Lynne Kiesling
Am geekily blogging the Carnegie Mellon transmission and distribution conference today … this morning saw one fascinating presentation from Kurt Yeager, CEO of EPRI, titled “A Bold Visions for Transmission and Distribution”.
Yeager starts from the point that we are experiencing fundamental transformation and disruptive change, especially technological change. Yet the pace of that transformation has been slow in the electric power industry relative to others parts of the economy. Ironic, isn’t it, since electric power is the primary enabler of all of the exciting, dynamic change that we experience!
Why is that? Yeager hypothesizes that institutions involved in the industry (I would say primarily regulatory agencies and regulated utilities) view change as a threat instead of as an opportunity. Yeager hit the nail on the head when he said that the mental challenge is overcoming that status quo bias.
The electric power industry is moving from its traditional role of keeping the lights on (reliability) to powering a networked digital economy. Right now we are in the process of the transformation that is crucial to that evolution. Indeed, Yeager says that we are at a fork in the road: the industry can go toward transformation or decay. If the industry does not transform, then it will become the provider of last resort and nothing else.
Or, to put it in my own words, the electric power industry has to evolve toward a customer value-focused business model, where the value proposition is seen as providing electric power services to end customers. The old model of utilities making more profit by increasing load and selling more power is obsolete, and the regulatory environment should allow that old, tired model to wither.
Yeager then went on to make some big-picture recommendations for how to transform and not decay. From his presentation, transformation requires:
The move to digital control of the power system, away from analog.
The integration electricity and communications.
Transformation of the meter into a two-way consumer services gateway.
Integration of distributed resources.
Acceleration of end-use efficiency.
Enabling a robust advanced generation portfolio.
He also highlighted an important mental and cultural change that I think is crucial to the transformation of the electric power industry: stop trying to maintain the legacy fa?ade of low cost, instead think in terms of delivering value to customers.
All in all, a very stimulating presentation.
Catching my eye: morning A through Z
Here’s what’s caught my eye this morning: Marc Schulman of American Future, continuing to blog up a storm, has substantial quotes from the Asia Times on How Iran Would Fight Back The Diplomad disagrees with Thomas Friedman on Arab reform…
Allow me, if you will, to be the fly in the ointment for a moment:
What “electric power services” do consumers require, other than good old 120 volt, 60 Hz single-phase electrical power? Are you referring to electrical utilities delivering internet access or cable TV or phone services via power cables? Would I like to see more competition for such services? Of course. But there are great risks involved in diversifying into a firm’s non-core areas of expertise.
I see “creating value” as either (1) providing extra things people want to buy or (b) reducing transaction costs. Those things help a producer increase his profit (and increase consumer surplus), but pushing the demand curve outwards does the same thing, and that should not be overlooked or diminshed.
Mr. Yeager’s list sounds like a big string of normative statements. I’m not so much interested in hearing why some industry “should” be doing something, but I want to know why they are not doing that thing, if it is so obviously in their own interest.
Furthermore, I would not be so quick to poo-poo the focus on reliability, given the very large disutility we all derive from having our electrcity supply cut off, even for a few minutes. Besides, this is not really a transmission issue. IIRC, something like 97%+ of all outages are distribution, and not transmission related.
Acceleration of end-use efficiency: on who’s dime? The purchase of electrical-powered durables is a trade off between higher energy use and higher capital cost. Quite often, the purchase of the most efficient piece of equipment is not the optimal choice. Efficiency is not the be-all and end-all decisive factor in the choice of electrical equipment, and anybody pushing the notion that it is isn’t really seeing the big picture.
The statement about the power industry decaying to the “producer of last resort” strikes me as rather melodramatic. Are you implying that we are on the cusp of an exciting development that will enable individiuals to make their own electricity at a lower cost than that which can be supplied by the traditional generation-transmission-distribution model? I suggest that that point is a long, long way off, and also that when we begin to see such a point on the horizon, then the traditional utilities will react to it. Their first reaction, no doubt, will be to try and use regulation to run interference, but the forces of the marketplace will have to be met head on sooner or later. This is the point when the electicity industry will face its “innovate or die” dilemma. That point is not mow. This is akin to people telling us that we should reduce our consumption of our cheapest transportation fuel (petroleum) today because it might be expensive or scarce in the future. When that hypothesized scarcity drives the price up above that of the alternatives, then that problem solves itself. Forcing it in the present does us no good.
Lynne,
Maybe we need to get you one of these so that everyone will have fair warning.
-Mike
Hey! The first time I ever do any live-blogging and that’s what I get? Sheesh.
I almost hate to say this, but the “transformation of the meter into a two-way consumer services gateway” was the big thing all the way back in 1995. The capability has been with us for at least a decade, but inertia has prevented any big action.
It would take a big push by government to get this to happen, and government isn’t the party that would reap the big benefits. This cynic doesn’t see how we’ll get off the dime on this.
Barry Posner summed up my own thoughts rather well. Utilities make good money and perform an essential service just by supplying power. While there is reason to doubt this will always be true it is certainly true now, and the one thing that might make utility management look hard at changing — substantially higher energy prices — is not on the horizon. It may be someday, no one questions that, but “someday” is not a particularly persuasive reason for a utility or anyone else to incur the costs of change now.
Barry Posner summed up my own thoughts rather well. Utilities make good money and perform an essential service just by supplying power. While there is reason to doubt this will always be true it is certainly true now, and the one thing that might make utility management look hard at changing — substantially higher energy prices — is not on the horizon. It may be someday, no one questions that, but “someday” is not a particularly persuasive reason for a utility or anyone else to incur the costs of change now.