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©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-1 PART THREE Market Drivers, Issues & Trends Market Horizons™ Report Real-time Automation & Controls.

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Presentation on theme: "©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-1 PART THREE Market Drivers, Issues & Trends Market Horizons™ Report Real-time Automation & Controls."— Presentation transcript:

1 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-1 PART THREE Market Drivers, Issues & Trends Market Horizons™ Report Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace (2003-2007)

2 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-2 About This Report InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace and of Geospatial and Mobile Computing Solutions (GMCS) in the North American Utilities Marketplace. Please visit www.InfoNetrix.com for more information about these and other InfoNetrix Advisory Services.www.InfoNetrix.com InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace and of Geospatial and Mobile Computing Solutions (GMCS) in the North American Utilities Marketplace. Please visit www.InfoNetrix.com for more information about these and other InfoNetrix Advisory Services.www.InfoNetrix.com

3 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-3 General Information & Notifications PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America

4 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-4 Research Standards & Methodology The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study. The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study.

5 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-5 Research Reliability & Acceptance The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at: www.InfoNetrix.com.) The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at: www.InfoNetrix.com.)

6 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-6 Market Horizons™ Report Contents 1.Executive Market Summary 2.Marketplace Characteristics 3.Market Drivers, Issues & Trends 4.Market Analysis & Future Outlook 5.Supplier Environment

7 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-7 Market Drivers, Issues & Trends Market Snapshots (2002-2007) Principal Market Drivers Key Issues & Trends (The Seven Signs) Challenges & Opportunities

8 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-8 Market Snapshots Near-term Impact of BUSINESS Factors Q: How important has each factor been to RTAC justification and procurement in 2002 & 2003?

9 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-9 Q: How important will each factor be to RTAC justification and procurement in the next 3-5 years (2003-07)? Market Snapshots Long-term Impact of BUSINESS Factors

10 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-10 Market Snapshots Near-term Impact of TECHNOLOGY Factors Q: How important has each factor been to RTAC justification and procurement in 2002 & 2003?

11 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-11 Q: How important will each factor be to RTAC justification and procurement in the next 3-5 years (2003-07)? Market Snapshots Long-term Impact of TECHNOLOGY Factors

12 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-12 Principal Market Drivers 1.Politics: 1.Politics: Regulatory, Legislative & Other 2.Security: 2.Security: Physical & Cyber-security 3.Operational Efficiency: 3.Operational Efficiency: Do more with less! 4.Standards/Standardization: 4.Standards/Standardization: Interoperability & Cost Reduction 5.Financial & Market Uncertainties: 5.Financial & Market Uncertainties: $$$ & ROI 6.Transmission Congestion: 6.Transmission Congestion: Power Delivery & Reliability 7.EAM(Enterprise Asset Management): 7.EAM (Enterprise Asset Management): RCM, CBM, etc. (Notably, Technology plays primarily a supporting role to the factors driving overall market direction.)

13 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-13 Principal Market Drivers Politics Blackout Impacts  Caused fundamental shift in political and industry focus from traditional Generation mindset to Power Delivery  Painted an indelible picture of the criticality of T&D  Emphasized need for a streamlined permitting and construction process Ethics, Diligence & Security  Legislative and regulatory initiatives (NERC-1200, GASB-34, Sarbanes-Oxley, etc.) now have direct impact on I/T initiatives and will link with RTAC on various levels Enhanced Satellite Image of Blackout Primary Areas of Impact (INSET) The blackout on August 14th, 2003 arguably had a more definitive impact on the need for T&D infrastructure investment than the two decades of industry and regulatory interactions and debates that preceded it.

