Energy in 30: Customer co-creation advances clean energy future

As we look at that, we collectively recognized that there's a pretty dramatic shift happening. And something that I've been looking at for some time, thinking about an evolution in the power systems in the U.S., and Australia in particular, as we have a more distributed power system. But one of the things we came to over the last year was this recognition that the existing industry structure you could equate to a technology S-curve if you will.

Utilities head toward a second S-curve

Paul: What we mean by that is we believe that there are some structural changes. We believe that there are structural changes related to things like what the grid needs to look like. Much of the discussion over the past decade around grid modernization has spoken to some of this. But I think some of the more recent papers we've seen, say from Southern California Edison's “Pathway 2045” and their future starts to point to what we believe is this second S-curve.

This is also recognized in the most recent Australian Energy Market Operator's roadmap, where they actually cited our two S-curves, where we recognize that there's a second S-curve and that there's this next-generation system, if you will, that we need to start developing. So, we're getting some traction with this idea.

Part of that is also looking at the role customers need to play and will be playing in this new energy future. There's been a number of reports put out and studies that examine the role that customer resources may provide—and customer use and consumption of energy can provide—in terms of achieving our 100% clean-energy objectives, both in terms of decarbonization but also addressing the need for a more flexible grid as we achieve those goals.

We also looked at the questions of, well, what do we need to think about differently with the role of the customer? How do we engage customers? And how do we think of them more as partners by taking this more empathetic approach?

Viewing customers as energy-producing partners

David: And this is really all being driven by customer choice and options that they now have to either self-generate or have alternative options for powering their devices. Is that how you see it?

Paul: Yes, we've seen, particularly the last decade increasingly, the opportunities with technological advances and business innovation for customers to have more choices—both in terms of the technologies they may choose to use starting with on-site solar generation, but also increasingly in the last five years, with on-site battery storage. And then, of course, we've seen a dramatic uptake in backup generation, backup battery systems, and the like, to address the increasing resilience needs that we're seeing due to climate change.

Joan: I really was intrigued by the concept of co-creation that you just talked about and also in the paper, and how you set up this dichotomy between the odds in the industry against the interests of the customer. That just—that intrigues me. And I feel like we're really getting to this tipping point that you talk about.

Thinking differently about customer needs unlocks greater opportunities

Paul: Yeah. One of the things that a number of us have been looking at for some time is this question of how much participation can we get with customers in demand-response in the air programs in what we now call flexible load-management or flexible resource-management as we look to engage customers to leverage on-site resources—batteries in particular, but also some of the more flexible building- and home-automation capabilities that are becoming more available.

As we looked at that, it became clear that one of the things that's been a sticking point is that we haven't really thought about the needs of the customer in terms of what they're having to give up potentially to be able to participate. And it isn't just about whether we set a dollar value for a particular incentive program at a little higher amount.

There is some dimension of that. But fundamentally, how do we think differently about—particularly with technology innovation—structuring and designing programs and services in such a way that we could be less impactful on a customer's business or their lives in terms of the things they want to do? Can we do this in a more imperceptible way than maybe more classically what might be perceived as more disruptive from a customer point of view?

So that's kind of the approach we started to look at, and does that help us? If we think differently about this, would that allow us to potentially unlock greater opportunities and more of that potential that folks have studied?

David: So it's really interesting. On the one hand, we talk about how can we better engage customers. And on the other hand, it's like we really don't want to engage customers; we just want them to allow control of their loads in a manner that they don't perceive is happening, so that it's not adversely impacting their lives. We really don't want them to have to think about it, so we want to engage them without engaging them. What do you think of that?

Thinking critically about customer engagement

Paul: I mean, that's one way to look at it. I think one of the things that I've come to is that we’ve spent a lot of time and money over the last 15 years with AMI [Advanced Metering Infrastructure] systems and the like and trying to provide websites with greater information for customers to manage their energy bills. The reality is—and the last time I looked at it which was in the last couple of years on some consulting engagements—roughly under 5% of customers actually look at their online My Energy kind of website with their local service providers. It's just a very low percentage.

People don't really spend that much time thinking about their electricity bill other than the total amount. So if that's the case, and that's not front and center in their mind, then how do we think about engaging them in a way that they are willing to participate? But recognizing that anything that expects, any program or service that starts with the premise that they need to be at a certain level of knowledge to be able to make informed decisions. This is largely going to be about an economic factor from what we've seen over the last 15, 20 years or more of demand-response programs, it doesn't suggest that that's entirely going to get us to the scale.

There's certainly customers that will do that. And we've seen that. But that tends to get capped out at about 20% of participation. Certainly, on what we've seen with time-of-use rates and on demand-response programs, the largest programs have maybe achieved 10% of the customers in a service area, say in California. But we need more than that.

