By Katherine Tweed
Lee Willis rides the rails on a regular basis. So when the utility industry veteran and current vice president of the consulting firm Quanta Technology speaks at utility conferences, he likes to offer a train parable.
The brief historical lesson starts with the stagecoach, the dominant form of transportation a few centuries ago. With the advent of the steam engine, people first tried to fit the transformative technology into what they already knew, and the steam horse was born. But as history would have it, the steam horse was merely one stepping stone to steel wheels on steel rail: the steam locomotive. Stagecoaches became a relic, little more than a logo for Wells Fargo.
“Today we’re fitting ‘smart’ into our traditional distribution system and judging it by our traditional values,” Willis said at Distribution Automation 2011. He warns that the power industry could go the way of the stagecoach. To avoid that, he has a few suggestions. First, utilities need to change what the wires are for. Along the same lines, there needs to be a change in how the utility defines itself, including its purpose, role and the services it offers.
He acknowledges that it is tough to design plans for an endgame that hasn’t yet been defined. “You can’t fault an engineer who’s never built a jet for not building the best jet plane,” he said. However, there are ways to prepare.
Willis said that as markets deregulate, he sees the utility as the middle man between the consumer and the energy market. While similar comments often come from outsiders who have joined the industry recently, and most often from telecoms, Willis started out his career at Houston Lighting and Power Company before moving to ERCOT and then to ABB, where he stayed for more than 20 years. If his conference session ran longer, it’s easy to imagine he would shout, “I’m mad as hell and I’m not going to take it anymore.” But he’s as excited about the future as he is flustered by the lack of transformation in his industry.
Solutions will involve building differentiated solutions around the customer. The customer has been a hot topic as of late, even at a distribution automation conference, but much of it is still lip service. Utilities often mention their commitment to customers then immediately talk about operational benefits.
When asked who’s getting it right, Willis immediately offered up Duke Energy (NYSE:DUK), which champions energy efficiency and its CEO Jim Rogers backed CO2 cap-and-trade legislation. He said that the executives at Duke approach the business by asking themselves, ‘How can we justify ourselves in a world where anyone could run wires and sell power?’" To answer that question, they’re bringing in new blood that can offer fresh solutions. “If you want out-of-the-box thinking,” said Willis, “you can’t have people who grew up in the box.”
Willis agrees that the regulatory framework is as much of a hindrance to innovation as utility culture. He does not fault engineers who are fitting smart grid technologies into an existing grid, but rather argues that this is the time to think big about how to take the platform to transform the business itself. If utilities don’t do it, others like Google (NASDAQ:GOOG) -- or a company that is just a whim of some 23-year-old today -- will take advantage of the opportunity. But the utilities do have one advantage over the Googles of the world: they own the wires.
With respect to distribution automation, Willis urged utilities to look far beyond the operational benefits. “Don’t just fill the potholes in the electric highway,” he warned. “Or you’ll just be filling them while others have products and services that can ride on it.”
Willis suggested that in a smart world, utilities could offer societal benefits that competitors could not. During an emergency situation, the utility can make sure that essential services are turned on in a neighborhood, such as ensuring that stores are open for people to buy food and water, providing emergency services, refrigeration, etc. -- while not allowing lights in homes to go on. “Begin to offer, institutionalize, and socialize services and benefits that depend on synergy,” he suggested. He also sees opportunities in managing solar assets or electric vehicles as just two areas in which utilities could own market space, if they act now.
After his session, Greentech Media asked Willis how utilities would bridge this cultural chasm to get to a place where they will be the sort of creative force that can develop services and benefits that will keep customers from jumping ship. He wasn’t sure they all would adapt and survive. “Eventually, the old folks roll over and die,” he said. Consumers have high demands and fickle tastes, and there might be some utilities that simply cannot embrace a changing business model.
What Willis often doesn’t share about his steam engine parable is that the companies that made steam engines were essentially put out of business by diesel engines. Even if you successfully navigate the first transformation, there needs to be a culture of innovation in place to ensure that a firm can stay relevant.
“If your smart phone can tell you where the closest sushi bar is, and then tell you if your friends are already there, and then you can check your bank balance to see if you can buy the first round of drinks,” he said, “then just having your smart meter shave a little off of peak demand is not good enough.”