14 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-14 NERC-1200 CONTENT & ORGANIZATIONNERC-1200 CONTENT & ORGANIZATION 1201.Cybersecurity Policy 1202.Critical Cyber Assets 1203.Electronic Security Perimeter 1204.Electronic Access Controls 1205.Physical Security Perimeter 1206.Physical Access Controls 1207.Personnel 1208.Monitoring Physical Access 1209.Monitoring Electronic Access 1210.Information Protection 1211.Training 1212.Systems Management 1213.Test Procedures 1214.Electronic Incident Response Actions 1215.Physical Incident Response Actions 1216.Recovery Plans The NERC-1200 standard identifies sanctions for various levels of non-compliance and repetitive non-compliance incidents Only documentary sanctions will apply during the life of the Urgent Action Standard Once the permanent NERC Cybersecurity Standard is in effect, sanctions will include: An escalating series of letters notifying company executives, regional officers and regulators of non-compliance A series of escalating periodic fines up to $10,000 or $10 per MW of installed generation capacity, transmission capacity or load, whichever is greater Principal Market Drivers Security Courtesy of The Steadfast Group (www.TheSteadfastGroup.com)

15 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-15 Do more with less!  Downsizing at many utilities cut labor pools and other resources below reasonable levels  Expect increased levels of outsourcing, even for previously routine internal activities (e.g., relay programming)  Rising demand for skilled, experienced system integrators now being filled by: Former utility employees now on contract Traditional engineering consulting firms Some distributor & sales representative organizations  Ongoing utility mergers & acquisitions will continue to exacerbate resource deficiencies and drive outsourcing  Engineering firms moving rapidly to outsourcing & integration Principal Market Drivers Operational Efficiency

16 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-16 Interoperability & integration cost reduction thru increasing role of international standards:  DNP3  IEC 60870  IEC 61850  UCA-2 IEC 61850IEC 61850 is designed to be the first fully interoperable, power- system optimized communications architecture:  Facilitates true device independence at IED level  Reduces system engineering & testing life cycle costs over the life of the substation  Provides a truly universal international standard squarely focused on power systems  Creates SCL-Substation Control Language, optimized specifically for substation use & applications Principal Market Drivers Standards/Standardization

17 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-17 Economic impacts on RTAC expenditures (2002-2004)  2002  2002: Recession virtually stopped RTAC spending  2003  2003: Modest early rebound; then growing momentum  2004  2004: Strong economic recovery gathering momentum but skepticism about recovery sustainability lingering. Expect: Constrained spending until sustainability is evident Return to previous levels of CapEx RTAC projects unlikely More modest projects with tangible benefits & quick returns Signs of instability in the economy could halt spending plans Future economic impacts on RTAC expenditures (2004-2007)  Improved economy and return to core business coupled with blackout suggests gradual increases in RTAC spending  Downward pressure on selling prices will continue despite some relief  Improving definition and design of FERC restructuring plans and return to core business helping to elevate investment confidence Principal Market Drivers Financial & Market Uncertainties

18 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-18 Power Delivery & Reliability  Major shift in emphasis from Generation to Power Delivery  Increased focus on T&D spending to be gradual but steady Initial spending increases in transmission driven by blackout Future investment in power delivery (T&D) driven mainly by: 1.Utilities returning to core business and also knowing what business they will be in after restructuring 2.Greater confidence that investments will have a return thru: Improved PBR scores (e.g., SAIDI/SAIFI/CAIFI) Better customer service & satisfaction 3.Necessary infrastructure improvements for operational efficiency and cost reduction  RTAC expected to play an increasingly critical role in power delivery security, reliability and asset management Principal Market Drivers Transmission Congestion

19 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-19 RTAC market has shifted dramatically from being technology-centric to being business-centric Decisions increasingly based on ROI and tangible short-term benefits EAM objectives are based on financial - not technical - foundations & designed to:  Extend useful life of assets  Optimize reliability, availability & maintenance costs  Defer/Avoid Capital Expenses EAM will focus first on high-cost/high-risk assets such as hi-voltage transformers, switches, etc. & apply RCM/CBM methodologies, some via RTAC Principal Market Drivers Enterprise Asset Management

