Monday, May 2, 2011

Smart Grid Synergies for Rural Electric Co-ops and Telecom Providers

Two months ago, I first wrote about my growing interest in opportunities for rural telecom providers to serve electric utilities with communications networks for the Smart Grid. I was particularly interested in analyzing the overlays between rural electric cooperatives and rural telecom providers; because it seems to make perfect sense that these two entities collaborate in some way to achieve two of the most critical infrastructure goals for the 21st century: broadband deployment in rural areas and modernizing the electric grid. I had a perfect opportunity to explore this opportunity in a project for my Energy Communications Networks class, and I am happy to report my research to my readers.

In my project, Smart Grid Synergies for Rural Electric Cooperatives and Rural Telecommunications Providers, I first looked at reasons why rural telecom providers and rural electric cooperatives would even consider merging or collaborating on smart grid projects—after all, this idea would have been extremely radical and unacceptable just a few years ago. I found that there is quite a bit of support for rural telco/utility collaboration by rural cooperative associations such as NTCA, NRECA and NRTC. NTCA reported that "For the smart grid to blossom, rural electric and broadband providers need a fresh start and a new, creative approach to mutually constructing and maintaining this foundational partnership…rural electric providers and rural telcos are ideal partners in smart grid ventures" (Ward, NTCA, 2010). For some background information, there are 260 rural telephone cooperatives and 930 rural electric cooperatives, but when you consider all of the small and family owned rural telecom companies, the numbers are pretty even. Both entities provide service to approximately 70% of the US geography, but only about 10% of the population—rural utility and telecom providers serve on average 10,000 or fewer customers and 10 or fewer customers per square mile. The both provide service to some of the most economically challenged rural areas in the country and to some of the most rural and hard-to-reach customers in the country. Broadband and electricity are the lifeblood for rural Americans, and rural telecom and utility providers have gone to tremendous efforts to ensure that their rural customers have state-of-the-art networks. In fact, rural telecom companies have been some of the most successful telecommunications providers in deploying broadband to rural areas, and rural utility cooperatives have also been tremendously successful in deploying smart grid technologies in rural areas. Finally, rural utility/telecom collaboration is consistent with several major U.S. government initiatives to bring broadband and the smart grid to all Americans. A collaborative effort by a rural utility and a rural telecom provider would help achieve goals of the American Recovery and Reinvestment Act of 2009 and the National Broadband Plan of 2010. Congress, the FCC and the Department of Energy are all pushing the convergence of telecom and electricity networks, and there is really no better place to make these breakthroughs than in rural areas.

For the next section in my project, I looked at a company that is a real trailblazer in rural utility + telecom collaboration: NineStar Connect in Indiana. At the beginning of 2011, Hancock Telecom and Central Indiana Power merged to become one of the first combined rural electric and telecom providers in the country. In this arrangement, the utility division uses the telecom division's FTTH network for smart grid applications like Advanced Meter Infrastructure (AMI) and Demand Response (DR), which will help consumers monitor and control their own energy consumption based on peak demand times and pricing. The companies will be able to leverage each other's business operations, such as billing, customer service, and call centers, to reduce operational expenses. As an added bonus, the telecom division gains access to the utility's right-of-ways and pole attachments. The benefits and synergies do not stop here—the telecom division will now be able to become a CLEC in communities that were previously only served by the utility provider, creating a significant sustainable competitive advantage. Furthermore, the threat of the utility provider becoming a direct competitor to the telecom provider is completely eliminated. NineStar Connect is using a Tantalus fiber-based technology platform, and the CEO of Tantalus (Eric Murry) seems to be really excited about the benefits and synergies from this merger: "It's natural for telecoms and utilities to work together…It's a logical next step that will accelerate smart grid roll out, avoids the costs and complexity of building and maintaining two separate communications networks, and consolidates billing, customer service, and many other business functions under one roof" (Tantalus, 2010). All eyes are on NineStar Connect right now as the company has truly formed a new breed of cooperative—I am hopeful that they realize great synergies and success from the merger and become a model for other rural telecom and utility providers to follow in their footsteps.

