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New Yorkers are always a tough crowd. They boo the hometown sports teams for poor performance; their food critics pan a famous chef who opened a new restaurant and, they even think the gas rationing plan for the area performed better than the local utilities!
The electric utility industry's performance in Super-storm Sandy is probably unmatched in terms of cooperation with utilities sending repair crews from across the nation who worked tirelessly to restore power to the devastated areas. Crews worked 14-hour days in difficult conditions and by all traditional utility measurements deserved an A plus...undoubtedly the nomination for awards from the Edison Electric Institute and American Public Power Association will hit an all time high. Yet, as far as the public is concerned utility performance was "excellent or good" just 37% of the time. In fact, survey respondents in the Quinnipiac University Poll1 ranked utility performance "Not so Good" or "Poor" 57%.
In fact, survey participants ranked politicians actions as higher. New Jersey Governor Chris Christy got a whopping 89% approval rating; New York Governor Andrew Cuomo 85% and even Mayor Michael Bloomberg, perennially hovering in the 50% range got a 75% rating. Even gas rationing received a higher rating than utility performance, as did the often-beleaguered Metropolitan Transportation Authority.
While it may be simple to blame the attitude and impatience of New Yorkers and others in that part of the world, the reality may be different in that the industry's view of performance is not aligned with that of its customers. While utilities measure performance in SAIDI and SAIFI, customers measure performance in how quickly their lights come back on in comparison to their neighbors. The people of Staten Island, so battered in the storm, could look across New York Harbor and see the lights of lower Manhattan blazing. People blockaded from their homes on the Jersey Shore reacted to the fact the lights were on in the Atlantic City Casinos.
It is also important to understand the mood regarding global climate and its impact on the perception of the industry. A total of 78% of the people in the survey believe that Hurricane Sandy was a direct result of global climate change. And, remember, the utility business is blamed for global climate change.
Here is the silver lining in the survey: 80% of respondents said the city, state and Federal government should spend billions on infrastructure to prevent future storm damages and this rises to 88% if it reduces the cost of disruptions and restoration. The industry should use the impacts of Hurricane Sandy and the awareness of the need to invest in infrastructure as a rallying cry to build out hardened intelligent infrastructure.
This is a significant opportunity to justify investments in intelligent infrastructure, to show the investments that have already been made thus far had value for the public and to educate all stakeholders in what it takes to keep the lights on.
The electric industry has done too good a job in terms of performance -- usually exceeding 99.99% reliability -- while under investing in infrastructure and education. The utility industry should tie its efforts to build infrastructure to the story of a changing environment as opposed to many of the current business cases, which have overestimated direct customer savings and underestimated the system benefits.
As an industry, we need to take the following steps immediately:
Stakeholder outreach. The electric utility industry does a great job in reaching out after the fact or just before a rate increase. Now is the time to bring together stakeholders to review storm performance (in the Northeast) or preparedness (in the rest of the country.)
Customer education. Bill inserts and press releases are too little too late. Active customer outreach and education should be undertaken while Hurricane Sandy is fresh on everyone's minds.
Smart grid analysis. Now is the time to review all business cases and plans for intelligent infrastructure. Dust off the old justifications; track real savings and how intelligent infrastructure helped or could have helped in a storm situation.
Proactive political engagement. The industry knows it will be in the spotlight. Use the storm as a reason to reach out and discuss what was done, what could have been done better and what will be done differently the next time.
The electric industry may never be tops in the polls -- but at least we should be able to beat out gas rationing.
1. Results of the poll can be found at http://www.quinnipiac.edu/institutes-centers/polling-institute/new-york-city/release-detail?ReleaseID=1816
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
To politicians, a crisis is an opportunity to gain popularity by demonizing suppliers of food, water and energy and accuse them of being price gougers. The classical free market operates on supply and demand . . . when there is a glut, suppliers drop prices to clear out the inventory. When the supply declines, suppliers increase prices . . . . higher prices send a signal to other suppliers of possible opportunities to do business.
During a crisis when the supply is curtailed, the choice is either higher prices or depletion of the supply due to enforced low prices. Back in the old Soviet Union, prices remain high during a time of glut and perishable merchandise literally decayed on the store shelves. Other shelves were empty as the space had been allocated to items that were in high demand . . . and the prices were dirt cheap.
