Three steps to a smarter grid

We've documented the formula here

Phil Carson | May 21, 2012

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Like many journalists who venture opinions, I fall into the category of "pundit." Though the term's original meaning was "learned," it has been debased such that it's used today to mean the opposite. That suits me. I'm free to argue ideas without having to test them and it automatically disqualifies me from running anything more complicated than a kitchen blender, let alone a utility. 

But we've heard from various sources over the past year or so about how utilities should be facing the future. So I'll just stitch together the musings of experts we've interviewed into a three-step formula for success in grid modernization. And I swear I'll stop using the term "smart" (except in headlines, where Google spiders find it attractive, helping readers find us). 

Step One, craft a (future) business model. 

It seems I've been hearing this for some time, but when I scoured our archives all that turned up was our recent piece on Greg Guthridge, Accenture's global managing director of retail and business services for utilities, in "Utilities Must Pick a Business Model." 

Guthridge also touched upon four basic models in his blog from December titled "Four Potential Business Models for Utility Customer and Retail Operations."

The four models, according to Guthridge, include the "standard provider," the "specialty provider," the "market advisor" and the "full-service provider." The first relies on the simple delivery of inexpensive, reliable electrons. The second includes value-added products and services, but not high-touch consumer interaction. The third aims to retain ownership of the customer, perhaps by partnering with third-party, customer-oriented entities, and assumes the role of trusted advisor for retail services beyond electrons. The fourth model takes an aggressive approach to control all energy-related products and services entering the home.

It shouldn't be difficult to envision your organization fitting into one of these models, though with multi-million dollar investments on the line, shaping your future is easier said than done. 

Step Two, a policy towards customers/consumers. (See Step One.) 

I seem to be leaning on Guthridge here, but he does a great job of articulating why a utility's stance toward the consumer may determine its best future business model or why that consumer stance might flow from a chosen business model. In his blog from last November, "What Is the Business Model of the Energy Provider of the Future?," Guthridge wrote: 

"Many utilities are evolving in a market context that will encourage using less of their `product' and will see rising consumer demands as well as wider spread adoption of emerging micro generation  and smart technologies. With power being generated in a more distributed manner, the century-long model of centralized electricity production may be significantly disrupted and with it, utility customer operations. 

"The one-way market in which utilities operate as a hub will transform into multiple two-way interactions among consumers, utilities and other new entrants into the space such as traditional retailers, appliance producers and other home service providers.. No one company will own energy consumers, and there is no longer any guarantee that, just because you own the commodity provider relationship, you will also own the value of the energy consumer as well."

The organizational changes resulting from these first two steps can be radical and would appear to require careful, deliberate processes. That's harder to envision at an investor-owned utility, but municipal and cooperative utilities are perhaps best positioned, based on their business models, to transform themselves into customer-centric service organizations. As Paul Lau, assistant general manager at the Sacramento Municipal Utility District (SMUD) recently told me, SMUD pursued this transformation and it involves arduous and time-consuming "process re-engineering."   

"We are re-aligning our organization again to optimize the customer experience and operational excellence," Lau told me recently. 

When Lau added that organizations that do this need to assess their own "appetite for change" because "pushback" is inevitable, one senses the distance, measured in sweat equity, between ideas that sound great on paper and what it takes to implement them. 

Step Three, a technology roadmap. (See Steps Two and Three.) 

So far, in reporting on grid modernization issues, I've been struck by two options that might be said to precede a technology roadmap: One is to take no action, because deploying interval meters, for instance, does not fit a sensible business case. 

We've written about how Dayton Power & Light (DP&L) examined the business case for advanced metering infrastructure (AMI) and found it lacking and, thus, has held off on upgrading its analog meters. (See "Dayton Power & Light: An Exception Worth Considering.") Ironically, DP&L was immediately dinged by local media for not pursuing AMI to improve storm-related restoration times. 

The second option is to ensure that you are pulling the most value from your legacy systems, and integrating your existing technology with whatever you add on. That might be called the "You Are Here" spot on the roadmap; it's your point of origin, which may dictate what technology you add and how you add it. 

As for the roadmap itself, I recall another Accenture executive, Sharon Allan, sharing some insights on achieving an "operational steady state" that you envision as a result of grid modernization steps. See "Accenture's Sharon Allan: After Smart Meters, What's Next?" 

To achieve an operational steady-state, review your business processes, Allan suggested. Envision where you're going to end up, to avoid designing too narrowly. 

Allan emphasized three factors in designing a technology roadmap: account for scale, understand the impacts on people and processes and know how to measure and track data to extract business value.

From there, actual roadmaps come in many flavors from many familiar players. 

Step Four, stop piloting and go to phased deployments. (See psychiatrist.) 

I said there were three steps, but I'm adding a fourth. (Hey, it's my column and I'll lie if I want to, to paraphrase Leslie Gore. If you know who that is, you should be retiring soon.) Moving from pilot-scale experiments to deployment at scale might indeed require a little counseling. Or just read the thought piece on this topic by Lisa Wood, executive director of the Institute for Electric Efficiency: "Time to Move Beyond Pilots." 