Next, I looked at ideal business and technology arrangements for rural utility and telecom collaboration. Unfortunately, this is such a new idea, so there aren't any prominent models at this time. From my own observation, I concluded that FTTH is the best type of technology to facilitate an effective collaboration because the capacity is virtually unlimited so it can easily support the data load from smart meters (which is very small) as well as the data load from broadband customers—with room for the loads to grow. However, FTTH has not been deployed completely in many areas, and there may be no broadband connections at all to some extremely remote areas. In these situations, wireless technology can effectively be used to fill in the gaps until fiber is deployed. Prior to making any agreements, the utility provider must conduct a Strategic Communications Plan, whereby they analyze their communications needs one-by-one for each component of their grid. It may be the case that a utility will want to maintain a private network for SCADA or substation automation, but would be completely willing to work with a commercial telecom provider for AMI and other smart grid applications closer to the customer. Finally, many business operations can be consolidated to achieve maximum synergies—call centers, service crews, even warehouses and office supplies.

Finally, and probably most importantly, I analyzed the challenges that utilities and telecom providers must overcome to collaborate on rural broadband and smart grid projects. The challenges are significant and will likely not be overcome easily or soon. The main challenges include:

  • Regulatory uncertainty for rural telecom providers: I don't feel a need to go into detail here; we know how significant these challenges are! For more information, feel free to read my USF Reform NPRM comment summaries from the rural telecom industry.
  • State laws: the laws in Indiana prevented utilities and telecom providers from merging; luckily the state recognized the benefits and opportunities of the NineStar Connect merger and changed the laws to allow the merger.
  • Mismatched geography: Not all rural electric and telecom service territories align perfectly. In many cases, the utility may need to provide electricity to an extremely remote area where no telecom customer even exists—such as an irrigation control center in the middle of a 20,000 acre ranch. These are the situations where wireless becomes a great fill-in-the-gaps communications technology.
  • Ensuring network reliability, security and priority for the utility: commercial telecom networks are not built for utility communication, and utilities will not tolerate many of the network weaknesses found in commercial networks. The FCC released a NOI last month inquiring about these issues, so hopefully we will see some telecom providers responding that their networks are suitable for smart grid communications.
  • Utilities' age-old mistrust of telecom providers: utilities have simply mistrusted telecom providers for so long, that it will be hard to overcome this barrier to effective collaboration. However, I believe that rural communities are the ideal testbed to break this barrier because of the unique qualities of rural businesses, communities and relationships between these two entities. They both have and strive to achieve the goal of providing excellent, state-of-the-art services to rural communities that are often not considered profitable by larger companies.
  • Utility regulation: utilities have an incentive to invest in their own networks and infrastructure as a result of their regulatory rate structure. They are not able to recover investments if they utilize commercial networks. In the National Broadband Plan, the FCC recommended that states take steps to reduce regulatory impediments for using commercial networks.

In conclusion, there are significant challenges for both utilities and telecom providers to overcome in order to effectively collaborate. However, if these challenges are reduced—or if companies follow the lead of NineStar Connect and just "go for it," there are great opportunities for business and technology synergies. Not only will the companies achieve many benefits, but customers will as well. I think there are some amazing opportunities here if rural utilities and telecom providers are willing to make the effort, initiate dialogue with each other, and strive to overcome the challenges to collaboration. I am really hoping that more rural utility and telecom providers start looking at these opportunities. There are several interesting direct analogies between rural electric cooperatives and rural telecom providers, and the two entities can successfully leverage their similarities to overcome their differences and reach an effective, profitable solution.

I would like to credit Jesse Ward from the National Telecommunications Cooperative Association and Joan Engebretson from Connected Planet for their articles and research on this topic—articles that largely inspired me to do this project. Just last week, the day after I finished my paper, Connected Planet released this article providing an update on how NineStar Connect is progressing since the merger.

If you are interested in reading my full report, I would be happy to e-mail it to you if requested.

Cassandra Heyne


  1. Great post, Cassandra. I have been thinking about this same angle since I attended the FTTH and Digital Home Summit last April.

    I didn't know about Hancock Telcos merger, but knowing them, I am not surprised. Thanks for the good piece. Please send me the full report. Also, I might get it to the ITA staff...this would be a GREAT topic for the ITA Annual Conference in November.

  2. It's an remarkable post for all the online viewers; they will obtain advantage from it I am sure.