With regard to the floods at New York City and at New Orleans, several parts of these cities flooded previously. Municipal councils allowed development to go ahead in areas that had previously flooded. Declaring the severely flooded areas off-limits to new development would encourage re-location to higher ground. Except that there is the prospect of property taxes from buildings in low-lying areas . . . . too attractive for politicians to "NO!"
New York will flood again, as will New Orleans . . . perhaps during a future super storm that may occur 30-years or 40-years from now.
Ferdinand E. Banks 12.3.12
Very interesting article. Very informative and useful for me. And very interesting comment Harry.
Jose Antonio Vanderhorst-Silverio 12.3.12
I agree with Fred. "Very interesting article. Very informative and useful for me. And very interesting comment Harry." However, I disagree with Mark's conclusions that "As an industry, we need to take the following steps immediately."
The Special ReportEPRI: Utilities have a LOT more to learn about what customers want, posted on SmartGridNews.com, ends with "calls for cooperation and collaboration among utilities in their efforts to come up with verifiable business models that yield actionable results for what customers really want. Without that collaboration, getting those valuable results could take a decade or more."
Why wait for so long waiting for collaboration? Under a customer orientation, instead of collaboration, what's needed is to open the power industry to a competition of business models. Please take a look at the post Customer oriented electricity. As can be seen next, the real problem is that the world changed.
In the post The Utilities’ Business Marketing Myopia Manifesto, I quoted that "... utilities did not stop growing because the need for energy based services (light, air conditioning, refrigeration, etc.) declined. That grew. The retail side of utilities are in trouble today not because that need was filled by others (competitive retailers, energy services companies, energy management companies, solar panel vendors, demand side energy efficiency suppliers, demand response companies, battery manufacturers) but because they could not be filled by the utilities themselves. They let others take customers away from them because they assumed themselves to be in the utility business rather than the energy based services business. The reason they defined their industry incorrectly was that they were utility oriented instead of services oriented; they were product oriented instead of customer oriented...
At the moment there is also one comment I added that says:
Why do customers need to keep waiting for cooperation among electric utilities that will lead to nowhere? There was one person that told me in a private message that he didn't understand that question. I am writing about the smart grid transformation. Yes most customers don't know yet, but sooner or later they are bound for a big surprise.
I am shifting the expectations 180 degrees. For a long time utilities have been trying to learn how to engage customers to develop their smart grid. Utilities are pushing technology. It's the Smart Grid that's being pushed under a regulator orientation. For customers, that's the wrong approach.
It should be customers pulling technology. I am claiming it's the Smart Market that's being pulled under a customer orientation.
As you saw, that question is based on the short energyblog.com post that introduces "Customer oriented electricity" and "The Utilities' Business Marketing Myopia Manifesto." Think about the railroads marketing myopia. I am now changing the question to make it familiar. Can you please tell me, why did customers needed in any way to wait for cooperation among railroad companies that lead to nowhere?
Jim Beyer 12.3.12
In my opinion, electric utilities malign themselves with their customers due to their pettiness. In Michigan, it was due to their squabbles about how much they should pay back consumers for their own generation (solar or wind) even though it represented a teeny tiny percent of their overall generation (less than %0.01).
With respect to hurricane Sandy, I heard much anger at their turn-on policies. They'd get a home that had been damaged and/or partially flooded hooked up again, but they wouldn't turn on the power until the entire home had been inspected so that actually giving it power would be 'safe'. This delayed home being powered for several days. I think they should have at least given the homeowner the option of signing a disclaimer and allowing them to throw their main switch themselves.
The more any entity (gov't or company) seeks to be your nanny, the more competent and responsive it needs to be, lest the 'children' seek to rebel.
Michael Keller 12.3.12
This may be a more profound problem than simple better communications.
I believe there is a deep sense of entitlement as well as lack of personnel responsibility in vast segments of the population, with politicians (mostly liberal) preying on this defect by promising benefits while deflecting the spotlight away from their own (and the governments) shortcomings. The liberal media fuels the combustible situation because they are rooting for election of their liberal cohorts.
