EDITOR’S NOTE: Executives and thought leaders were in the audience – as well as on the podium – at least week’s Energy Times Executive Briefing on the future of energy customers and utilities. We invited one attendee, a former senior executive with Xcel Energy, to reflect on the themes explored at the event.
Businesses are built on a foundation of assumptions. If the assumptions work, the business has a chance of succeeding. If, however, the assumptions get old and tired, like rotting wood in a foundation, the business starts to collapse, often much faster than we expect.
One of the key assumptions behind the regulated utility monopoly is that everyone has the same right to electricity and no one should have preferential rights. That seems self-evident enough. We’ve come to think of it as the “one size fits all” mandate. In exchange for treating everyone equally, utilities are given a monopoly that guarantees them reasonable returns and protects them from competition. The problem is that the value of our product, electricity, actually varies widely from consumer to consumer. Have a dialysis machine in your home? Electricity is a necessity. Live in the mountains of Colorado without air conditioning? It’s a so what. Run a data center? Four ‘9s’ reliability does not suffice. As a result, one size fits all actually has come to mean that no size fits anyone. We treat customers not as customers, but as ‘load points’; we engineer our products to take the flavors out, flatten away any differentiation, produce a bland product that is noticed only when it’s not there.
And it gets worse…the assumption that this is the only legitimate way to produce value for our customers ends up blinding us to the fact that our product is polymorphic. It has many shapes and meanings. For the last decade or more we have been on the quest for the call waiting of the electric industry. Call waiting came about because someone was able to view phone calls as human connections. It wasn’t about low-ost connectivity; it wasn’t about the reliability of my phone service. Rather it was about my phone fulfilling my need to be aware of who was contacting me and why.
Embedded assumptions in a monopolistic schema do not lend themselves readily to being exposed to the light of day. It takes fundamental disruption to force us to look at them directly. Adrian Tuck, CEO of Tendril, made that point at the recent Energy Times Executive Briefing when he talked about the airline industry as an analog to electricity. Take away the monopoly, and the focus on asset utilization changed and became more concrete, more aligned with the value that a customer is willing to pay for the flight.
Our distribution industry needs to fundamentally rethink the value of its product. We need to remember how it all started; namely, as an output multiplier that overcame manual labor and replaced it with ever growing productivity which, ultimately, changed how we lived. Night became day, the access to tools and opportunities opened up throughout the economy. Great things, previously unimaginable, started to happen.
If you take away the “one size fits all” mantra, you start to see electricity differently, through the eyes of the user. We all know Amory Lovins’ point about consumers buying cold beer and warm water—not electricity. But what about looking at it broader and deeper, from a community perspective as a tool of urban renewal, a more targeted way for communities to produce, store and resell power in their local markets—and make money doing it. Microgrids could fulfill the complete requirements of specific communities of users. Not one size, but many sizes, a way of selling electricity that doesn’t force round customers into square holes.
Challenge the embedded assumptions and revitalize the market—this seems to be the driving force behind New York state’s REV program. It will not only change the nature of the distribution network, and the business models behind New York utilities, but it will open our eyes to whole new ways to create value through the magic of electricity.
Ray Gogel is US Grid Company president and chief operating officer and Xcel Energy’s former chief information officer.