The Bigger Picture | Examining Challenges Facing Utility Companiesby Bruce Duff
Executives see the utility industry rapidly changing. Unlike any other time in the industry’s history, customers show a strong desire to achieve energy independence. There is a degree of uncertainty among utility professionals as to how to chart a course forward, while maintaining sustainability.
It was within this context that ARCOS hosted a Utility Operations Summit in March 2016 comprised of professionals who have served (or currently work) as presidents, senior vice presidents and vice presidents of electric and gas utilities. The executives’ twofold goal was 1) examining challenges facing utility companies, and 2) charting strategies for the future of the industry.
For summit attendees, the industry’s most noteworthy trends may also be its challenges. Residential customers have become greater consumers of power due to the proliferation of computers, laptops, mobile devices, large-screen TVs and the electric car. But more efficient appliances and renewable energy have, in some cases, reduced consumption causing utilities to propose rate increases. Many utility executives see putting a proper value on the grid as a pressing challenge for themselves as well as regulators, city councils and co-op members. Utilities provide a service that customers expect to be ‘always-on,’ and consequently judge a utility by speed of restoration and not day-to-day delivery. Utility executives cited a need to better manage customer expectations and provide real-time updates to customers during service restoration, similar to the way Uber alerts its customers on the location and ETA of drivers. Additionally, integrating critical information with community first-responders, especially during power outages to improve response time, was important.
As for the future of utility operations, managing costs and reducing the price of doing business were chief among these executives’ concerns. Among the strategies offered by the attendees for reducing costs was improving ‘situational intelligence’ – the real-time knowledge of the status of people and resources. This, they say, will align resources with work, expedite restoration and improve customer satisfaction.
Finally, the executives opined that technologies available today, such as drones, GPS and GIS could have an immediate effect on reducing the cost of assessing damage, deploying workers, informing regulators and customers, and restoring service.
What are the Utility Industry’s Trends and Challenges?
Summit participants discussed key issues and opportunities facing their organizations, particularly utility operations. Ideas and strategies were discussed for the future of operations as well as the technology needed for success. The major themes offered by attendees were these: the pace of industry change; the need to drive down costs; how best to compete in a strict regulatory environment; creating operational awareness and meeting shifting customer expectations.
Rapidly changing energy industry
According to summit participants, many residential customers have a desire to cut themselves off from the grid. While customers report that restoration and reliability are good, they believe power is too expensive. Educating customers about the way utilities buy power and distribute it could mitigate customer concerns.
Executives see distributed energy generation (DG) playing a larger role sooner versus later. A DG system with ‘micro grids’ could reduce the impact of storms or brownouts by localizing outages for customers, executives say. DG could also increase efficiency because many smaller power plants decrease the distance electricity travels, thus reducing the amount that is lost.
As residential customers, in particular, look to improve energy efficiency or even reduce energy consumption, they may unwittingly be stressing the grid. According to the U.S. Energy Information Administration, ‘the ratio of annual peak-hour electric demand to average hourly demand has risen over the past 20 years.’ Summit attendees offered this example: A consumer decides to buy an electric car to reduce his carbon footprint. At his home, he charges his electric car at 240 volts, which could consume more than 6 kWh, and match or exceed the home’s peak consumption. This, on a widespread scale, could change the peak profile and strain the grid.
The executives saw energy storage as a sea change for the utility industry. For example, electric car maker Tesla and Solar City have developed home battery systems. However, truly removing oneself from the grid would require a combination of renewable energy sources (e.g., solar panels, wind turbines, etc.) and the use of battery storage. Executives noted that the attractiveness of renewables and viability of storage options has one Southwest U.S. utility predicting that 20 percent of its customers could be off the grid in the next 10 years.
Increasing focus on driving costs down, finding more efficiency
Participants were careful to point out that a utility cannot cut itself to profitability. And as public utility commissions continue to take away rates of return, utilities must find creative ways to generate revenue, stay relevant and ensure the sustainability of energy delivery in the future.
