Electricity and Broadband Innovator
The following is the second of the Smart Grid Living Lab interview series. John Cooper is a nationally-recognized innovator in energy (FierceEnergy: list of the 15 most influential players in the energy industry in 2011, GreenTech Media: The Networked Grid 100: The Movers and Shakers of the Smart Grid in 2012). He co-authored The Advanced Smart Grid with Andres Cavallo, which according to Smart Grid News’ Jesse Berst, “is far and away the best book yet about the smart grid.” John is now a management consultant and smart grid subject matter expert at the Siemens North American Smart Grid Center of Competence in Fredericton, New Brunswick, Canada, where he is part of the Siemens team working to help transform the local utility into a “Utility of the Future”.
Vision for Utility Transformation
Question: Your reputation as a longstanding innovator in the smart grid market including your well received book The Advanced Smart Grid have opened the door for you to join this exciting project with Siemens and New Brunswick Power. What convinced you to pick up your life in Texas and move out to New Brunswick Canada and join the Siemens team?
Answer: After The Advanced Smart Grid came out in summer 2011, I shifted my focus from utility transformation through smart grids, to the commercial building opportunity with new decentralized energy services. But what works for energy consumers—efficiency and new onsite systems—is a threat to utility revenue in the traditional business model of selling kWhs. So when I learned of Siemens’ pursuit of long-term partnering to transform a utility to a sustainable and successful business model, it was irresistible to turn again to utilities and the overwhelming challenge of transitioning to meet the needs of a new century. Siemens Global Management Consulting has a unique vision with its Compass methodology that provides utilities the help they need to be successful in today’s market, and New Brunswick happens to be one place where they’re proving out the model.
Question: Why do you call Siemens consulting vision unique—don’t all consulting firms have a unique methodology?
Answer: In my experience, it’s true that many consulting firms are providing utilities a valuable service as they grapple with a myriad of current operational and business challenges, ranging from strategy on capital programs like power plant construction to digitizing their grid. But Siemens is the first I’ve seen that has acknowledged the need to transform the utility to a new business model in a sustainable, long-term program that is sound across the board: technologically, economically, and organizationally. Siemens Smart Grid Compass draws an obvious comparison to finding your way on a car trip. First, you have to get oriented – where you are now, your Orientation. Then, you have to envision your objective– where you want to go, your Destination. Finally, you have to determine how you get from here to there. The best Route. Those are the three phases of a Compass engagement. I’m in New Brunswick to help the utility apply the results of their Compass study, which is the first completed by Siemens, back in 2012. Implementation is no trivial task; it involves a series of difficult organizational challenges. Siemens is a long-term partner with New Brunswick Power to ensure the success of their transformation over the next 10 years.
New Brunswick Challenge
Question: Could you please elaborate on the main challenge facing New Brunswick Power?
Answer: Like nearly all utilities, New Brunswick Power is seeing an increase in the
number of companies selling energy services in their territory, which adds up to lost kWh revenue the more that services gain traction. So as the utility focuses on digital technology to build its smart grid and optimize its current business model, it also has to get closer to its customers and become an expert on customer energy use, engaging the demand side through programs like Demand Response, in order to avoid inefficient peak energy requirements. This is a vexing challenge for all utilities—improve traditional system operations, even as they reorganize and get closer to customers with new services that leverage decentralized technologies like connected high efficiency appliances, energy management systems, and onsite power systems. Managing this challenge will put tremendous stress on utility organizations and require not just sound program management, but also strong R&D, marketing, and customer communications, not traditional strengths for most utilities.
Consequences of Inaction
Question: What has motivated New Brunswick Power to take on such a challenge?
Answer: The management at New Brunswick Power has advantages and a different perspective than most other utilities. The province has experience already with the progressive Power Shift Atlantic project, which integrates wind energy with demand side management in a virtual power plant or VPP. Economic development and job creation also get a lot of attention in this province. Finally, the utility management struck up a strong relationship with Siemens a few years back—in the right time at the right place, you might say—and reviewed progress in Europe on decentralized energy, where they recognized the negative consequences if the utility were to remain passive and decentralized energy were to grow further, outside their purview. They became motivated to take serious action in order to meet goals to reduce and shift demand, reduce debt and become a top-performing utility. The management and board at New Brunswick Power are progressive and want to be out in front, what I’d call a leadership utility attitude. Their huge task today is to develop and implement a new business model. I’m excited to be here because that is a challenge that all utilities face, whether they have acknowledged it yet or not.
Energy Services Business Model
Question: What do you mean by a new business model—what’s wrong with being really good at delivering reliable electricity?
Answer: There’s nothing wrong with being an excellent system operator, which utilities must continue to work at. But technology advances, new internet business approaches, and global competition are driving an increasing pace of change that will prove an ever larger challenge to utilities. They can’t just do what they’ve always done, or they’ll be faced with declining revenues and a narrowing of their rate base, as customers opt for new energy services that reduce their bill and give them greater choice and control. Question: Dramatic sales declines, bad credit ratings, higher costs of capital, higher utility rates… a vicious circle. Can a utility avoid this with an evolution or does it need a revolution? Answer: It’s as if utilities need to become two types of business during what I’d call a transitional term when its a hybrid electricity business, delivering low-cost, highly reliable centrally-produced electricity, but also an increasing array of higher value, higher margin retail services. The telecom industry is a great example of an evolving business model more oriented on services than on just delivering a reliable dial tone. To imagine what the electric industry may look like some day, just think of the smart phone and the millions of tailored applications we see on two platforms today, by millions of developers, all anticipating niche service needs with a low-cost delivery model. Energy services delivered by electric utilities will ultimately be about a lot more than just presenting meter data over the iPhone. We need to stretch out our imaginations on this topic.
Four Pillars and Reinvention
Question: How do you see today’s electric utilities achieving such an audacious vision?
Answer: Well first, let me say that this may not be for every utility. Some may choose to stick to their traditional model, maybe merging with other utilities to lower operating costs. Or they may find a strategic partner to develop and deliver such services. But for those who want to grow into the future, we are recommending that they view the change ahead in four pillars that together support reinvention and transformation: first, technology change; second, business model reform; third, a new engaged relationship with customers; and finally, organizational alignment. With this four pillar approach, utilities will be able to reinvent themselves into highly reliable system operators who also deliver high value energy services, maintaining their prominent position in their communities as the energy provider of choice. It won’t be easy, but we believe it will be worthwhile. As I’ve said, I believe this is one of the most exciting projects in the world, because we’re executing on a bold vision in a 10-year transformation program, moving beyond concept evaluations and R&D projects. Watch this space for much more coming down the pike in the future!