When Does the Utility of the Future Begin?

By Robert Robinson, Mark Hoffman, Christian Grant, and Garrett Johnston, Booz & Company

When examining the capstone issues facing utilities who have begun, are on the verge, or are still deciding how and when to begin their “smart grid” journey, it is clear that the central challenges and opportunities are really not confined to advanced metering infrastructure/automated meter reading (AMI/AMR) or “smart grid.” Rather, they are an integral part of a broader dialogue about the utility of the future. To truly maximize benefits from any AMI/AMR or smart grid investment, the destination of your smart journey must be determined first. Otherwise today’s decisions may unknowingly preclude critical options in the future.

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Future Proofing

Transformation requires a thoughtful answer to one question, “What do you want to be in 20 years?” Answering this question requires an approach that is less static than just identifying a potential role to play in the future and focuses instead on what type of network do I need, and why and how does it fit into the industry’s evolving nature. A significant part of the answer to this question resides within the strategic and operational planning occurring right now in T&D. But to assume this could prove costly. Rather, developing a thorough understanding of the known, likely and suspected factors that will impact utilities over the next 20 years will help shape a principles-grounded vision. But externalities alone do not define the future; it evolves in part based on how participants in the game react to challenges and future expectations. To round out this vision, it is important to assess how the utility industry, its customers, and the economy as a whole, will likely respond to events and make choices over time.

Some utilities, such as Oncor and Duke Energy, have already moved down the path. The intent is to share risk and return by bargaining with regulators to pass more cost for new technologies on to customers while at the same time offering new products and services like AMI and demand response that give customers more choice and control over their usage and cost.

There are three inter-related focus areas where greater depth of insight will greatly improve each utility’s strategy based on their vision: customers, regulators and providers.

  • Customers: How will they behave? How will they make choices? What will they value and ultimately pay for?
  • Regulators: How will compacts evolve? How will future outcomes be negotiated? How will performance be rewarded/penalized?
  • Providers: How will they fulfill their evolving role? How do they win in the future environment?

These focus areas are critical to bounding the complex question of, “What do you want to be in 20 years?” because they introduce new, realistic possibilities into the process–thereby challenging the traditional utility mindset. More specifically, they demand an externally informed, customized and realistic perspective on how customers, regulators and providers will react and respond over the next two decades. Without going through this important exercise, a utility will lack foresight and struggle to develop a sustainable strategy that achieves its vision when tested by the myriad coming challenges including customer enablement, resource conservation, plug-in hybrid electric vehicles, real-time dynamic pricing, and distributed generation to name a few. Therefore, utilities must begin to future-proof their strategies; otherwise the opportunities for derailment will be many, and precious time, investment and energy will be lost.

Capturing the Payoff

A plethora of business cases and corporate initiatives within utilities promise the largest of benefits, yet never seem to deliver. Often these endeavors fail because they do not engage T&D where the rubber meets the road–operations. Successfully transforming operations to achieve the corporate vision requires a three-pronged commitment that may involve fundamental change.

  • Work management: The entire process from work acceptance through design, scheduling and execution, to include outage management, may require reengineering and more robust system capabilities to optimize system utilization.
  • Asset management: Current investment priorities may need to be altered to align resources with transformational goals and maximize both system yield and meaningful customer choice optionality.
  • Customer operations: Empowering customers and leveraging technology to provide customers with more information and control over energy decisions may drastically alter the technical requirements and capabilities currently available to customer operations departments and customers themselves.
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So far, all these parameters of transformation have been discussed from and could be led from the top-down. But, for a sustained T&D transformation, there needs to be genuine support from the bottom-up. Generating and sustaining support will require meaningful and consistent engagement across three key groups:

  • Front line operators: Proactively leverage the system to determine priorities; they do not react to calls and visual inspections.
  • Field executors: Empowered to query for asset information, event history and condition; they are expected to make decisions and not just execute orders.
  • Business/system planners and technical support: Increasing knowledge about how the system behaves and what failure curves look like drives performance and risk optimization, achieving a new level of standards development and continuous learning.
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The difference between just having a classic change management plan and empowering change is night and day. The former is a legitimate tool, necessary but not sufficient. The latter is a combination of art, passion, discipline and risk-taking–not necessarily all core competencies in a utility culture. Transforming utility T&D operations will be a daunting task that takes time and long-term leadership commitment. Many may try to delay because of the perceived risk of upsetting the status quo. However, waiting for a “burning platform” to appear may prove more risky because the increased pressure to deliver an effective response will limit the time and options available and require much more out of leadership.