As Harry observed, large sections of the coastline are built on low-lying land over which the sea washes from time-to-time (and has from time immemorial). Rather than admit this fact, the politicians use the tragedy to further their own political agenda (as in more power and money for themselves).
So what is a utility to do? I suggest simple 30 second or so TV spots showing trucks & crews from all over the country working to fix the disaster, with a small note "This message paid for by the electric utility industry". I suspect EPRI and similar organizations could be persuaded to kick in some money for the spots.
Actions speak louder than words.
Jose Antonio Vanderhorst-Silverio 12.3.12
"While utilities measure performance in SAIDI and SAIFI, customers’ measure performance in how quickly their lights come back on in comparison to their neighbors." is a great example to contrast the averaged risk service in the old analog TV centered world versus today’s individualized risk service in the new digital Internet centered world.
No TV spot will address the discrimination being faced by a customer in an Internet world. Forget regulator oriented electricity, think customer oriented electricity. Yes customers don’t need nannies. As the responsibility to serve without discrimination is not available, let customers buy electricity of the risk they are willing to pay for.
That’s the marketing myopia – "... utilities did not stop growing because the need for energy based services (light, air conditioning, refrigeration, etc.) declined. That grew. The retail side of utilities are in trouble today not because that need was filled by others (competitive retailers, energy services companies, energy management companies, solar panel vendors, demand side energy efficiency suppliers, demand response companies, battery manufacturers) but because they could not be filled by the utilities themselves. They let others take customers away from them because they assumed themselves to be in the utility business rather than the energy based services business. The reason they defined their industry incorrectly was that they were utility oriented instead of services oriented; they were product oriented instead of customer oriented...”
Michael Keller 12.3.12
... huh? Customers need power without having to engage in complicated arbitrage schemes and allied complications. Seems simple enough. So provide low-cost power.
Jose Antonio Vanderhorst-Silverio 12.3.12
You mean low-cost power… that’s also reliable under a responsibility to serve. As can be seen from the above discussion, those days are long gone. That’s what the marketing myopia explains.
Customers need to have the opportunity to combine central service with self service under a customer orientation at their discretion at any given moment. That’s how people were able to buy cars and fly planes, with other infrastructure that were not rails. A new Energy Policy Act is needed to make use, for example, of the Internet infrastructure that will enable the electricity Smart Market place.
I wrote above that "I am writing about the Smart Grid transformation. Yes most customers don't know yet, but sooner or later they are bound for a big surprise…" All customers need is set and forget systems, that they perceive gives them the value they need in the competitive Smart Market place, like they do, for example, when they buy a computer laptop. The surprise will arrive when the get a proposal they are not expecting but will love. That's what the business model competition is all about.
Donald Hourican 12.4.12
While "80% of respondents said the city, state and Federal government should spend billions on infrastructure to prevent future storm damages and this rises to 88% if it reduces the cost of disruptions and restoration" the Quinnipiac survey should have followed up with "Since the 'government' is really 'you' what are you willing to pay for improvements in infrastructure?"
Len Gould 12.5.12
M Keller -- "Customers need power without having to engage in complicated arbitrage schemes and allied complications. Seems simple enough. So provide low-cost power." -- So you're solution is simply to demand, from a government, whatever service you want at whatever price you want. Immediately after complaining bitterly about "people having a deep sense of entitlement" fostered by "liberal politicians and media".
If you were any less consistent a republican, I'd have to suppose you were part of the Tea Party LOL.
Greg Tinfow 12.6.12
Here in California, we generally have to beat a 2/3rds threshold for votes on any tax increases. Despite that high hurdle, people do vote to tax themselves--to the tune of $7 billion/year just a few weeks ago--when they know what they are getting for their money. The utility industry needs to catch up to the needs of the future, not the 1930s regulatory policy that they've operated under for 80 years. Hurricanes, renewable energy, and global warming provide the industry with an unprecendented opportunity to remake themselves into what they should have been all along, energy service providers rather than monopoly power producers. As tempting as a "tough love" strategy may be to those who believe IOUs are the root of all our energy problems, the reality is that they behave exactly like any other profit-oriented business, despite regulatory restraints stronger than just about any business.
