Electric Utilities Need to Plan Like Google – Lessons From Japan

Summary:

• The Japanese nuclear crisis is the result of historical industry decisions to build very large facilities and transmit power to distant locations – a strategy at risk of “force majure” activities
• U.S. electric utilities are locked-in to identical approaches to generation and transmission, which puts them at equal risk AND limits their willingness to innovate or implement new solutions
• Historical industry approaches to planning are all based on extending the past, even though new technologies and approaches offer potentially better, and less risky, solutions. Utilities are merely one example
• Google is expert in a far better planning approach, using scenario planning for identifying and taking to market innovations and new solutions
• All companies, would benefit from planning like Google, rather than using traditional approaches – and several are bullet listed below
• The electric utility industry really needs to adopt a Google approach, or everyone remains at risk

Everybody is now aware of the great radiation risk Japan faces from its damaged nuclear reactor powered electricity generators.  This has repercussions on U.S. electric utilities, as Americans have renewed concerns about the safety of similar General Electric supplied reactors.

For example, Crain’s Chicago Business reports “Exelon Faces Regulatory Fallout After Japanese Nuclear Disaster.”  The country’s largest nuclear plant operator is facing stepped-up reviews, likely delays in expansion, and discussions about long-term viability of facilities that are 30 years into an anticipated 40 year life.  All of this threatens the viability of meeting affordable electricity needs for millions of midwestern Americans in as little as 5 years.  And it puts a lot of risk on the viability of Exelon as a going concern should the regulators require extensive re-investment to keep the plants open, or build replacements – most likely without a rate increase. All utilities dependent upon nuclear – and coal as well – for generation are now facing significant challenges.

This points out a horrible weakness in planning by most participants in America’s electric utility industry.  Almost all planning boils down to “we need to increase capacity to meet needs.  The cost of new plants, plant expansions and transmission lines from massive facilities to customers is $X, therefore, we need to lobby regulators, rate-setters and the populace to allow us a rate increase of $.xxx per kilowatt hour to cover the cost.”  Planning entirely driven by the past.  Projecting the future based upon historical demand, sources of generation, cost of fuel, etc. utilities mostly keep planning to do what they have always done, and asking regulators and customers to fund doing what they always did.  If you want anything new (like a renewables effort) then the companies want the cost for that added on top of the “business as usual” price increase.

But customers are increasingly tired of hearing about rising rates, while they are constantly trying to conserve.  The old “compact” in which the price regulators guaranteed utilities a rate of return is under considerable stress.  Increasingly, people are asking why they need to pay more, why these plants are so expensive, why the industry keeps doubling down on old technologies and fuel sources.  Customers, and regulators, are asking for innovation, but the industry offers almost nothing, because it’s planning is all about extending the past, and defending its historical approach and investments.

Today we know that the industry’s future will not be like the past.  Increasingly customers (with government support in many cases) are demanding changes in the sourcing of electricity.  Requesting decommissioning of polluting generators (coal in particular), shut-downs of perceived risky, and now aging, nuclear facilities, more supply from renewable, or sustainable, sources — and without higher prices.

There are a lot of new technologies available.  And some customers recommend a dramatic change in approach, from huge, centralized generation facilities to many smaller, safer, renewable generation facilities that are decentralized and closer to end-users.  But most industry veterans are unable to even consider these options, because they see no way to get to the future from today.  They are locked-in to defending and extending what the industry has always done, even if it means extending known risks, environmental concerns and creating higher prices for fuel and maintenance.

And that’s where Larry Page and Google have a lot to offer the utility industry planners.  Instead of planning from the past forward, Google plans from the future back to the present.  By helping employees develop future scenarios the leaders at Google identify far better solutions than the linear, historical planning approaches.  Once a better future is identified, then the organization is unleashed to create that future by planning backward from the scenario, figuring out how to implement it.

Wired magazine, in “Larry Page Wants to Return Google to its Start-up Roots” gives great insights to how Google has created a $30B business in a decade – using scenario planning at the heart of its approach to business.

• Don’t fear being audacious when setting goals.  Even if you don’t reach the ultimate goal, your improvement could be game-changing for the industry and greatly benefit the early adopter
• Instead of saying trying to help somebody with an immediate question, ask what would have the maximum impact in 10 years.  Don’t just accept more of the same, look for the best answer
• Leaders should not fear being viewed as having stepped into the future, and returned to tell everyone what they’ve seen
• Don’t assume that the way things are done is the best way.  Instead, ask “why is it done like that?  Is there possibly a better way?”
• Is the obstacle to future success something that is impossible – say because of the laws of physics – or is the obstacle a need for resources – in engineering, scale design or implementation?  Don’t confuse things that can’t be done with things that simply lack resources (even if the initial resource demand seems very high)
• When someone pitches an idea, leader’s should avoid questioning the viability.  Rather, they should offer a variation that is an order of magnitude more ambitious and ask why the latter cannot be accomplished.
• Ask regulators what they want, and try really hard to achieve that goal rather than arguing with them. Offer creative solutions that are non-traditional, but that just might achieve the goal.  Change the conversation to achieving the goal, rather than extending the past.
• If an idea requires creative thinking, be excited about it.  Don’t hesitate to represent unrealistic expectations.
• Speed is really, really important.  If there is merit, rush it toward the future state as fast as possible.  Let implementation and the marketplace determine what’s successful, rather than trying to guess.
• Do the numbers, but don’t expect those who disagree to believe your numbers.  It’s easy for people to pooh-pooh projections.  Don’t let disagreement over forecasts stop you from proceeding.
• Don’t let potential legal problems stop you.  Take action, and deal with legal issues when, and if, they arise.

Planning for the future, and being ambitious about what that future entails, has created a slew of new products from Google that have benefited everyone around the world.  Google’s use of scenario planning to drive development and investments is a business implementation of an historical echo – asking not what Google needs from historical customers to succeed, but rather what Google can do to create something future customers will value.  Google uses planning to rush headlong into providing a growing and profitable future, rather than trying to optimize the historical solution.

Giant, centralized distribution facilities that use nuclear or fossil fuels, then sending electricity over massive distances losing upwards of 70-80% of the power in transmission, is the historical utility industry approach.  For a very long time it worked pretty darn well.  But the limitations of that approach are being seen, and felt, in many locations – causing blackouts in various regions, health risks in others, rising polution levels, rising demands for limited fuels, higher costs (especially for maintenance and upgrades) and potential deadly disasters from unexpected events of mother nature. Industry outsiders question whether America’s growth will be limited (due to supply or pricing issues) if this approach is not changed.

Lots of options exist for the electric utility industry to do things differently.  But it will take a big change in how the industry leaders plan. Maybe they’ll ask the folks at Google for a few ideas on how to change their approach to planning.  Can you imagine a future where Google managed the electric grid?

‍