20 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-20 Key Issues & Trends (2003-2007) The 7 Signs 1.Regulatory Policy & Governance 2.Economics & Investment 3.Technology/Integration/Standardization 4.Security & Data Integrity 5.Web & Wireless Solutions 6.Enterprise Asset Management (EAM) 7.Customer Care & Satisfaction

21 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-21 The 7 Signs 1. Regulatory Policy & Governance Initiatives, guidelines, orders, regulations and legislation by governmental and non-governmental regulatory and legislative bodies including, but not necessarily limited to:  United States Federal Energy Regulatory Commission (FERC) North American Electric Reliability Council (NERC) State/Provincial, Municipal & Local Regulators US Department of Energy (DOE) US Department of Homeland Security (DHS) US Environmental Protection Agency (EPA)  Canada: National Energy Board of Canada (NEB-ONE) Natural Resources Canada

22 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-22 US Electricity Restructuring Status “As of February 2003, twenty-four states and the District of Columbia had either enacted legislation or issued a regulatory order to implement retail access. The local distribution company continues to provide transmission and distribution (delivery of energy) services. Retail access allows customers to choose their own supplier of generation energy services, but each state’s retail access schedule varies according to the legislature mandates or regulatory orders.” – Energy Information Administration SOURCE: Energy Information Administration (Updated Feb 2003) 1. Regulatory Policy & Governance Electricity Restructuring Status

23 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-23 Transmission & Regional Transmission Organizations (RTOs)  The North American transmission grid is being reshaped by FERC’s RTO and Standard Market Design (SMD) initiatives  So far, mixed reactions by US and Canadian utilities and governments Practically all Canadian provinces have expressed interest in some form of participation in RTOs. US action/reaction varies widely by utility and geographical region. Most unsettled is the Southeast where utilities have vowed strong legal opposition. 1. Regulatory Policy & Governance Electricity Restructuring Status…

24 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-24 SOURCE: National Energy Board of Canada (Updated Dec 2003) 1. Regulatory Policy & Governance Electricity Restructuring Regions

25 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-25 Province Wholesale AccessRetail AccessComments British ColumbiaYESLarge industrial consumers BC Hydro retail prices are frozen until 31 March 2003 Future prices will be regulated by the British Columbia Utilities Commission, based on approved costs. Yukon Territory, Northwest Territories & Nunavut NO Prices are regulated by public utility boards Small, dispersed markets No transmission interconnections with the provinces Alberta YES Wholesale prices are established in the market managed by the Alberta Electric System Operator (AESO); pass-through to consumers who have various purchase options SaskatchewanYESCities of Saskatoon & Swift Current Retail prices are subject to government approval ManitobaYES NO Retail prices are approved by the Manitoba Public Utilities Bd Coordination agreement with the Midwest Independent System Operator (MISO) (Continued on next slide) SOURCE: National Energy Board of Canada (Updated Dec 2003) Canadian Electricity Restructuring Status 1. Regulatory Policy & Governance Canadian Electricity Restructuring Status

26 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-26 ProvinceWholesale AccessRetail AccessComments Ontario YES Wholesale prices are established in IMO- administered market Pass-through to residential and other low-volume consumers is capped at 4.3 cents per kW.h; two-tier pricing is proposed commencing 1 April 2004 QuébecYESLarge industrial consumers - retail prices are regulated by the Régie de l’énergie du Québec - rates are frozen until 2004 New BrunswickYESLarge industrial consumers, planned for 2004 -retail prices are regulated by the Board of Commissioners of Public Utilities - opening of wholesale market planned for 1 April 2004. Prince Edward Island NO - P.E.I. imports most of its electricity from New Brunswick - retail prices cannot exceed 110 percent of that paid for comparable service in New Brunswick (under the Maritime Electric Company Act) Nova ScotiaNO - retail prices regulated by the Nova Scotia Utility & Review Bd - limited wholesale access, starting January 2005 Newfoundland & Labrador NO - retail prices regulated by the Bd of Commissioner of Public Utilities - study of restructuring has been undertaken SOURCE: National Energy Board of Canada (Updated Dec 2003) (Continued from previous slide) 1. Regulatory Policy & Governance Canadian Electricity Restructuring Status…