Wood argued that pilots are best undertaken if they are considered the first step in "phased deployments," a use of language but also a mindset that creates the opportunity for incremental steps rather than endless dithering. Sure you need to know whether the technology works, but if that's the goal, you also need to know whether it serves your customers and fits your business model - which should be the first steps, according to my punditry. 

Wood didn't actually say that last part, I did. Hey, I'm a pundit, free to sling ideas without delivering a single electron. Good work, if you can get it. 

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com 
303-228-4757


 


 

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Comments

Add a dash of urgency

 

Thanks for both comments today. And way to add some urgency to the mix, Richard. 

I believe you're referring to community aggregation and if you add to that microgrids and distributed generation, indeed, customers will shape the utility business model and how utilities interact with customers. 

We've been banging that drum for some time. So, tuck that into how utilities decide to move forward. It's been suggested that we're looking at a lot of M&A among IOUs and a real about-face in how utilities treat customers. Given the legacy of mistrust of IOUs and their pace of change, I'd say it wouldn't be too far-fetched to say that the utility business will look mighty different in five years. 

Regards, Phil Carson 

 

Who will REALLY drive the Smart Grid?

The four utility business models presented in the article represent the business strategies that have been playing out at utilities in the US in an attempt to drive and promote the smart grid.  The common thread and key element in each of the models is the consumer and their reaction, use, or pushback to the models and the new disruptive concepts.  Utilities are attempting to anticipate consumer reaction.  This is being debated and analyzed in every utility because of the impact it will have on all models, regardless of which one the utility chooses.  Whatever conclusions they may reach, the reality is that the consequences are immense.  Despite all the internal discussions and analysis, the stage is now being set by the consumers as to how these new disruptive concepts will play out; and the consumer’s pushback is raising its fire-breathing, multi-headed beast to ignite the industry like nothing we have seen before. 

 

Let me clarify:

 

First: Consumer pushback against utilities and smart meters first began in California and has moved out across the country.  Currently a new consumer pushback is starting to play out in Illinois.  Consumer dissatisfaction with traditional utility business models has now grown to encompass both smart metering and energy delivery choices.  It is of special note that PG&E and Commonwealth Edison have both long been recognized as industry leaders by the industry itself.  Yet, they are now facing major pushback from their consumers.  This is causing regulatory agencies and elected officials to react with political self-preservation and to side with the consumers and rail against the utilities.  The smart meter pushback movement, which continues to grow by the way, originated in California and has moved out across the country.  Currently a new and an even greater disruptive concept of choosing an alternative energy supplier is a real and a growing issue in Illinois and is positioned to become an even greater industry disruptor.  Many of us who have been in the industry through the years have predicted and spoken about this disruptor, but as with any new “change” concept, it seems people are always surprised once the change actually rears its head.

 

Second: This alternative energy-supplier disruptor playing out in Illinois is threatening ComEd’s traditional revenue stream and could potentially take away 30% of ComEd’s demand overnight.  This disruptor will have an impact on each and every utility across the US, regardless of which of the four business models they choose to use.  It is of special note that this consumer pushback reaction is immediate and decisive with consequences of immense proportions for utilities.  An article laying out this trend,An electricity market in flux, appears in the Chicago Crain newspaper.  The bottom line is, the city of Chicago and 100 suburbs are now shopping, or have already chosen, new electric suppliers.  That is 3 million consumers being scooped out of ComEd’s traditional utility revenue stream. 

 

Third: The technologies that will enable this disruption are being put it place, or are already in place, and will thus be the enablers for new business models not yet invented.  Just like the physical internet network was implemented across the country for operational benefits, the Google and Facebook business models were created later capitalizing on this physical network even though they were not yet envisioned by the communications industry in the early years.  All utilities will be rushing to implement these new technologies just to stay in the game; and yet, not all will survive the onslaught, and none will continue to exist in their present state.  Just as Sperry Univac and Digital Equipment mainframe and minicomputer manufactures fell against the onslaught of the PC which was driven by Intel’s, Apple’s, and Microsoft’s disruption concepts, the utility industry is now standing at a similar threshold.  It has now come to the decision of move or die.  The heat is no longer a slowly rising, simmering boil but a direct flame fueled by none other than the consumers themselves. 

 

Fourth: Sitting in the wings and ready to fire another industry disruptor is Texas and its lack of available generation and ownership of the responsibility to incent or to direct someone to build new ones.  Even Mr. T Boone Pickens has stepped out of the market after all the much touted PR about deregulation and alternative energy sources coming to Texas.  This summer could be the litmus test of a market without adequate generation.  Stand by for new consumer pushback and demands. 

 

THEIR needs will be the real drivers of the Smart Grid, not the needs of the utility.

 

Richard G. Pate

Pate & Associates, Principle

rgpate@pateassociates.com

www.pateassociates.com

 

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Steps

Good column, as usual.  As someone who works with co-ops, I am observing that segment of the utility business doing all 3 (+ your fourth, Phil), across the nation.  For them, it's not about virtue, or smart grid  (though the stimulus has accelerated deployment of advanced meters), it's about using proven technology to improve reliability, operational efficiency, enhance customer involvement, and gain better control over their large, low-density service areas. They've been doing this for decades. And because they're cooperatives businesses, there is a direct connection between the utility and their owners/customers.  Nothing of an overwhelming unique nature, just business as usual.