The future is going to require both a smarter energy infrastructure and a different kind of energy company than in the past. The transition is not going to happen overnight, and the cost of bringing the under-funded distribution infrastructure up to speed will not be cheap or easy. It is doable however, and the better utilities are at communicating both the costs and the benefits, the sooner we'll get moving forward.
Greg Tinfow, CEO Energy Informatics LLC www.energyinformatics.com
That future of electric utilities is not at all doable. Jesse Berst SmartGridNews.com post Get ready! FERC spotlights 3 major challenges for utilities is introduced with “The bad news – there are big, big challenges looming for the electric utility industry. The good news – agencies and regulators are increasingly aware of these painful truths and, therefore, increasingly willing to discuss solutions. That was the message from FERC Chairman Jon Wellinghoff during a briefing on Capitol Hill this week.” But that good news is not at all for the utilities.
This is why! Ever since the 1980s, utilities have had an "... unprecedented opportunity to remake themselves into what they should have been all along, energy service providers rather than monopoly power producers," as Mr. Tinfow said. Please take a look at the article Why the Current Smart Grid Process Doesn’t Let the New Steve Job Connect the Dots in two key events where they lost that unprecedented opportunity: the Energy Policy Act of 1992 and once again in the development of the Integrated Energy and Communication Systems Architecture (IECSA) project, circa 2003.
The situation that utilities face today were clearly anticipated in 1982 in chapter 4 of John Naisbitt’s bestseller Megatrends: Ten New Directions Transforming Our Lives, on the "Law of the Situation: the railroads did not understand."
Suppose that somewhere along the way a railroad company, sensing the changes in its business environment, had engaged in the process of reconceptualing what business it was in. Suppose they had said, "Let’s get out of the railroad business and into the transportation business." They could have created systems that moved goods by rail, truck, airplane, or in combination, as appropriate. "Moves goods" is the customer-oriented point. Instead, they continued transfixed by the lore of railroading that have served the country so well - until the world change.
Of this phenomenon Walter B. Wriston, chairman of Citycorp, in 1981 said: "The philosophy of the divine right of kings died hundreds of years ago, but not, it seems, the divine right of inherited markets. Some people still believe there’s a divine dispensation that their markets are theirs - and no one else’s - now and forevermore. It is an old dream that dies hard, yet no businessman in a free society can control a market when the customers decide to go somewhere else. All the king’s horses and all the king’s man are helpless in the face of a better product. Our commercial history is filled with examples of companies that failed to change in a changing world, and became tombstones in the corporate graveyard."
Len Gould 12.8.12
I think its foolish to expect a regulated monopoly business to voluntarily give up its monopoly simply to increase their likelihood of staying modern, or even of joining the current century. They'll need to be forced into their future by regulators and legislators, no doubt kicking and screaming.
Jose Antonio Vanderhorst-Silverio 12.8.12
My comments are certainly aimed to federal and state governments, as well as for entrepreneurs. The history of railroads is a great example to emulate.
Malcolm Rawlingson 12.9.12
I must admit to being baffled by the continued use of electric cables strung along wooden poles as the way to move electricity in the modern age. Time after time year after year we see line crews sawing up fallen trees and repairing broken poles in some part of the continent that gets hit by a storm.
Spend the money and put the cables underground. Once it is done it is done. The the power will not go out when some nitwit knocks out the power network by driving into a power pole, or a tornado or other weather event destroys a local distributing network. The Cubans put their cables on concrete poles - well away from trees - so they don't get taken out every time there is a hurricane. We in the "advanced economies" put our power lifeline on wooden sticks next to trees so that we lose power every time there is weather event.
Stupid is doing the same thing over and over again and expecting a different result.
Malcolm Rawlingson 12.9.12
Very good observations regarding companies not changing with the times. Kodak has got to be the outstanding one of recent years. They were the kings of the film camera until digital electronics, i-photo and computers wiped them out in an entirely predictable way.
Utilities are NOT providers of electricity - although they think they are. They are providers of ENERGY and energy services and they seem incapable of amalgamating the distribution of electrical energy with the distribution of all forms of energy to provide the customer with the cheapest combination.