What the studies are suggesting is that a greater percentage of participation—particularly as we move just from load management, classic demand-response to being able to engage with their storage or how their smart inverters on their solar systems—can be leveraged or the like. And that means we need to think differently about that.

Joan: Yeah, I'm always an optimist. But I have to say, right now I am skeptical about the customer's interest and if it will prevail. It's concerning to me. And, you know, I love this kind of research and these kinds of papers. And I feel like we are so close — closer than we've ever been.

You talk about the tipping point. And I know you don't have all the answers, so I'm not asking you how that's going to happen, but what's your sense? Can you make me more optimistic?

Compelling value propositions hinge on understanding the range of customers and needs

David: Yeah, before you do that, Paul, it strikes me—and Joan, I think this is what you're getting at—it's what's the value proposition. We really have to have a strong, compelling value proposition if we want to get more participation.

Design thinking is fundamental to customer evolution

Paul: There's certainly a value proposition. But I think being able to understand what the right value proposition is, it really does start with understanding the customer. And it's not a singular customer. It's a range of different customers with different needs and really understanding that. Fundamental to the thinking that's incorporated in the most recent paper on the customer evolution is design thinking.

I had the opportunity about 15 years ago or so to work with Ideo in how we developed some of our programs and at SoCal Edison, were where I led the AMI program and later the grid modernization effort. That was very interesting to see how they approached program development or service offerings or product development quite different than how we would otherwise be developing products and services.

I literally was kind of trying to stand in customers' shoes for a period of time—to try and understand their lives, how they go about their lives, how they interact with those things that would be potentially new products and services. Some of those insights really help you appreciate what the potential value proposition might be or the sets of value propositions that you may need to have to engage customers.

As a starting point, design thinking is a fundamental dimension that we need to incorporate and need to think about. And not just utilities, because utilities increasingly have been trying to incorporate those ideas. The problem is, as when we get into a regulatory context, it becomes much more difficult to try to make the case for program arguments based on design thinking. Those are two different paradigms in terms of how we think about making decisions in a regulatory context, which are adjudicated proceedings, versus what you would do as a product manager and trying to apply design thinking and really the customer empathy approach.

So we've got some issues there that will need to be resolved, as well. But I think that design thinking is really the starting point. We've seen a lot of great successes over the last 20 years in other industry sectors that have taken that approach and have made tremendous breakthroughs in terms of customer engagement.

David: I heard Val Jensen recently say that people aren't inherently buying electricity, or gas for that matter. They're buying it to power their devices. So it's to provide light or entertainment or transportation these days. [Selling power] is not about selling electricity, which is a really interesting way to change your way of thinking as you put yourself in the customer's shoes. What is it that they value and that are they really wanting from that?

So, I get what you're saying. And I also hear what you're saying about the challenges with the regulatory environment. How can utilities adapt what they're selling in that kind of environment? It's interesting to wrap your head around.

Value propositions and consumer-centric products and services are on the rise

Paul: Yeah, it is. But, to Joan's question: I am optimistic that we're going to be able to work through this. Certainly, every other industry sector that engages customers directly has been going through this process for the last 20 years or more. We've really seen the rise of consumer-centric products and services really starting. And I would say that it started with the tech industry. But it's really been expanded into retail shopping and the like.

You've seen much more of this customization. And that customization is designed specifically for various customer types and what they need. It’s much more intuitive in terms of leveraging technology to understand what customers need and how it fits better into their lives and address their needs; it’s those value propositions that you touched on, David.

There's a lot to be looked at and learned from these other industry sectors that have adapted these ideas and approaches and have engaged customers in a more meaningful way. I mean, the rise of prosumerism, which is largely what we're talking about here—where consumers are both using energy, but also producing energy or services that are provided back to the power system.

That prosumerism—we live it every day. We see it in front of us. Many of us are involved in it when we put materials onto YouTube or TikTok or other things that we're engaged in where we're providing content back into these other venues. Or in other cases, where you see the rise of some of these platforms, like an Etsy where you have folks with side gigs producing goods at the same time as, obviously, they're consumers.

So you've seen quite a different level of engagement going on; it's not like this is new. The question is: How do we adapt these concepts that are working in other sectors for this sector and how do we approach that in a way that makes sense for customers as well as for the power system?

A social license to automate

David: In the “Customer Resource Management Evolution and Revolution” paper, you talk about social license to automate. Can you expand on that? That seems kind of relevant here.

Paul: I came across that work in discussion with one of the new advisors to PEI, Lynne Gallagher, who's the CEO of Energy Consumers Australia, the leading energy consumer organization in Australia. Lynne is very sharp, very engaged in Australia, but also has collaborated extensively in the U.S. with a number of thought leaders and industry leaders, as well as in the U.K.. She brings a really useful and insightful global perspective.