Developing and Selling the Roadmap

Effecting and empowering change requires leadership, but it also requires specific content and direction, packaged into what is typically called a roadmap. Roadmaps are visual guides that allow leaders to guide their organizations through sustained change into a future state that can’t be easily anchored from the present. They should be the product of broad involvement and be tailored to specific outcomes that are truly “customer-back.” Building an effective roadmap requires a thorough inventory of the practical choices available to the utility and the impact of each. It should provide an order of execution, a clear description of resources needed to ensure success, and multiple expectation mileposts so the organization can understand how and when the transformation will occur in no uncertain terms.

Articulating a clear plan requires big commitments and an understanding of the associated consequences. These include more than operational outcomes but also investor reactions, harmony with regulatory priorities, consumer acceptance, and possibly other external consequences including political responses to disturbing the status quo. Convincing these stakeholders of the case for transformation will require more than a typical business case that ensures investment certainty based on the present value of operational savings and capital avoidance calculations. Rather, utilities need to present the value of vital transformative outcomes like:

  • Changing the nature of the customer interface and relationship to more knowledge-based, tailored and targeted interactions;
  • Committing to long-term grid digitization;
  • Implementing high-adoption, customer behavior change programs;
  • Integrating and optimizing diverse resources (e.g. distributed generation and storage) and electric vehicles into grid management platforms;
  • Driving green enablement including customer-owned renewables while achieving RPS and energy efficiency standards.

The challenge will center on presenting these benefits and outcomes in a comprehensive, tangible and understandable manner.

The challenges facing proactive utilities are substantial. However, the challenges before a reactionary utility are actually much greater–just not as obvious. When confronted with the first test of this new emerging world, reactionaries may successfully chase down a satisfactory solution. But as the second, third, and incremental tests of the traditional operating model appear, developing effective, sustainable solutions will be much more challenging and likely lead to a series of suboptimal investments.

For those who have been in the smart grid trenches, this is not a novel idea. Many utilities have made and are making AMI/AMR investment decisions (as well as other decisions to include distributed automation and demand response) without a vision of the future, a tailored strategy or a practical roadmap. As a result, “one off” solutions are selected and uncoordinated, suboptimal and costly patchworks are created. To avoid this, utilities must decide whether they are prepared to make well thought-out transformational commitments today, or suffer the fates of making many sequential, high-pressure, reactionary responses while accepting increasingly more risk over time.

The Utility of the Future Starts Now

Now may be the best time to disrupt the status quo, given the focus on energy challenges in America and around the world. With each passing day, more constraints come into play, thereby limiting solution choices. Aging assets get older and those well past their design life get closer to their last day. Distributed generation continues to be installed, further advancing the move away from traditional central generation and distribution. Customers shift lifestyles when facing higher commodity prices, and PHEVs will begin driving home whether smart grids are ready for them or not. As a result, waiting may prove to be the most costly decision not only in terms of real cost but also opportunity costs. The utility that can proactively transform from the bottom up, which is where real change must occur, and artfully craft a “customer-back” orientation and value focus, which is where the true opportunities for differentiation exist, will reap tremendous benefits.

Robinson is a vice president of Booz & Company focusing on T&D, ISOs and smart grid. He has 19 years of consulting experience.

Mark Hoffman leads Booz & Company T&D Operations Practice with a focus on operational excellence, T&D transformation and mergers and acquisition services. He has more than 17 years of focused utility experience and assisted more than 50 investor-owned, municipal and cooperative utilities both domestically and internationally.

Christian Grant is an associate with Booz & Company within the Energy and Utilities Practice with five years of consulting experience. He has designed and assisted in the development of multiple smart grid business cases as well as other initiatives such as demand response.

Garrett Johnston is a senior consultant with Booz & Company’s Energy & Utilities Practice with more than 10 years of consulting and analytics experience. He has provided AMI / AMR, smart grid and operational excellence consulting services to many of the nation’s largest utilities.

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