Summit participants proposed pricing services differently and unbundling the traditional utility service plan. The utility becomes a ‘data cloud’ for customers. With the birth of the Internet of Things (IoT) and integrated sensors, utilities can (and are) collecting a vast amount of data that they can turn around and sell as information about a consumer’s network and consumption trends. The information could help providers of energy-efficiency services and products identify potential customers, which, in turn, may help the utility control demand and save money.
Creating a Level Regulatory Playing Field
Disruptions like net metering present a challenge and an opportunity, say participants of the summit. The challenge is making sure regulatory bodies create rules that equitably and precisely value what energy (and the grid itself) is worth to a customer. One Midwestern executive offers what is being done in New York State as an example of how utilities are sometimes hindered to compete. New York’s ‘Reforming the Energy Vision’ (REV) initiative seeks new ways to regulate, among other things, how utilities and consumers produce, deliver and consume energy. REV aims to look at everything currently a part of producing energy. According to this executive, the current REV construct is to allow utilities to participate in limited situations, mostly where third-party providers do not see a financial payback. There is, says the executive, ongoing discussion with the New York Commission to broaden utility participation, as it has become clear that utilities could offer expertise and understanding that third parties do not understand.
To navigate a path forward amid regulation, some utilities are looking for creative partnerships to squeeze revenue opportunities from an environment that can stifle competition. An example is a partnership in which a utility is exploring a deal with a third party to carry out home appliance repair. The utility essentially has the expertise and tools for this; and it is seen as a way to focus the workforce’s acumen on a complementary service for its customers.
Gaining Operational Awareness
As utilities have ramped up the number and type of technologies they use to monitor circuits, outages, work, resources and more, managers are collecting terabytes of data. Ingesting this data requires better means for ferreting out the information that will help operations personnel see what’s going on. Top of mind for these executives is access to a single dashboard for multiple systems that utility decision-makers can tap.
Accommodating a Changing Customer Expectation
The ride-booking service Uber was held up by summit executives as an exemplar of what utility customers want from their utilities: Knowledge at their fingertips indicating who’s coming to their doorstep and when. Utilities have taken strides to provide outage maps to customers, which have garnered positive reviews. But executives are adamant that the pace of change has to speed up to keep in line with customers’ expectations. Technology like Uber already exists, so tailoring alerts about outages and ETRs should follow suit, say executives. If, for example, apps exist to help utility professionals pinpoint damage and prioritize dispatch and repairs, then utilities could provide these same apps to customers to download and identify damage near their home. This kind of access may even reduce utility costs and expedite restoration because cursory damage assessments could funnel in almost immediately after an outage, from thousands of customers who are already on the scene.
Where are the Opportunities for Improvement?
Four areas were noted in which information was seen as either difficult to obtain or there was a lack of real-time information.
- Preventing Disruptions to the Grid by Weather, Natural Disaster or Cyber Attack
After Superstorm Sandy struck the Northeast U.S., the consensus of summit attendees was that utilities must show that executives can manage the job of responding to and minimizing the impact of disruptions. In the wake of Sandy, they noted their views about resiliency had changed markedly. When the power is interrupted by either weather or an external attack, attendees say a major component to restoration is now about having utility resource management systems and processes in place for evaluating the need for and sharing of resources.
The unprecedented hack of Ukraine’s power grid last December made executives keenly aware that their distribution business is now front and center in terms of visibility for this issue. It was suggested that utilities undertake preventative measures including layering their security, ensuring that the biometrics match the employee at the controls as well as the work order.
- Clear Organizational Communication
Executives say that the typical control center operator might have six screens to monitor – ranging from SCADA to outage management systems. Summit attendees felt the key is integrating this information, so supervisors and executives can reduce the time it takes to make the right decisions. The solution lies in a truly integrated information asset system. A system like this, they say, would help utilities anticipate the resources and costs each day as well as when preparing for major events.
- Transparency of Operations for Customers
The utilities generally say they do a good job of collecting customer data. But they want to better understand their customer demographics and expectations wherein a millennial may consider information timely if it comes via text to his or her smartphone, but a retiree wants a call that someone is coming to restore service. The solution lies, these executives believe, in giving customers more and varied ways to interact with their respective utilities. Some utilities, such as Duke Energy and San Diego Gas & Electric, have tapped chief customer officers to spearhead the kind of analysis and response that consumers want. However, the executives felt that in many ways the utility industry runs on ‘legacy thought patterns.’
