Today, most electricity is generated at a
utility’s power plant and sent over the grid to customers.
That will change as new technologies enable power to
flow back into the grid from alternative energy sources.
Customers who install solar panels on their roof or
erect windmills on their property can offset electricity
costs by selling some power back to the utility. At times
of heavy demand, customers with on-site generating
capabilities can also save by switching to their own
power source, in response to a signal from the utility
warning that rates are peaking.
Product and service innovation. The interactive
capabilities of intelligent electrical networks open the
door to a range of new products and services that will
help customers use electricity in new ways. A closed
loop that ties customers to utilities will become an open-
ended system encompassing a range of vendors who will
provide hardware, software, and services for the digital
grid. They will help customers understand their electric-
ity use and capitalize on digitization to squeeze more
value from the watts they consume.
Although home automation hasn’t caught on in
many markets, this area is ripe with possibilities for con-
sumers and third-party suppliers. Already, electrical
service is merging with home security systems to
remotely activate alarm systems, turn lights on and off,
and change thermostat settings. Moving forward,
demand will grow for devices, software, and smart-
phone apps that use the communications capabilities of
the digital grid to automate household appliances.
Whether it’s remotely turning off an air conditioner in
an empty house on a hot summer afternoon, or timing
a dishwasher to run in the wee hours when rates are low,
these tools will give consumers a degree of control
they’ve never had before.
Network automation and utility efficiency. Grid digi-
tization improves operating efficiency at utilities. Smart
meters are already reducing the need to send technicians
out for routine matters such as service activations and
shutoffs, and, of course, meter reading. As utilities
become more efficient, they can respond faster to cus-
tomer needs. Greater efficiency can also slow the rise of
electricity costs over the long term. That’s because in
some cases, savings from efficiency reduce the need for
capital investment that has to be recouped through cus-
tomer rates.
Network automation has a similar effect, by maxi-
mizing the capacity of existing infrastructures and cut-
ting the frequency and duration of outages. Self-healing
technologies such as automated fault detection and
advanced voltage management also ease stress on the
system, extending the useful life of network assets.
Digitization thereby reduces the need for utilities to
build new plants and backup generators—big-ticket
investments that are typically financed by raising rates.
How Utilities Can Get There
To make the smart grid a reality, utilities must balance
their customers’ needs and work to understand them
better. This means allocating investment priorities to
emphasize full network digitization over a reasonable
time frame, while continuing to reap internal operating
efficiencies. And it requires a more effective campaign
to reconnect with consumers who have come to doubt
the promise of the digital grid. Considering the long
and sometimes strained relationships between utilities
3

5. and their customers, these changes may not come easi-
ly. However, several areas should be priorities among
utilities.
Investing in customer benefits. Despite their tradi-
tional wariness of new technology, most utilities have by
now embraced the inevitable digitized future. About
33.5 million smart meters have been installed national-
ly, representing 25 to 30 percent of residential utility
customers. Installation rates approach 75 percent in
some areas, and full penetration across the country
could happen by 2020. That said, much of the invest-
ments have come in the front-end communications and
data-gathering technologies. It’s time for utilities to
focus on the capabilities that create customer benefits.
They must now invest in back-end analytics that make
sense of front-end data, translating that data into mean-
ingful customer insights. These insights, in turn, will
help utilities tailor products and services to better meet
customers’ demonstrated and potential electricity usage.
Regaining customer trust. Digital grid technology
won’t live up to its potential unless customers believe in
it. The first step is building awareness. A survey of U.S.
consumers last year by the Edison Electric Institute
found that only 45 percent of respondents knew the
term smart grid, and barely half of those familiar with
the term felt they understood how digital grid technol-
ogy worked and what it could accomplish.
Consumers often take a skeptical view of new tech-
nologies they don’t fully understand. Utilities can count-
er this skepticism with a stronger marketing mind-set,
along with messaging that sets realistic expectations for
the timing and nature of smart grid benefits. At the
same time, they must address several concerns, some of
them misplaced, that have arisen from the smart grid
debate.
For example, utilities have faced lawsuits over the
alleged health hazards of smart meters, even though
studies purporting to show harm from radio frequencies
have largely been discredited. Other lawsuits have chal-
lenged the costs and accuracy of smart meters.
A major issue for utilities will be control and access
to smart-grid data revealing the usage patterns of indi-
vidual customers. Consumers may consider such infor-
mation private and object to the sharing—and particu-
larly the sale—of their data among third parties. Rules
for data privacy and sharing are evolving on a state-by-
state basis, but a federal court ruling may be necessary
to clarify the issue. Although the privacy debate is like-
ly to continue for some time, as it has in other indus-
tries, data integrity must be a top priority for utilities.
Conclusion
Despite a slow start, the digital grid will bring real ben-
efits to utilities and their customers. Utilities need to
shift their investments from technologies that improve
internal operating efficiency to those that focus on the
network capabilities that will deliver on the promise of
the digital grid for customers. To build customer trust
and support for digital grid investments, they must
communicate and market the benefits more effectively.
Businesses and households, meanwhile, should pre-
pare for digital grid advances that will change their
experience as electricity users. To capture those benefits,
customers must take advantage of data flowing from the
digital grid. Understanding usage patterns will enable
customers to use electricity as a tool to manage their
business and run their household better, and maybe
even sell some power back to the electric company. +
4
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