I get asked why I spend so much time writing about PG&E. The answer is my home town utility is one of the best at what it does—but being the best utility may not be enough to save the traditional investor owned utility business model as the waves of disruptive technology and the changes they bring wash over it. By being a utility leader PG&E sticks its neck out and risks Thomas Edison’s lesson that he learned the most from his failures not his successes.
It is also true that PG&E gives me many opportunities to use them as a contrast between the traditional central station-driven monopoly utility business model and the evolving distributed energy customer choice business model.
PG&E is one of the best “laboratories for change” in the energy business today because of its strategic market location, its mix of energy resources, its advanced renewables portfolio and it has a regulator willing and eager to be at the front lines of change to permit it to experiment. I have thought many times that working for PG&E now would be great fun, but Pete Darbee has not offered me a job senior enough to play the role of ‘mad scientist’ in this great science fair project we call smart grid and the transformation process.
So I must content myself being a strategy advisor this way. I can give Pete Darbee a piece of my mind along with my best professional advice. I can focus on the big picture scenarios of change, defining a vision for the utility of the future and the strategies and the transformation process to get there while some other wizard behind the curtain keeps twisting the dials to keep the lights on.
The benefits of my unpaid and probably unwanted strategy advice for Pete Darbee is I can speak candidly without fear of being fired, hauled before the CPUC flogging post or sent to Sacramento to explain to Senator Florez why we at PG&E screwed up again in executing our plan.
And the best news is Pete Darbee is not calling to ask me to replace SVP-Customer Services Helen Burt who is beaten and bruised from all the flogging PG&E has taken over the Bakersfield Effect.
So what should Pete Darbee do?
Pete Darbee is trying to revolutionize PG&E and the utility business. Like any good revolutionary, Pete should think like an insurgent and act fast, be nimble and follow that age old State Capitol expression—“Give the people what they want—and give it to them hard.”
So what do people want?
- We Want No Surprises and Straight Answers. Well to be honest, Pete they want no surprises. So you have to pick up your game about explaining what PG&E is doing to customers, giving them opportunities to ask questions and get fast, correct straight answers. You have to help them understand why PG&E is making these changes and how it affects them.
- Let Me Be Part of the Solution Not the Lab Rat in Your Experiment. We’re feeling a little vulnerable out here on the warm side of the hills, Pete. Our new smart meter is piling on the charges like the Federal deficit. You tell me there are benefits in the long term from smart meters—but we will be dead or broke by then. We need to see some benefits for this hassle sooner than later—so what are you going to do about that Pete?
- How Much is this Going to Cost? We want to know that PG&E is looking out for us not just sucking up to the politicians eager to spend our money and saluting the regulators hired by politicians to play enforcer. Right now, Pete, we are not happy campers about the economy, jobs, and our kids’ future so we are not in the mood for rate increases or more uncertainty. Tiered rates really tick us off over here on the warm side of the hills while the Berkeley and San Francisco crowd sit there in a cool fog. And there is so much hot air produced up in Sacramento they need to crank the A/C down to freezing just to be able to tolerate entering the State Capitol. Pete, you gotta show us you are on our side!
Quit Resisting, Pete! You know you must change fast so just do it.
These forces of disruptive technology are at work today reinventing the energy future. This is not one contest but a series of battles to control the gateway to customers. Competitors are not yet that good so they will sling rocks at your ankles not your head—at least for a while. The result will be many small cuts that bleed away C&I direct access customers, prevent the utility from new large power plant construction, and erode the most important core competency of the traditional utility—the ability to dominate the regulatory process.
Pete, this is NOT about energy directly, competitors will tantalize with a ‘toy store’ of communications, entertainment, broadband access and the networked use of information to provide security, mobility, convenience and value. The hit and run attacks will largely be behind the scenes in the meeting rooms of NIST over interoperability standards, IEEE over tech trends and geek speak of networks, architecture, software and applications or NERC over critical infrastructure protection. You must have PG&E people there participating, but that is not enough to win this war of attrition.
What is at stake is the traditional utility business model of central station generation and its average cost economies of scale. We are nearing the tipping point where the politics of energy are driving up the cost and stringing out the opportunities to build new baseload fossil fuel or nuclear power plants. To replace that supply proponents argue for distributed energy resources (DER) that combine clean, renewable sources with energy efficiency, demand response, dynamic pricing, and smart grid to create a more sustainable energy balance for the future.
The role of the utility in the future will be to deliver the clean energy supply and get out of the way of demand reducing energy management to be done by others. Utilities decoupled rates to mitigate the damage tying the utility return on equity to key performance indicators such as efficiency, meeting its RPS targets and not resisting political correctness too much since no one wins if the utility gets into financial trouble.