But one of the things that she's been involved in is through the International Energy Agency. And they've got a subcommittee that's working on this question of social license to automate, which is a recognition that there really needs to be an explicit contract between customers and power system operators and regulators—with respect to the rules of the road about how customer devices, customer generation, customer batteries, customer load, etc.—that can be utilized for the power system. But in a way that is more of a peer-to-peer partnership transaction and relationship than what might otherwise be perceived as a one-sided relationship that, in many cases, it's kind of felt for some customers that they weren't really treated as equals in that relationship. We tend to think of customers as potentially participants in a market. But I think I specifically use the term partners because it describes the relationship that needs to be established. And in that, it needs to be clear about what can and can't be done. It's an expansion on what we've done historically with demand-response program design, where there are certain constraints around how often it can be used and the like.

And we've seen issues more recently in Texas where people had signed up for demand-response programs or smart thermostat programs but didn't really realize what they were getting into. And then we had these extreme weather events. And people didn't know why the thermostats were not responding in the way that they thought they would.

Then they came to find out, well, that's what you signed up for. Part of this social license to automate is also about transparency and education, as well.

Joan: This is so interesting. We need to call this “Energy in 60” so we can talk about this more. We have to ask you a question that we're asking all of our guests. Are you ready for this big question? Really, the question is: If you could do one thing to change the industry, what would it be?

Paul: The one thing I would change is our overall paradigm that we use for decision-making in this industry from thinking about a zero-sum constraint-based system—which permeates most of our engineering economics and decision making in the industry, particularly when we think about regulation policy and even business decisions in many cases—to one that recognizes the abundance that is on the doorstep.

We're already seeing it. But it's certainly coming in the next 10, 15, 20 years. It's going to really shape the second half of this transition to a more distributed system. Being in distributed energy resource prices and technology performance is increasing dramatically at exponential rates. We're seeing this, obviously, at the bulk-power system with renewable resources, increasingly lower cost. So we've got a bit of a blip right now with supply chain issues and the like.

But when it dissipates, we should get back to the trends we were on earlier. At least in the distributed edge, we're going to have, and are already seeing, an abundance with respect to the proliferation. It should really change the way that we think about decision-making. This mindset is one that, again—looking to the tech industry—they tend to follow. They tend to think about an abundance model where the pie gets bigger, not that there's an existing pie that you have to then divide up and fight over who gets what wedge.

And a lot of what we've been doing in the electric industry, for the last 25 years since deregulation, is fighting over who gets what piece of the pie and how big that pie is. But that the pie is fixed. And I think it's becoming clearer with a number of the studies that have come out—and certainly if you look at the trends—that the pie is getting bigger.

And there's potential here for many folks to participate. There are opportunities to think differently about the roles and responsibilities of various entities. There's maybe an opportunity to think differently about what utilities may be able to do and how they need to partner.

We're already seeing that some of the classic ideas of who's regulated, who's unregulated, who should do what, starting to blur as people recognize that many of the business opportunities to really satisfy what customers need and want are going to need to be a lot more fluid, that there's going to need to be greater opportunities to collaborate, to partner, to be able to satisfy customers' needs and be able to engage customers as co-creators in this new future.

Joan: Well, I have to say, it doesn't sound that aspirational. In a way you have me believing, like you think this is doable, that this is happening, which is a comfort. Thank you so much.

Paul: Well it is happening. Little by little it's happening. There's always this thing that happens particularly in this industry that activities at the ground level tend to precede the more structural major structural changes that follow. We tend to think about things in relatively short time periods in terms of change. And we think, oh, things aren't really changing.

But if we zoom out a little bit, it might be helpful to realize that we're probably about at the midpoint in this transition to a more distributed future. And over the next 10, 15 years—which really, in this industry is not that long in terms of how change happens—I think we're well on our way. We'll be seeing more of it over the rest of this decade.

There's this expression by a futurist who said that the future is already here — it's just not evenly distributed. And I firmly believe in that.

David: Love it.

Joan: Thank you so much.

David: Yeah this has been a great conversation. Thank you, Paul. And I'll say it again, that the two papers are really a must-read for folks. It's “A Gambit for Grid 2035” and “Customer Resource Management Evolution and Revolution.” And I believe you can find both of those at PacificEnergyInstitute.org.

Paul: That's right. Thank you very much.

Joan: Thank you so much. And for the rest of you, if you've enjoyed listening to “Energy in 30,” please subscribe, share, read, and review our podcast. And you can look to April for our next episode. It's going to be really compelling with our guest, Cameron Brooks. Cameron is the president of E9 Energy Insight. He's got a lot of deep experience with public policy and capital markets, electricity regulation. So that will be a fascinating conversation.

David: I'm really looking forward to that conversation. And we'll continue digging into these meaty topics around equitable engagement, flexible load management, decarbonization, and electrification.

Joan: OK, David, that's all for now. We look forward to having you all join us on our next 30 in 30.