The Electric Utility Singularity

Published: Mon 10 Feb 2014
A blog entry by Christine Hertzog

Contributed by:

Christine Hertzog
Managing Director
Smart Grid Library

Christine Hertzog's Blog

A singularity is a term that is used in mathematics, physics, and advanced artificial intelligence.   The definitions vary based on perspective, but in simple terms, it signifies the point where old rules break down.  This is exactly where electric utilities are now.  We are witnessing a massive utility singularity.  This event is brought on by a multitude of technologies, policies, and financial programs that will ultimately change today’s utility business model – whether investor-owned utility (IOU), municipal or publicly-owned utilities, and rural cooperative utilities.

This is not an obituary for utilities.  Nor are utilities the only sector facing a great singularity.  Consider the cable TV sector.  It is confronting its own death spiral as it continues to increase subscription fees on a declining customer base and encounters non-traditional competitors like Netflix and Hulu.  The current US cable TV business model based on supplying the overall deplorable state of bundled content that many consumers don’t want cannot survive.  Will utility leaders be able to ponder some pattern recognition of their business model and possibilities against other business sectors and make smart decisions to survive and thrive through a singularity transition?  I believe the answer is yes, but the number of utilities that do it will be like unicorns (the latest Silicon Valley buzzword describing startup companies that are exceedingly rare and capable of anything.)

The electric utility singularity has been looming for at least a decade.  Some business model rules started breaking down years ago with initial policy steps towards deregulation and decoupling.  Smart Grid technologies will be the real accelerant in terms of bending the revenues curves for utilities downwards.  Just look at the rise of solar technologies in the form of highly distributed rooftop photovoltaic systems or packaged solutions of advanced analytics, user interfaces, and mobile devices that make nanogrid (home-based) energy management available to the residential masses.

Even if utility resources do not think non-traditional entities can ever manage a grid to the same reliability, safety, and cost-effective metrics as the utilities themselves, that won’t stop new entrants from trying.  Some will fail, but many will succeed.  The winners will be specialists who forge partnerships with complimentary solutions and create their own packaged hardware and software ecosystems.  The winners will offer a different take on reliability.  Instead of being measured on downtime, which is essentially what traditional utility metrics of SAIDI (System Average Interruption Duration Index) and CAIDI*  (Customer Average Interruption Duration Index) measure, they will promise uptime.

Winners won’t be bound with the same constraints that are imposed on IOUs, municipals, or cooperative utilities.  That’s unavoidable, but that doesn’t mean utilities don’t have opportunities to develop strategic agility if they want to be survivors.  Here are three questions utility leaders should discuss internally and with important external stakeholders like regulators, public owners, and consumers:

  • How differently would we organize and operate if we managed to uptime instead of downtime?
  • Can we leverage a custodial stance on energy consumption data as a strength?
  • What do we really understand about consumer choice and perceptions of quality?

The electricity business sector will look very different on the other side of this singularity.  Utilities have a difficult journey ahead, but I’m optimistic that some will successfully make the transition.

* definitions for these terms can be found in the Smart Grid Dictionary 5th Edition.