Virtual
Systemic
Inquiry
Occasional Papers Series
The Power Grid:
A Platform for Transformation
Kent C. Myers
William R. Williams
1
Contents
1. Introduction ................................................................................................................................. 1
2. A Designer’s Walkthrough .......................................................................................................... 1
4. A Systemic Strategy for the Grid ................................................................................................ 4
5. Combinatorial Opportunities .....................................................................................................11
6. Systems Thinking at a Power Company ................................................................................... 15
7. Recommendations ..................................................................................................................... 17
Appendix 1: Note on Virtual Systemic Inquiry ........................................................................... 20
Appendix 2: Endorsements .......................................................................................................... 21
Appendix 3: Power Company Strategy Diagrams ....................................................................... 23
Figure 1: Grid Lockup .................................................................................................................... 4
Figure 2: Strategy for Florida Power & Light .............................................................................. 24
i
1. Introduction
We often think of the grid as a neutral, balky infrastructure that follows society wherever it goes.
It will have some shiny new components but within the frame of business as usual. We will
consider the grid from another perspective, as a means for broader transformation. Can the grid
help channel us toward a sustainable society, however that may be defined? The answer requires
us to think systemically, explicitly including the social dimension. From this perspective,
technical fixes can miss the mark and waste opportunities. Evolving a grid systemically is a
difficult problem, but systems thinking is a way to deal with that confusion. It is a skill that
many professionals and decision makers are uncomfortable with and frequently avoid in favor of
the comforts of reductive and specialist thinking. This present work is addressed to policy
makers whose responsibilities are to the common good, and who thus require a broader
approach.
2. A Designer’s Walkthrough
There are many excellent descriptions of the US power system, which will be our primary point
of reference.1 We will instead briefly tour the system from a systemic designer’s perspective.
What patterns are changing and what is amenable to shaping?
Trends and contingencies
Some major trends will influence the grid, though we can’t be certain how:

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Transition from fossil fuel. Fossil fuels will clearly continue to be a resource, but it will
be suppressed and growth and innovation will be focused elsewhere.
Climate change. Again, regardless of rearguard actions, environmental problems will
force a reckoning to reduce carbon exhaust.
Growth in demand. There will be less resource consumption per unit of economic
activity, but even as society becomes more efficient, electricity will remain a preferred
form of energy, and there will be more powered devices per person. The Energy
Information Administration projects that growth from 2009 through 2035 will be 18% in
the residential sector and 43% in the commercial (non-manufacturing) sector.
Ubiquitous digitization. In the ‘Internet of things’, everything can communicate with
everything else, controls are everywhere, and applications pile on top of applications.
Some consequential options, if they were to occur, would have significant effects. Here are just
two of these imponderables:
1
National Public Radio developed excellent maps for it series on the grid, May 1, 2009.
http://www.npr.org/templates/story/story.php?storyId=110997398 . Livermore Labs pioneered energy flow charts in
the 1970s. Here they are updated and elaborated, internationally and by state: https://flowcharts.llnl.gov/.
1
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Electric cars. Demand would soar, and the grid would be extended and instrumented to
make car charging convenient. This is very uncertain and may hinge on on-board storage
technology.
Nuclear generation. Arguments for the revival of nuclear plant construction in the US
were on the upswing until recently, but then the disaster in Japan and the worldwide drive
to avoid government debt and risk seem to have reversed the tide for now.
Instabilities
Much of what we have is unlikely to change, such as standards and long-lived plants. Yet what
we have is not the one best way to have a grid, and many shifts are occurring in regulatory,
market, technology, and other influences, especially as the pace of replacement and extension
quickens. We observe the following sources of instability:
More nodes, relations, data, and controls. We are instituting a grid that runs both ways.
Measurement and controls at every node are the basis for making many fine-grained decisions
that were not available in the past.2 There are also more decision makers, including consumers.
This complexity isn’t easily understood. In just one example of an unexpected consequence, by
offering low prices in exchange for the right to cut off service at peak demand, do we thereby
find it acceptable to cut off air conditioners for old people during heat waves?
Conventional formulas no longer apply. The general rule has been to "scale up." That rule is
no longer obvious in manufacturing, why should it be in power? Our technology, markets, and
environments do not always require or encourage it.
Loss of uniformity. The Southwest has solar resources, the Northeast has tides, the Northwest
has wind. The same strategies no longer need to be applied in all regions, and many sub-regions
have unique opportunities that unique technology can exploit.
Institutions are in flux. In the past, vertically integrated utilities, in large or small regions, ran
the whole show. Their stock was considered safe and steady. Now there are several additional
roles, each continuing to shift in uneasy oppositions and alliances:
2

Generators: While established utilities continue to build and operate power plants, a
growing number of so-called "merchant generators" build power capacity on a
speculative basis or have acquired utility-divested plants. These companies then try to
market their output at competitive rates in unregulated markets.

