Forget the Customer Engagement Debate; Think Risk Taking Suppliers

Jose Antonio Vanderhorst-Silverio | Jun 25, 2010

        

 

The outstanding Maryland PSC’s leadership decision is a potential precedent, which will help utilities and state governments accept the fact that the utility partnership with a regulator run out of steam. Instead of a predictive customer engagement debate to extend the obsolete indirect regulated risk free business model, for example on utilities AMIs, we need a new bargain in the power industry to facilitate a customer partnership with one of several suppliers having an emerging direct competitive risk taking business model. 

Forget the Customer Engagement Debate;Think Risk Taking Suppliers    By José Antonio Vanderhorst-Silverio, Ph.D. Creator of the EWPC-AF Systemic Consultant: Electricity First posted in the GMH Blog, on June 25th 2010. Copyright © 2010 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write tojavs@ieee.org to contact the author for any kind of engagement.

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Under the article Smart grid's not-so-good week, that Kate Rowland posted in her Intelligent Utility Perspectives Blog, there are four comments at the moment. The first is taken from the EWPC Post Every State Government Should Follow Maryland PSC's Leadership, the second is a comment by Larry Fisher minimizing the situation as business as usual, and the other two are by Kate herself adding information. I have written this article to highlight the severity of the situation, to show the opportunity to avoid an unnecessary debate, and to reiterate the urgent need for leadership by state governments:

 

Hi Kate and Larry,

 

With much respect to both of you, I suggest that there is a big difference between two situations that can be classified as strategic and tactic situations for the power industry. The smart metering strategic blow is the outstanding Maryland PSC’s leadership decision which may evolve into a real hurdle for some utilities investors to preserve the public interest; without the impact of the strategic blow, the tactic blow on PG&E is just a mare administrative speed bump, which may not be a real source of a setback for investors.

 

The leadership blow may become a precedent setting setback by the highest authority (which is well overdue for a new mandate) based on what: “TheProposal asks BGE’s ratepayers to take significant financial and technological risks and adapt to categorical changes in rate design, all in exchange for savings that are largely indirect, highly contingent and a long way off. We are not persuaded that this bargain is cost-effective or serves the public interest, at least not in its current form.”

 

To understand the effect of such a precedent, we should remember the California debacle that stopped the leadership of the power sector restructuring movement in most of the world for a decade. As can be seen next, I am not alone in the line of thought of a hurdle instead of a bump.

 

The introduction of the Smart Grid News Friday Special, of June 25^th, 2010, says “Maryland PSC's denial of Baltimore Gas & Electric's stimulus-backed Smart Grid initiative earlier this week took many by surprise - like a slap in the face. Clearly it's a wake-up call that can't be ignored. In today's issue we're highlighting news and views on the ruling, what it means, and where we go from here.” 

In particular, this is a Quick Take of the Staff Report "Uh-Oh: Maryland PSC Dumps BG&E's Smart Metering Project; Utility Exec Says He's ‘Dumbfounded’" posted on SmartGridNews.com: "If you haven't guessed, this is a severe "uh-oh" moment that could reach well beyond Baltimore. The Maryland PSC decision could trigger similar responses from other regulators and make other utilities with pending metering projects gun-shy, to say the least."

 

From a design and leadership point of view, these “Uh-Oh” problems, that suggest a pause, are easier to face proactively by increasing the scope that resolves the risk taking situation of the urgently needed transformation of the power industry. 

 

Reading the essence of the proposal, the potential precedent is intimately related to the consumer behavior change that I added at the end of my first post. For that key reason, the integral situation is a top agenda item for State (and Federal) Governments. As can be seen, under the discussion of Kate’sThe Dynamic Pricing Debate article, the customer engagement issue emerged strongly. That discussion allowed me to produce the post “The Dynamic Pricing Debate Shows that Utilities Won't be Able Engage Customers that I quoted in my first post.

 

To further support the need for restructuring, I add a new insight on that critical customer engagement issue that make it unnecessary. In response to a person that wrote "... consumer behavior change will be difficult to achieve in this area..." to start a LinkedIn discussion, I now say that “Instead of a predictive response, I now have an emerging one.” My initial take was that "... there is no need at all for a customer behavior change debate, which I realize may be a mean to extend the obsolete and extraordinarily complex IOUs-AF [Investor Owned Utilities Architecture Framework]..."  

To enable the development of risk taking business model innovations, I added that what is needed is an architecture competition "Under the EWPC-AF, [where] competing Second Generation Retailers (2GRs) go through Geoffrey Moore’s Technology Adoption Life Cycle, by trying to Cross the Chasm (not easy) and then go through The Tornado to get to Main Street."

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