The gravest threat to the utility future in this passive-aggressive decoupled energy model is it will be stuck as the one trick pony commodity vendor of last resort in a multi-tasking world driven by apps and options. This rate regulated wires and pipes energy delivery business gets stuck with all the hassles while the growth shifts to other market players from all those DER, managing those net zero energy buildings and offering a dizzying array of gadgets, applications and value-added services.
Wake up, Pete—your best growth opportunities are slipping away unless you get your groove back.
Ideas for PG&E’s New Customer Service Strategy
Don’t be depressed, Pete—there is hope. But you must think more like an insurgent and do the thing least expected—-get close, I mean REAL close, to customers. Here are a few crazy ideas to keep you up at night thinking about how you are going to suck up to customers more than those politicians:
- HELP CUSTOMERS SAVE ENERGY AND MONEY: CREATE AN OPEN SOURCE ENERGY+ ECOSYSTEM. Volatility is a wonderful thing for consultants because it keeps customers coming back for help. This can also true for utilities if they leverage their reputation for reliability and the trust from long standing customer relationships to help their customers have a good experience in the brave new converging world of energy and all that other stuff ahead. If the utility no longer gets rewarded for selling commodity energy, it can still benefit from facilitating the access to its customers and serving as a DER marketplace for the services they need. To do that the utility must puts its bureaucratic traditions to work creatively to create an ecosystem to provide easy access to utility customers for all these new vendors of smart-grid enabled gadgets and services as well as renewable energy suppliers. Think about Apple’s business model of creating an ecosystem where all the components are plug and play and vendors who use it gain easy access to customers. Think about the Amazon superstore business model of retailing providing easy access to every service your customer can possibly need. But this ecosystem is different from Apple or Amazon because the utility wants to use open source standards and create a marketplace just as sticky as iTunes, Apple Apps Store or Amazon’s recommendations BECAUSE the utility makes it easy for customers and vendors to work together to achieve shared goals. The advertising revenue, sales commissions and product or services sales revenue works for all. The utility wants to continue to be the gateway to customers and this is one way to do it which builds goodwill and creates additional revenue streams from decoupled services. The utility can recommend options to customers to save money from making better choices. There are also opportunities for this platform once developed to be franchised to other utilities.
- INVEST IN CUSTOMERS: Imagine VIRTUAL POWER PLANTS as a mashup of distributed energy resources combined with doses of energy efficiency, demand response and energy management. They are being used by players such as Schneider Electric, EnerNOC, Comverge and others to aggregate commercial and industrial customers. These players are shifting their business model away from manufacturing solar panels or wind turbines or power plants to survive in a consolidating market environment capturing revenue from valued-added services. What does this have to do with the utility? The most pernicious threat to the central station utility business model is the grid parity of solar and wind because they accelerate the shift to the distributed energy future. But if the utility cannot build a new coal plant or nuke it can still invest in DER and play the DER game by creating an auction market for the utilities own C&I customers to participate in virtual power plant pools. The utility capitalizes the installation of solar panels and signs contracts with C&I customers directly or it serves as an aggregator itself and buys contracts from vendors to achieve the same goal of maximizing the potential of DER in its service territory and maintaining control of the gateway of customers for other service available from its own ecosystem.
- TEACH CUSTOMERS TO FISH FOR ENERGY SAVINGS: BE THE SMART METER DATA ANALYTICS SUPER HERO. California utilities will soon be required to disgorge the data collected from smart meters to customers. Other states will likely follow soon with similar requirements. But just because this tsunami of data is available does not mean it will be useful. The utility is well positioned to use its infrastructure and knowledge of the smart meter capabilities to develop value added data analytics services it offers to its customers to improve their ability to shop for services and to vendors in search of customers in need. Teaching customers and vendors to fish is a critical part of the smart grid future in any DER world. If utilities do not perform this function they not only will waste a good opportunity to improve their customer relationships, offer value-added services, and maintain control of the gateway to customers in a level-playing field way. The data are your friend, but they can also eat your lunch if you ignore them.
- NO SURPRISES CUSTOMER BACK UP! RISK MANAGEMENT SERVICES FOR CUSTOMERS. Volatility may be good for business but customers hate it. Stuff still happens and any more moves toward dynamic pricing will create a tornado alley of risk exposures each of which offers opportunity for revenue from risk management, risk mitigation or risk insurance services. The utility of the future can maintain its sticky relationship with customers by offering a menu of risk products and services that help manage that risk. If you don’t do it someone else will. The product possibilities are endless ranging from pre-pay services, more dynamic pricing flavors than Baskin & Robbins, back stop, hedging, and other risk management services the utility is probably already using for its own book of business now repurposed to help your customers manage the volatility you just created by agreeing to all this change.
So what are you going to do Pete?
As long at the traditional utility thinks traditionally it will be consigned to its low growth commodity sales business model until, that is, the regulators and new entrants throw you under the bus of DER. You are wasting time playing defense—give customers what they want and let them help you win while they win too.