On The Mountain: A Future View of Technology in the Utility and Energy Industries
Published in: Electric Energy Online
Date: 6/16/2006
By: Ethan L. Cohen
Why do people climb a mountain? Because it’s there. That is the fundamental statement of human nature. It drives our relationships, our societies and our businesses. Why do companies continually seek to innovate, compete and reach greater levels of success? Because it’s possible. The energy industry is not immune to this condition, even though the sluggish rate of change to-date might belie that in appearance. The industry is finally, waking up to see that it is a beautiful morning and a great day for climbing! What will the climbing route be like? Difficult? Steep? Totally vertical? This author thinks that the route will be totally vertical, and to boot, even with the best technology, the challenges faced by our industry are multiplied by scarce capital, competing demands, and wildcards that can turn once solid and well-justified business models upside down. In the sport of climbing, these challenges manifest themselves as overhangs, chimneys and headwalls. Surmounting these obstacles requires strength and skill, learning how to do things in new ways, like climb with our knees or slithering on our bellies or even bracing with our heads.
Even when we feel we are conditioned for the challenge there are still crevasses, mountain lions — e.g. the competition that comes from surprising places to steal our lunch, and the weather — e.g. war, disease, economic boom and bust cycles, and of course, natural disaster. Protections against these events are possible, if we assemble the right climbing teams, meaning partnerships of different people and companies with different strengths, just like porters, belayers, and lead climbers essentially work together. If we follow this model in the free market, this author’s prediction is that as an industry we will find success.
The basics of climbing revolve not just around information, intelligence and strength but also in communication.
The basic climbing commands are:
– “On belay!”– I am tied in!
– “Belay on!”– Yes, your partner I have validated that both you and I are tied on.
– “Ready to climb!” — I am ready to go!
– “Climb away!” — Me, too. I’m ready to work with you.
– “Take!”– I am falling, catch me! This command in particular has a double meaning, implying both that we need to help each other, and that if we’ve done this right, the rope holds, and we get another shot at our goal. Technologies and Trends Adventure Log
In the current environment we face a number of pervasive issues and challenging economic conditions all of which have major implications to what we know as a “Back-to-Basics” strategy of most utilities. My good friends at EquaTerra have helped me assemble a list of drivers.
Drivers for utilities in 2006 and beyond include:
– Strong likelihood of upward costs pressures over next two to five years:
— Fuel costs — natural gas, coal and transportation
— Labor costs, especially pensions and benefits
— Interest rates
– Aging assets and environmental needs will require increasing capital investments
– Phase-out of rate freeze plans forcing rate case proceedings
– Expected low single-digit top line growth in core businesses
– Aging workforce driving knowledge retention and hiring demands
– EPS growth will be difficult to achieve without cost reductions that offset cost increases and low revenue growth
– Internal cost reduction and process re-engineering fall short of required long-term cost/service levels
– Capital investment requirements for reliability and growth limits the capital available to transform SG&A processes
Subsequent CIS and Meter-to-Cash BPO Trends
– Larger utilities are entertaining BPO more readily than before.
– Natural gas utilities are entertaining BPO more readily in 2006.
– Water utilities are the least to be considering BPO in the current environment, though,
– Municipals are beginning to replace CIS at higher rates.
– IVR usage is becoming critical in reducing costs to utilities, and unified multi-platform customer communications will gain increasing focus and traction
Regulatory Factors in Utility Decision Making
– EPACT 2005 encourages demand response and the removal of barriers to demand response. – Demand response can be achieved in a variety of ways but many utilities are entertaining time-differentiated rates (which is also encouraged in the Energy Bill).
– Time differentiated rates typically requires new technology such as advanced meters, advanced metering infrastructures, meter data management functionality, and more importantly, the ability to bill the new rates.
Demand Response Trends
– DR market not yet well defined but changing extremely rapidly
– DR is expected to increase participation in ancillary markets for ISOs
– Utilities will increase reliance on DR for reliability
– Dynamic pricing will spread across North America for all retail customers and the impact should be very large
– Load control equipment: will move toward direct sales to retail customers.
– Economic DR will reduce need for emergency DR programs.
– Growing market for DR in providing reliability to utilities, and in ancillary markets with ISOs. – Third party provider DR programs meet customer needs will emerge
– DR equipment: Advanced metering infrastructure required for dynamic pricing
AMR Trends
– AMR is hot topic again for next two to three years
– Huge investment in AMR is anticipated
– AMR key question has changed from “should we collect meter data daily or more often?” to “how can we make this data available to different business units and customers in the right form on a timely basis?”
– AMR to drive new rates programs and to really impact cost and method of payment for electricity in North America and beyond
– In a UtiliPoint survey, one-third of utilities planning on collecting substantial numbers of meter readings are planning to work with an outside vendor to develop a plan for and possibly assist in leveraging the AMR data throughout the utility.
– Benefits of AMR: load forecasting, detailed energy use for customers, power quality, lower customer bill, outage management, system reliability remote connect/disconnect
– Regulators still need to be convinced of AMR/AMI business case and opportunity.