In an era of cheap natural gas utilities still cling to the notion of burning the gas in power plants at 60% efficiency or less to make electricity, sending it along power lines and through distribution transformers to be converted into heat in hot water tanks or electric heaters.
It is better to pipe the gas into the home and make electricity there through a methane fuel cell. That technology is getting to a mature stage and will wipe out electricity only distributors. Why pay for two service charges when you can do it all with one.
Those days are not far off and it is highly probably that electricity distributors ws we known them today are done like a dinner - but they don't know it yet.
Jose Antonio Vanderhorst-Silverio 12.10.12
Thank you for your kind appreciation and an interesting comment. I guess the in-home electric generation market is to utilities, what cars were to railroads. But, a customer orientation is better served when customers are able to have also competitive central generation electricity, for example, backup through a T&D wires only utility in order, as you say, "to provide the customer with the cheapest combination" to in-home distributed generation.
Unlike Kodak, which was in a competitive market, utilities are being protected like railroads were. In order to do that, federal and state government’s actions are required as soon as possible to open the power industry, as they did to railroads.
Bob Amorosi 12.10.12
Jose and Malcolm and Len are all right on. The future of energy use must sooner or later become customer centric, with digital communications enabling consumers to buy energy at will (like using Len's IMEUC market system or something similar for electrical energy from the public grid), and with the options of generating their own electricity on-site (like using Malcolm's reference to methane fuel cells).
The ultimate future customer would have an on-site electricity generator that they can sell excess capacity into the public grid, or just sell to their local neighbours through a private micro-grid, or buy energy for their own use using digital communications and real-time prices through an unrestricted energy market.
If governments don’t enable this evolution for consumers, in time consumers will eventually opt out of the public electricity grid all together. Our distribution-only utility companies and large central generation utility companies will suffer the consequences as Malcolm says.
Malcolm Rawlingson 12.10.12
Bob, Having worked in this industry now for well over 40 years I do fear that the consumer will start to move away from the public distribution system. Up to now it has been quite difficult and expensive to do that and most people cannot really be bothered. But as different technologies (like solar panels and methane fuel cells) get better and cheaper a whole new world of options opens up. The reason I say "fear" is that if those that can opt out of the public system (usually those that can afford it) do so then the maintenance of the public system then falls on fewer and fewer people and the price inevitably will go up for those unable to afford it. I can easily foresee the day when a consumer with access to natural gas will install a purchased (or rented) methane fuel cell and disconnect from the public grid. Why would you pay a standing charge (monthly connection fee) to the gas utility AND the electric utility when you only need one. In addition fuel cells will provide hot water as a by-product of their operation so their efficiency will be very high. In my house I originally has a 15kW electric furnace that was used regularly throughout the winters here in Canada. When the natural gas supply was laid I immediately purchased a condensing gas furnace that operates at around 96% efficiency and cut my energy bill in half. Consumers are not blind and they see that their electricity bill is made up of all kinds of fees and the actual electricity consumption is rather a small part of the total they pay (at least in Ontario). If methane fuel cells come to market I can see very large numbers of consumers making the switch and disconnecting from the power grid altogether.
That will be very bad news for utilities. It is certainly not something I would like to see happen but of course technology has a habit of doing that to those who are asleep at the switch. With the enormous supplies of natural gas that are coming on stream in North America I think that there will be a significant shift from using gas fueled power plants operating at 60% efficiency to methane fuel cells operating at 80 or 90% efficiency. The fuel cells are completely silent and there are no moving parts to wear out. No doubt there are still some technical hurdles to overcome but this scenario once it unfolds will be unstoppable. Any one with a methane gas supply will adopt it. Utilities that do not understand this are going to get a big wake up call.
Of course a utility with any foresight would be exploring how to capitalize on this technology by renting or selling the fuel cells so that their customers can produce their own power - but I am sure that most will just hope things stay the way they always have and - like Kodak - will wake up to find their business model just collapsed.
While I do not wish this scenario on utilities it must be said that those that do not learn the lessons of history are bound to repeat it.
