IBM (pg. 2)

Of course the objective was not to charge vehicles but rather to decrease traffic, and that's what the system did. Total traffic fell 35% almost immediately and stayed down 22% - and not just at peak times or solely downtown. Emissions also dropped by 14%. The streets became more pedestrian-friendly, and the buses began finishing their routes so quickly that the city had to rewrite the schedules. "For people working and living here, it was a different city. The government had lots of researchers doing surveys to identify the impact," he says. "That wasn't needed."

The system passed in referendum, and the city environmental director who championed it, Gunnar Söderholm, couldn't be more pleased. At a total cost of about $400 million, a third of which went into bolstering public transit, the city improved quality of life. "Some people thought that was too expensive, but this is one of a few examples of infrastructure investment that has immediate payback," says Söderholm at Stockholm City Hall, site of the annual Nobel Prize gala. "We started here with an empty table, designed the scheme, developed a procurement process, had the trial and referendum - all within four years. We've been discussing building a new bypass for four decades, and it's still not decided."

One curious result: Public transit ridership jumped by almost 40,000 users a day, accounting for only a third of the drop in traffic. Some economists worried that fewer inbound trips would mean reduced inner-city commerce, but that hasn't happened. Based on analyzing all the data, Johansson believes he's proved what he's long speculated: Reducing traffic isn't about building more roads, it's about providing better information and choices.

Unlike London's congestion-pricing scheme, which charges roughly $12 to enter the city at any time of day, Stockholm imposes a graduated toll, starting around $1 and rising to around $3 during high demand. The fee schedule makes it obvious when traffic will be the worst, so drivers who trek in during peak hours know they'll pay more for what will probably be a maddening experience. As a result, people seem to be cutting out unnecessary trips: bundling afterschool pickups, say, with visits to the grocery store. In short, Swedes are driving smarter.

Which means that Stockholm provides a lesson for more than just cities like San Francisco that are considering their own congestion-pricing schemes. Johansson imagines one day tracking every car by GPS. Such a system would not only reduce traffic by offering real-time warnings and alerts but could also refine our method of funding road improvements. Rather than an across-the-board gas tax, fees could be levied according to mileage traveled. But in the shorter term, he has some work to do in London. The city is unhappy with the way its own congestion-pricing scheme, implemented by British consultancy Capita Group, is faring. In November, IBM will take over the project.

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Last summer Barack Obama campaigned on a promise to digitize the electricity grid. Recently his economic stimulus plan allocated billions to make that promise a reality, and hardware providers, Internet companies, software firms, utilities, and the media have all rallied around the idea. Much of the hype has centered on installing smart meters - basically fancy thermostats that monitor energy use in real time - in our homes.

Sadly, the only information most of us get about our energy consumption comes in the form of a monthly bill, when it's too late to do anything about our behavior. Seeing real-time usage data on the meters, along with options for cheaper times of day to, say, do the laundry, the thinking goes, will encourage us to stop hogging peak kilowatts just as the Swedes curbed unnecessary rush-hour travel. Certainly that's part of the promise of an intelligent grid. But what if the grid were so smart that it could differentiate types of energy, price them accordingly, and heal its own wounds? What if it could actually think for itself?

Utility executives come from around the world to see the demonstration that Don Cortez, a VP of CenterPoint Energy, is performing at the company's technology center just outside Houston. In a typical outage, workers have two choices: to search chaotically for the source of the fault or to wait for customers to complain, and then triangulate the source of the outage based on the geography of the calls. Either way takes a long time.

"We serve a 5,000-square-mile area, which is fairly compact by utility standards," says Cortez, surrounded by a roomful of miniature utility poles, overhead wires, lights, speakers, a pickup truck, and a handful of flat-panel displays that together represent an end-to-end model of a smart grid. "When you have a large thunderstorm, it impacts a large portion of our consumers." In the demo - a flash of light and the familiar crack of a thunderstorm, followed by a mechanical tree branch falling on a wire - the grid tells headquarters which lines have been affected, automatically re-routes power, and dispatches maintenance workers to an exact location. Total outage time: about 10 seconds. In a region plagued by outages, minimizing downtime in this way will save millions.

IBM got involved in the CenterPoint project about three years ago. Cortez was brainstorming possible revenue streams with Michael Valocchi, head of IBM's smart-grid practice, who has been working with utilities for 23 years, the first 17 with PricewaterhouseCoopers. They decided there could be huge money in tackling the outages dilemma. "I knew if we could solve that issue, it was something that I could make commercially viable," says Valocchi, speaking from India, where he's working on another of IBM's 50 smart-grid projects. "It was way above my skill set, but there were a lot of researchers who were interested in it."

At that point IBM invested in the self-healing concept and helped build the demo. Such a partnership is known inside IBM as a "first of a kind" project, or FOAK. According to Valocchi, about half of all FOAKs result in a commercial deployment. In this case he called on R&D for everything from complex algorithms that govern the way power gets re-routed to predictive weather-modeling software. The hope is that the company will sell the self-healing solution to utilities around the world. "I think we can get to a commercialized version," Valocchi says. "We're probably three months away. We'll sell it almost like we sell software - a license with implementation services."

Both IBM and CenterPoint are interested in smart meters. Cortez's team rolled out 5,000 smart meters across the utility's service area in March and plans to deploy 2.1 million more over the next five years. The devices work on open protocols and will report usage information to whomever the consumer allows. The idea is that third parties will build custom applications that enable consumers to regulate usage online, at Google PowerMeter, for example. And it shouldn't be long before an iPhone app links a GPS transmitter to the meter, causing the air conditioning to turn on 20 minutes before the owner walks in the door.

Once fully implemented, the two-way meters will also help CenterPoint divine behavioral patterns. The more electric companies understand about consumer demand, the less they'll be likely to overbuild highly polluting power plants, which cost as much as $600 million each. "A lot of the benefits are really going to be cost-avoidance," says Cortez. "With added intelligence, we won't have to build as many substations."

A digitized grid also makes it possible to upload alternative energies easily, whether from the massive wind farms in West Texas or from all the solar panels popping up on suburban rooftops. Which is nothing but good news for the most polluted city in the country. "Houston doesn't meet the federal air-quality standards or the ozone-level standards. That restricts the ability of the city to grow," says Tom Standish, CenterPoint's group president of regulated operations. "That's not good for us, and it's not good for the economy."

NEXT: IBM (pg. 3)

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