Lead-climbing in the Utility and Energy Industry
Lead climbingwho will lead and chart the path in the future? Trust is an element of lead climbing, as is expertise, experience and preparedness. True leaders will take the endeavor seriously and know that it’s a matter of life and death, not just for them, but for those who climb with them. True leaders will emerge from within the industry and from among those industry participants they have a glint of risk and restlessness in their eyes and yearn to push themselves and others to climb higher, achieve more, and see what human endeavor can produce
In climbing, lead climbers must not just be problem solvers, they must be problem-seekers looking for the dangers and pitfalls either to conquer them or avoid them. In addition, leadership experts from across the industry have acknowledged that successful leadership in an organization is in the creation of an enterprise that has employees who themselves who also act as leaders and lead. This author believes that in order to face and surmount competitive pressures the previous generation of industry leaders could hardly have perceived, managers need employees who think constantly and creatively about the needs of the organization. In other words, utility industry employees must have as much intrinsic motivation and as deep a sense of organizational stewardship as any company executive.
The Free Soloing Opportunity
For the intrepid, and some might say a little crazy, there will always be the opportunity to, as is said in the sport of climbing, “free solo.” Free soloing is a form of climbing whereby the climber does not use any hardware such as ropes, harnesses or other fall protection aids during their ascent.
Free soloing is commonly viewed as the purest form of climbing as the climber does not rely on anything other than their hands, feet and other body parts to complete the route. However, with that purity comes an extremely high risk of injury or death. Whilst the majority of free soloists only practice this technique on routes which they are familiar with and which are well within their ability to complete, they are at the mercy of the ever-present risks of rock-slippage, weather changes or other unforeseen circumstances.
Similarly in the utility industry, leaders and executives that decide to ditch the ropes and innovate in operations, the structure of asset ownership, or in business model and dare to free climb may recognize spectacular success or meet equally spectacular failure. Free soloing in the energy industry is about being bold in charting new courses to outsource core business processes, seek the development of new forums for conducting business such as the development of a demand response credit or environmental credit market, overhauling the business to fundamentally alter the cost to serve, etc.
This author, and I’m sure many in the industry, eagerly looks forward to seeing the fate of our industry’s free soloists, but it will be hard to say if any of us will be able to participate since as the name of the method implies, this is a lonely and high exposure endeavor.
There are Mountains Everywhere
Regardless of where one lives, either in the Asia Pacific Region, Africa, Europe or the Americas, there are mountains in virtually every direction marked on the compass. How utilities will prioritize their treks, map their climbs, and optimize these plans is a prediction difficult to make because of the limitless details and stratagem that have to be considered. However, UtiliPoint research and this author’s climbing experience suggests that much industry effort will be made into plying new roots and new technology into the pursuit of transforming data into useful information and knowledge.
Importantly, because it seems clear that data integration and data analytics between systems are driving new utility IT strategies and utility IT vendors to data and knowledge integrated solutions. The following schematic is one view of where old utility investment priorities lay and to where these priorities are shifting in the short to medium term.
From a slightly different perspective it is reasonable to believe that utilities in the process of bringing systems closer together and sharing data and information across IT and business silos will find that there is an expansive number of business processes and functions that can be transformed away from pure operations cost center and more into a more dynamic operations node that can directly contribute to enterprise coffers.
Industry Globalization and the Environment
Despite the cynicism that persists in the United States, energy environmentalism is at the top of the agenda in most of the rest of the world. As described earlier, the next generation of industry leaders are going to have to be vastly better trained, exponentially wider trained, longitudinally broader in outlook, and massively stronger in their convictions to meet the challenges posed by globalization and the environment.
Like the Seven Summits Challenge, which calls for participants to climb Mount Everest (Nepal/Tibet), Aconcuagua (Argentina), Mount Denali aka Mount McKinley (Alaska), Kilimanjaro (Tanzania), Ebrus (Russia), Vinson Massif, (Antarctica), Mount Kosciuszko (Australia), tomorrow’s utility and energy industry leaders are being summoned forth to solve some of the biggest and most intractable issues known to man. The main issue in this regard is how to create a stable platform for intergovernmental environmental stewardship while at the same time creating a market based trading regime in an environment when energy demand is rising and fossil fuel supplies are dwindling. Incidentally, only 78 people have ever completed the Seven Summits Challenge.
This author believes that energy technology will play a critical role in shaping the issues surrounding globalization and the foundation for solving the multi-dimensional challenges of environment.. As an example of the already growing nexus of the energy industry, technology and the environment, one needs to look no further than to the CleanTech (clean technology) investments being made all over in Europe, North America, and industrialized Asia. CleanTech investments differ from traditional energy technology investments in that they meet two distinct criteria simultaneously. ClenTech investments hold the promise of both helping the environment and making a profit – ideally a very big one. CleanTech investors are considering everything from fuel cells to specialized software and even environmental credit trading markets.
We are really only now at the beginning of what this author believes will be a Herculean, hundred year technology and economic push to rationalize industry globalization and environment questions. The mantle of fossil fuels is hard to cast off. Fossil fuel is like the wool, tweed and leather that climbers used to wear. Climbing gear has gone high tech and embraced new materials, new production, new technology and with time is producing astounding improvements in the sport. Energy and utilities leaders must now do the same with the new technology at their disposal in getting more of their companies to the summit!
The Next Mountain: Conclusion
Summiting the mountain is tantamount to success but summiting one mountain cannot be the goal for a utility or for the industry. There is always the next mountain, the next climb, the next business challenge. Funding climbing expeditions is almost always expensive and so getting the right assistance, insight, and expertise is critical to success but there are limitations. At the end of the day, this author’s climbing analogy falls apart. Human endeavor has no true summit. It is the journey, with its arduousness and passion, that makes us who we are. If you have read this article then my thanks to you, fellow climber, I look forward to our next adventure.