- Reducing the Cost of Doing Business
Some utilities have asked for rate increases, or customer-service charges, that have been as high as 50 percent. Instead of rate increases, summit executives feel they could reduce costs by striking the right balance and mix of work being done by different labor sources (e.g., company versus contractors or other labor sources). Matching the right skill set and size of crew with the job at hand is, in some cases, already leading to cost savings. For example, one West Coast executive explained how technology shows his utility which ‘crew sizes’ are the most efficient at accomplishing a variety of tasks. Technology like this, he says, can capture data to standardize what it takes to set a pole, change out a transformer or repair a gas line.
How can Utilities Ensure Successful Operations in the Future?
Events like the June 2012 derecho that swept the Midwest, sending more than 3.8 million customers into the dark, have put political pressure on utilities to get all the resources one could possibly imagine on the scene as fast as possible. Managing the expectations of politicians and the public, informing regulators and coordinating restoration with police and firefighters becomes easier when a utility knows with certainty who it has on the job, who is working where and who is on rest time.
Improving situational awareness, baseline information & metrics
Executives believe collecting, centralizing and tapping data in advance of a forecasted event gives them a way to plan what they need and orchestrate a coordinated response that allays the concerns of third parties and establishes realistic restoration times. Executives believe an even deeper layer of awareness can come from combining crew data with GPS devices that can update and draw from a geographic information system (GIS) showing all facilities (e.g., poles, transformers, pad-mount switches, area work centers, substations).
Implementing predictive analysis and automated decision-making – driving down operational costs
Executives at the summit characterize true, predictive analysis as a future state, perhaps as many as 10 years away from implementation. Eventually, say executives, technology will tell customers which technician is headed their way, what piece of equipment he will work on and what the estimated time of restoration will be.
For utilities to remain healthy, they must align the cost of what it takes to do business with what they charge for products and services. Executives say the industry has to be efficient, entrepreneurial and communicative.
The executives pointed to the fact that sizing teams and tracking progress is almost universally a manual process at most utilities. Automating the process helps managers focus on the work at hand instead of spending hours to rebuild crews when ‘schedule-busters’ occur, and executives have a system-wide plan that they know is carried out. According to the executives, utilities could display this information for all managers to see, so supervisors have the ability to discuss how to ‘right-size’ for jobs.
Priorities for the Future
Executives say enlisting drones would have an immediate impact on the speed of restoration by accelerating the survey and assessment of damage. The FAA would have to amend flight rules to enable drones to fly over certain areas and beyond the line of sight of pilots. Another immediate impact on speeding up restoration would be encouraging customers and first responders to document post-event damage with photographs from their smartphones.
Summary and Recommendations for Directors and Managers
Approximately half the summit executives saw themselves retiring within 10 years, so they reflected on what to pass along to the directors and managers who will make up the future ranks of the utility industry. First, they challenged directors and managers to look at their processes and think how they might automate each of these – an audacious goal, but necessary to spark innovation. Second, they want their managers to think broadly about what technology can do. For instance, while they may have invested in an outage management system to improve service for customers or reduce operating costs, the executives ask, “What other gaps could these tools fill?”
Executives at the summit also predicted what a utility of the future might look like. They imagine driverless bucket trucks with robotic arms for assisting in blue-sky restoration work with a smaller team, or even one lineman. These self-driving vehicles would eliminate the need for a commercial driver’s license for workers. Other executives envision a time when there will be unmanned control stations. Ultimately, each idea offered by the attendees hinged on making utilities competitive, reducing costs, streamlining processes and gaining situational intelligence. By achieving these conditions, the executives feel it will lead to better decision-making and communication, resulting in improved customer service and satisfaction.
About the Author
Bruce Duff is chief executive officer at ARCOS, which is the North American leader in delivering crew callout and crew management SaaS solutions to the utility industry. Duff leads the strategy and execution for the company’s operations. He has over 30 years of experience in executive leadership, sales, marketing, operations and strategy development in the enterprise software market in North America and abroad. Contact him at email@example.com.