27 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-27 *Consolidated Annual Financial Report 1. Regulatory Policy & Governance GASB-34 ( & Sarbanes-Oxley) Modified Approach (Preserving) Assemble CAFR Team Develop/ Update Inventory Determine Approach Ascertain Historical Cost Calculate Upkeep Required Assess Condition Determine Useful Life Depreciate Calculate Maintenance Expenses Publish CAFR Plan Annual CAFR* Work Depreciation Approach Compare GASB-34 COMPLIANCE SCHEDULE TOTAL ANNUAL REVENUESFINANCIAL REPORTING MODELINFRASTRUCTURE REPORTING Greater than $100 millionJune 30, 2002June 30, 2006, retroactive 25 years Between $10 and $99 millionJune 30, 2003June 30, 2007, retroactive 25 years Less than $10 millionJune 20, 2004Prospectively from July 1, 1999 SOURCE: EMA Inc. (www.EMA-Inc.com) Infrastructure Identification and Valuation Cycle (GASB-34)

28 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-28 The 7 Signs 2. Economics & Investment Factors having a direct and/or indirect impact on utility financing and/or investments in some or all of the following categories…  Capital Expenditures for goods and services (CapEx)  Utility Business/Market strategy, growth and development  Divestitures, Mergers & Acquisitions (D/M&A)  Operations, Infrastructure & Apparatus  Utility Automation & IT (A/IT) products, systems & services  Facility (physical) and/or data (cyber) security/integrity  Utility Operations & Maintenance (O&M)  Outsourcing of equipment and/or services

29 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-29 In 1995, transmission investment started down a path of lagging peak demand by an increasing margin coincident with the advancement of deregulation and restructuring. (See chart, following) Why?  Initially - lack of definition of how restructuring would play out; utilities established a wait-and-see posture  Later - mixed signals and a series of fits and starts by FERC caused widespread uncertainty about how or when the final plan would be known and its implications for investment recovery  Now - The August 14th blackout put the entire continent on notice that the congestion problem is here and now 2. Economics & Investment Power Delivery Investment

30 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-30 2. Economics & Investment Transmission Investment 0 500 1,000 1,500 2,000 2,500 1990199119921993199419951996199719981999 Millions (US$1990) 400 420 440 460 480 500 520 540 560 (GigaWatts) Transmission Investment (millions 1990$)System Peak Demand (GigaWatts) PRE- deregulation Era POST- deregulation SOURCE: PA Consulting (Based on UDI Database) PRE- and POST-deregulation Investment Trends

31 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-31 Energy Trading & Merchant Power Collapse  Fewer merchant power projects thru 2007, but some distributed generation projects targeted to peak-shaving and system reliability will proceed Economic Outlook  Economic recovery timeline remains unclear  Business Focus: Return to core business Financial (ROI) Issues & Expectations  Energy Bill  Standard Market Design (SMD)  Compliance Costs Security (NERC 1200) Integrity (GASB-34 & Sarbanes-Oxley) Performance (PBR) 2. Economics & Investment Business & Financial Dynamics

32 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-32 The 7 Signs 3. Technology/Integration/Standardization Technology  Technological Advancements  New Products/Services/Applications Integration  Enterprise  System  Product/Application Standardization  Enterprise  System  Product/Application

33 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-33 Potential business benefits achievable Proximity to core business PC Maintenance Remote Metering Internet Systems Integration SCADA External Application Development Call Center Operation Asset Management SOURCE: DATAMONITOR Impact & Importance of Automation & IT Initiatives Among Utilities Mission-critical 3. Technology/Integration/Standardization Automation & IT Enterprise Position

