EDITOR’S NOTE: Peter B. Delaney addressed the World Energy Forum on Energy Regulation in Istanbul last week. Delaney, OGE chairman and CEO, agreed to share his remarks with readers of The Energy Times. An excerpt follows.
I am pleased to be here to share my thoughts on the future of the distribution grid and our efforts at Oklahoma Gas & Electric to move to a future state with a smart enabling grid. Transformation capabilities of our distribution grid is a top priority for my company, given our concern over remaining relevant in the lives of our customers.
Why the concern over grid relevancy? One may think such concerns may be unfounded as electricity today plays a much more important role in consumers’ lives with the proliferation of voice and data enabled personal devices coupled with ubiquitous connectivity and the replacement of mechanical devices with electronics in industry.
Our concern stems from a belief that the utility industry, at least in the United States, will approach a turning point, as technology advancements, changing customer expectations and resiliency concerns, highlighted by electricity’s more prominent role, will require us to innovate and adapt at a more rapid pace or face political and regulatory challenges to our traditional utility roles.
Central to the distribution grid’s future relevancy, is its transformation into a platform that, among other things, engages customers, integrates distributed energy resources and drives innovation in energy usage.
OG&E completed a 3-year system- wide smart meter deployment in 2012. A primary objective of our smart grid deployment was engaging our customers to help us meet our demand response goals to avoid building additional generation capacity.
As compared to other smart grid deployments in the United States, our approach differed by trying to engage the customer at the outset, by providing some benefit to them when their smart meter was installed. Within a week of smart meter installation, customers could access our website to look at their hourly consumption on an almost real time basis, receive emails about consumption and a comparison of their usage to an average of their neighbors and other such data. In many instances, customers changed their behavior significantly to lower their monthly bills. This was a very empowering experience for them.
Our smart grid infrastructure remains at the center of our efforts to improve our traditional metrics for reliable and affordable power while building the foundation of a platform while that sets the stage for more dramatic change. I strongly believe that meeting customers’ needs is key to remaining relevant in their lives.
Changes in customer needs are driven by changing social values (i.e. renewable energy), technology advancements has empowered customers in their acquisition of others services and products as well as driven higher power quality requirements. We will be challenged to keep up on accelerating rate of change in the marketplace.
Improving our value proposition to customers is dependent on keeping price increases at the rate of inflation or below. I am encouraged by the cost reductions realized to date, and the opportunities ahead to take out more costs.
Substantial barriers lay between us and this future state of an empowering distribution grid. A key concern as CEO is the evolution in our corporate culture to embrace change, pursue innovation and adapt at a pace in step with customers. For an industry that has been heavily regulated, change and driving innovation with a sense of urgency are not core competencies.
Government regulations promote specific policy objectives and burdens the grid with significant cost. One such item, for example, would be the mandated fixed pricing of distributed energy resources as opposed to dynamic pricing schemes. The integration of DER reliably, and economically into distribution systems must reflect the dynamic nature of our systems. Our system is in a constant state of change and pricing should reflect that dynamic state. Fixed price contracts often utilized to subsidize renewables or DER, would work against an economically sustainable distribution system and its relevancy. And I would argue, history has well demonstrated the economic distortions associated with such policies, referencing the current situation in Germany and the past fixed avoided cost policies in the United States.
A close cousin to the fixed price issue is the unbundling electric distribution system services to correctly quantify variable and fixed costs. This is currently a very contentious issue in the United States in regard to customer based solar panel production and feed-in tariffs. In addition to bundled service, we will need to accurately price storage service, back-up service, and voltage and frequency services. Considering our current regulatory construct this is no small task.
American cost of service rate making methodology does not align well with our vision of creating a culture of innovation and customers focus. The quality of our service from customer satisfaction to reliability, for the most part, has no impact on regulatory treatment. Our regulatory process is based on a litigation model, not conducive to new products and services creation to keep up with customers. Changing culture is even more difficult when the economic incentives do not align with the desired cultural values.
Ironically, our company advertising tag line at OG&E, “Power at the Speed of Life”, is more fitting now than at the time it was announced 20 years ago. After witnessing the improvement in our customer engagement and operational metrics after exploiting some basic capabilities of our smart grid infrastructure, I am very bullish about the potential for the future distribution grid.
Peter B. Delaney is OGE Energy chairman and chief executive.