When I see farmers with land and large roof tops installing solar panels in a cold climate like Canada it is clear that the desire for off-grid power production is very strong and when that capability is possible for any consumer with a methane gas supply I would be very concerned if I were a utility company.
Bob Amorosi 12.11.12
"When I see farmers with land and large roof tops installing solar panels in a cold climate like Canada it is clear that the desire for off-grid power production is very strong "
Sad but true Malcolm. I also agree with the rest of your last post 100%.
One of the reasons many consumers have a strong desire to get off the grid someday is the age-old curse of recurring bills that consumers hate but must live with. To make matters worse for our public electric grid, the rates consumers pay continually go up (when was the last time you can remember they went down significantly?). The icing on the hatred is the fact consumers cannot "shop" for electricity from the grid like we can for other energy sources like fuels. We are forced to pay the regulated rates to our monopoly distribution utility company with our only choice being to use less if we want to pay less on our bills.
Yes indeed our utility companies are in for a rude awakening in Canada. To your point about methane fuel cells in the future, the majority of residential consumers in the large urban population centers in Canada ALREADY HAVE a natural gas supply pipe into their homes for central heating and often for hot-water heating. So most of us Canadians are poised to take full advantage of what you are warning about.
It promises to be an exciting future for the use of electrical energy up here in polar bear land. Stay tuned. Bob
Jose Antonio Vanderhorst-Silverio 12.11.12
Those ideas sound very good. However, I would suggest that they might be very risky in the long run, for example, just like regulator oriented electricity. It means that you guys know what the future would be like. I just done buy that.
I now am changing what Malcolm suggested above "... to provide the customer with the cheapest combination." I guess it should be to let the customer go to the open marketplace and make his/her own decision of what he perceives to be the cheapest combination. That's what customer oriented electricity means.
Malcolm Rawlingson 12.15.12
I agree to a large extent Jose that no-one really knows what the future will look like but once can certainly see the trends. Most of them point away from the set up we have now. When I read of lighting systems using nano-particles embedded in plastic that can produce as much light as a 100W incandescent using milliwatts of electricity AND that can be tailored to provide any kind or colour of light you want including natural daylight then I would be very concerned if I were a utility.
It means two things - a small solar panel and a battery can light your entire house and the light bulbs last forever.
If methane fuel cells come to fruition then you can run your entire house from the gas supply - no need for a utility connection. Electric motors may present a problem but I am sure that there is research going on there too.
While we may not be able to foretell the future we can certainly see the trend away from what we have now.
Jose Antonio Vanderhorst-Silverio 12.16.12
There is a lot of things we simply don't know. There are many thing we don't know, many of them, are social, economic, etc.
The ones we know might be very few. Is the US dollar reduce its value 30% as a result of the fiscal cliff? Will thorium nuclear reactors be funded starting next year? Will global warming negotiations affect natural gas? What if fracking get into trouble?
Len Gould 12.17.12
Malcolm, modern electronic variable frequency drives are so efficient and cheap to build that no household motor requirement is a problem, regardless of power source available (varying frequency / voltage AC, DC, single or multi-phase).
Jose, I have a very hard time forseeing any near-future problem with natural gas supply in N. America. Even if 'fracking gets seriously curtailed in the US, there is now enough available in Canada (Northern BC shales, Saskatchewan's share of the Bakken shale, the continuation of the Marcellus shale into Ontario and Quebec, the Mackenzie pipeline etc.) About 1,000 Tcf resources. Canada and Us together consume about 27 Tcf / yr, meaning Canada alone, with present known resources, can supply N. America for the next 40 yrs at current usage. Then there's the Artic islands and offshore east coast.
Of course the US will likely continue to produce a large part of its consumption domestically, (about 90% presently) but my point is that even IF ALL 'fracking were halted in the US, there would not be any serious risk of running out before fusion power becomes commercial.
Len Gould 12.17.12
Of course, consumption in the US is growing fairly rapidly, perhaps 5% / yr recently, which is a worrying trend. About 25% of US consumption is power generation, growing quite rapidly.
Once again, there is still a lot of things we simply don't know. There are many thing we don't know, many of them, are social, economic, etc .Under such uncertainties, energy forecasting is meaningless.