34 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-34 Proliferation/implementation of standards on all levels  Microsoft Windows Operating System  Linux making inroads at server & embedded O/S levels  Intel PC Hardware Platform  Standard (and secure) protocols at host, FDD & IED levels Security expected to be the next major technological development area  New cyber-security mandates (notably NERC-1200 & AGA-8) will swiftly and fundamentally change RTAC design, management, operation, documentation, testing & support  Expect major impact on technology, integration and costs 2004-2007 3. Technology/Integration/Standardization RTAC Products, Systems & Services

35 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-35 SSCs displacing RTUs more rapidly driven by:  Increased use of IEDs & substation controller networks  Need to modernize/upgrade aging equipment  Reduction in labor and materials (replace copper to I/O)  Desire for common equipment (O&M cost reductions)  Overlapping functionality between RTUs & IEDs  Falling ASPs for SSCs (as much as 50% from 2001-2004) Increasing use of COTS hardware & software  Low-cost commodity RTUs, especially in DA applications  Embedded smarts in apparatus (e.g., switches, breakers, etc.)  Expect nominal concessions in functionality to reduce costs  More holistic solutions (e.g., packaged modular substations) 3. Technology/Integration/Standardization Field Data Devices

36 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-36 Downsized utilities struggling with…  Reduced staff  Limited time  Constrained resources Utilities want solutions that… 1.Are simple & intuitive 2.Employ open standards 3.Have a measurable ROI & solid cost-benefits ratio 4.Require low/no maintenance 5.Are easy to operate and support over full life cycle New Invensys HMI bundles WonderWare’s InTouch® SCADA software with tablet PCs 3. Technology/Integration/Standardization Utility Wants, Needs & Expectations

37 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-37 BUT Linux emerging as potential rival to Microsoft Windows, mainly in server applications, BUT… Recent Linux initiatives (notably by IBM) may trigger a rising tide of Linux in desktop applications as well Other standards & trends to watch:  CEIDS  FACTS  Self-healing Grid of the Future  Blackout prevention & recovery New reliability rules Black-start technology 3. Technology/Integration/Standardization Standards & Standardization Trends

38 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-38 The 7 Signs 4. Security & Data Integrity Direct and indirect impact and effects of increasing awareness and responses to physical (facility) and data (cyber) security threats and data integrity including:  Vulnerability issues and assessments  Security regulations and mandates  Threat mitigation methods and measures  Cost appropriation, justification and expenditures  Organizational guidance and oversight US Department of Homeland Security FERC NERC  Data integrity and information reporting/compliance issues AGA-12 GASB-34 Sarbanes-Oxley

39 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-39 Global awareness of the need for enhanced or upgraded security software will force utilities to find funds to meet the challenge 4. Security & Data Integrity Security Expenditures

40 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-40 The 7 Signs 5. Web & Wireless Solutions Direct and indirect effects and impact of Web and wireless solutions on the RTAC marketplace include:  Web-based SCADA (Rising future trend)  Browser-based HMIs (Human-Machine Interfaces)  Rising wireless technologies & standards 802.11x (i.e., 802.11b, 802.11g, etc.) Wireless Ethernet Cellular conversion to digital (by 2005) Satellite (VSAT, etc.) Advancing communications deployments  Increased fiber-optics (especially at substations)  Broader cellular coverage  Increased bandwidth to support new RTAC functionality  Ongoing pervasive expansion of wireless

41 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-41 The 7 Signs (Cont’d) 6. Enterprise Asset Management (EAM) Increasing utility focus and emphasis on improved management of assets at all levels of the enterprise to enable/be enabled by:  Remote Asset Monitoring  Field crew (“Workforce”) management  Integrated Work Management Systems (WMS)  Integrated Outage Management Systems (OMS) EAM requires access to information from various levels  Host  FDD  IED IEDs have especially large amounts of information that is…  Acquired and “invisibly” stored  Acquired and logged but not easily accessible  Accessible but not accessed by anyone  Accessible to the “wrong” people

42 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-42 Remote Asset Monitoring  Infrastructure, Apparatus & Equipment  GASB 34 Compliance (MUNIs & some RECs)  Sarbanes-Oxley Compliance (mainly IOUs)  NERC-1200 Compliance (All wholesale buyers/sellers by 2005) Non-operational data from substation devices & apparatus  Present data acquisition methods are inadequate  Communications networks do not adequately accommodate data volumes at present  Utilities lack suitable Information Flows & Functions model* to accommodate data acquisition and access issues OMS/WMS  Outage Management Systems  Work (and Workforce) Management Systems (* See diagram, following) 6. Enterprise Asset Management (EAM) Emerging Requirements/Applications

43 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-43 Non-operational Data : Information Flows & Functions Model Smart Object Library Smart Object Library Smart Object Library Notification Diagram courtesy of Kreiss Johnson Technologies; San Diego, CA (www.KJT.com) 6. Enterprise Asset Management Non-operational Data Management

44 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-44 The 7 Signs 7. Customer Care & Satisfaction Direct and indirect impact of increasing emphasis and focus on customers brought about by:  Industry deregulation and restructuring  Utility response to rising demands for improved customer service & satisfaction  Time-of-Use (TOU) Metering  Outage Management Systems (OMS)  Trouble Call Management (TCM)  Work/Workforce Management (WMS/WFM) Performance Based Regulation (PBR) will have a marked influence as restructuring moves ahead:  Utilities will depend on PBR scores for rate increases  Consumer pressure increasingly drives automation motives

45 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-45 Security compliance cost appropriation/allocation  Funding sources  Budgeting issues Declines in average selling prices  Material cost reduction vs. labor cost increases  Low- (No-) maintenance preference  Macroeconomic and competitive pressures Simple, intuitive solutions  Little or no training required  Works out-of-the-box  Easy to integrate (employs open standards) Challenges & Opportunities Price-Performance Issues

46 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-46 Funding/Budgeting/Justification Outlook  So far, no apparent blanket legislation planned or in place for funding security mandates by other than rate-based initiatives  Some utilities have been successful in getting PUCs to approve selective spending using critical infrastructure rules, national security considerations (e.g., government & military installations) or similar justification as the basis for funding at the state, regional or local level.  Many speculate that automation/IT budgets will bear the near-term brunt of cyber-security spending, but no tangible evidence yet that any such budget shifting is widespread  Utilities will ultimately have to build security into operating costs and be amortized across the enterprise in all departments at all levels Challenges & Opportunities Security Funding/Budgeting/Justification

47 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-47 Need products with:  Minimum time/labor to install/repair/replace  Little or no ongoing local (jobsite) maintenance requirements  Little or no training requirements  Works out-of-the-box promise (guarantee?) and support Low- (No-) maintenance preference  Utility maintenance staffing is minimal and shrinking  Routine field work now being outsourced  Little or no training required  Works out-of-the-box  Easy to integrate (employs open standards) WinTel (Windows® + Intel®) platform now Linux gaining popularity for servers; embedded FDD applications; less for desktops but some emerging Challenges & Opportunities Holistic, Intuitive Solutions

48 ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-48 Security and financial/operations reporting  Major impact on systems integration & implementation costs for utility compliance with: AGA-12 (protocol encryption standard) GASB-34 (F/O reporting for public/municipal entities) Sarbanes-Oxley (F/O reporting for publicly-held entities) NERC-1200 (Critical infrastructure security for wholesale power buyers/sellers connected to the grid)  All are “Unfunded Mandates” Utilities face unprecedented operational cost & implementation burdens required by compliance and will increasingly look to suppliers for solutions Suppliers will be challenged with finding ways to incorporate compliance into RTAC, quickly & economically! Challenges & Opportunities Security & Data Integrity


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