Traders and marketers: By buying and selling energy futures and other complex
derivatives, these companies can help utilities and power-hungry businesses secure a
dependable supply of electricity at a predictable price. Traders also boost their returns by
wagering on the direction of power prices.
“There Will Be Nine Times the Smart Grid Data by 2020,” New York Times, January 27, 2011.
2

Service providers and retailers: In most states consumers can now choose their own retail
service providers. In places where the electricity grid has been opened to third parties,
new players are entering the market. They buy power from transmission operators and
energy traders and then sell it to end users. In some cases the service can be bundled with
other utilities or services, including gas, water, and even financial services.

Network operators: Grid operators, regional network operators, and local distribution
companies. Heavily regulated, they operate as so-called natural monopolies, because
investments made to duplicate their far-reaching networks would be overly expensive and
redundant. Many are obligated to purchase from others and to maintain a portfolio of
renewable sources.

Pro-sumers: Consumers are becoming producers in some ways, hence Alvin Toffler’s
neologism, pro-sumer. With access to new controls and information, the consumer will
be able to conveniently fine-tune his usage. Small scale generation can defray usage or
even sell back to the grid. Multiplied by millions of households, this will have an effect
on the grid. Businesses may have an even greater role.3
Heightened risk
Referring to figure 1, we see a metaphorical ‘cloud’ over the grid. 4 First, there is a real
possibility that most of the east coast and a portion of the northern west coast will be wiped out
in a moment and not recover quickly. This would be due to the Carrington Effect, the result of a
large solar flare. This last occurred just as the telegraph was introduced, and the lines were
disabled. Think of all the ‘lines’ that would be disabled today. Next on the list is the cyber
threat. This have become recognized, but there is not assured means of protecting the grid, and it
seems as if every improvement in terms of digital control creates new possibilities for havoc. All
business and industry share this problem, but the grid is behind other industries in finding a
solution, even as it has greater potential for disaster.
This 'cloud' is kept in place by a ‘stationary front’ that prevents many changes that would reduce
risk, while also reinforcing the long-run use of three sources for which there are real objections:
coal, gas, and nuclear.
3
The population of Tokyo, starting from a frugal base, has been able to hit the target of 15% reduction in
consumption through 2011, until generating capacity is replaced. The US population, depending on technology
rather than group discipline, might aspire to a similar figure.
4
We are inspired here by Robert E. Horn’s pioneering mural technique to communicate complexity. Many sample
projects and explanations are posted here: http://www.stanford.edu/~rhorn/
3
Figure 1: Grid Lockup
There is friction concerning modification of any power facilities. Those who are dead set against
nuclear, for instance, seem to favor ‘green’ alternatives, but no matter what the technology, no
matter how many people support it, there always seems to be strong opposition. Two recent
cases illustrate this. Remote and unused public lands, where one would expect that solar
facilities and lines could be built without objection, can have quite as much trouble as any other
option.5 Similarly, offshore wind power has no free pass. The 10 year battle on Nantucket
suggests that many apparently good offshore options will be locked out.6 We need a way ahead
that allows for development and adaptation in response to changing needs. More than a shift in
some rules, or winning a few battles, we need a more systemic approach to governance.
4. A Systemic Strategy for the Grid
The electrical system may be one of the easier systems to put on track toward a better future.
This is by way of establishing a strategy that is highly aware of adaptive potential and the
common good. These are important principles that are often overlooked by professionals, and a
new breed of professional who think systemically can help us realize this strategy. This is
especially important in infrastructure decisions where mistakes can be extremely costly and
difficult to remedy. Non-systemic, non-adaptive strategies can be dangerous, even if they are
green. Bad choices that look good -- not just uncontrolled emissions -- can end up killing, not
“First solar-power projects on public land get Interior Department approval,” Washington Post, October 5, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/05/AR2010100505917.html
6
Anthony Brooks, “Opponents Face Last Chance To Nix Cape Wind Plan,” National Public Radio, October 6, 2010.
http://www.npr.org/templates/story/story.php?storyId=130370373
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4
just jobs, but civilization and the planet. An example would be overuse of the wrong biomass in
the wrong place and to contribute at the wrong segment of the energy cycle.
Systemic strategies have been overlooked, underappreciated, or simply squelched. If they are
used, it is possible to enhance the public value of the grid without diminishing the opportunity of
business participants to continue to prosper.
Two sets of analogues
The grid is often compared with traditional infrastructures in order to draw lessons. We simply
mention some of these and indicate a systemic lesson that can be drawn from each.
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
Canals. A costly structure was completely abandoned. Lesson: Where possible, favor
incremental investments that can be abandoned gracefully.
Railroads. At the beginning there was a competitive building boom and ruinous crash.
After long-term competition with trucks, its prospects are greatly diminished. Subsidies
confuse decision-making. Lesson: Establish honest, public evaluation based on public
interest criteria.
Water delivery. Often successful over long periods, except where there are shortages or
corruption.7 Lesson: Engage public awareness and support for a fairness in the
distribution of an essential commodity.
Wired telephones. Network was expensive, reliable, and slow to innovate. Carrier lost
bitter fight to retain complete control. Lesson: Share in success with innovative partners.
Interstate highways. Well-executed by government according to design, but
recapitalization is uncertain and secondary effects (land use, other transportation, etc.) are
problematic. Lesson: Anticipate replacement and manage secondary effects.
All of these were socially regulated under special legal regimes, based on the recognition that
they are, in some measure, “public goods.” All were initially marvels of technology and, for a
time, marvels of organization. None were noted for their adaptive capability, but little was called
for. In that respect these analogues are not apt. This is because the grid is potentially optionrich, as long as one drops some traditional assumptions and grasps the opportunities for redesign.
Figuratively speaking, one can add on-ramps, off-ramps and many relationships to the grid, in
ways that would be inconceivable for the interstate highway system. A second set of analogues
suggests what some of these differences could be:


Cell phones. Overbuilding of competitive networks. Reconsolidation, collusion,
predatory practices, with profusion of devices and explosion of data services based on
mobile convenience.
Internet. A burst of activity arose from a new carrier composed of volunteer nodes
coupled with minimal, flexible, interconnection infrastructure (standards, domain names,
ISPs, etc.) Independent content producers and service providers had easy access to users.
7
In Cambodia an inspired practitioner fended off corruption and succeeded in delivering clean water to the poor.
“Phnom Penh Water Supply Authority: An Exemplary Water Utility in Asia,” Asian Development Bank, October
2007. http://www.adb.org/water/actions/cam/PPWSA.asp
5


Traditional services including printing, phones, and mail were displaced or redefined, and
new services such as social media and search are transformative.
Wal-Mart. Radically lower cost delivery medium. Goods manufacturers who joined the
system sold much more but had to sacrifice marginal profit and add services such as
stocking and just in time delivery. Heavy reinvestment in stores and logistical efficiency.
Kinect. A base subsystem for robotic applications became affordable. Microsoft planned
to keep its interface proprietary and to own all applications. Secondary producers forced
Microsoft to make the interface standards open, leading to much broader innovation and,
in the end, much higher sales of the Microsoft base subsystem.
Realignment of the grid as a platform
The second set of analogues, unlike the prior set, fit within the family of systems referred to as
“platforms.”8 In a platform system, there is an essential demarcation of roles. A services layer is
shared by all, and independent producers employ the services layer. The layers work together as
complements, often generating efficiency and innovation at a rapid pace. Could the power grid
switch genres, moving from an old-style infrastructure to become a platform in support of a
vibrant business ecosystem?
The first step would be to create distinct layers associated with distinct roles. The power
companies serve as the platform owners. They charge for their shared services and reinvest in
these services. They do not, however, block or interfere with producers who profitably and
flexibly employ those shared services. When the two layers are working in alignment, they can
grow in revenue and profit without depending on monopoly or other non-market advantages.
They are profitable in their own interest and in the interest of society. As in the traditional
arrangement, the public grants the platform owner a privileged position as long as it is not
abused.
There are many adjustments needed to make the grid become a productive business platform, but
they all seem feasible. There are two interlocking issues: open interfacing, and re-balancing the
rules to allow for these options to be exercised in the public interest. There is no reason to
assume that these changes will work against the interests of the businesses that participate. Old
and new participants will prosper, just in a different way that doesn't beggar the public and fail to
innovate.
The “interface” is opened in several ways. The major one is simply to make it easy to sell power
back into the grid at a competitive rate. While this is grudgingly allowed in many locations, the
means to do so need to become uniform, assured, and readily achieved by any qualified applicant
anywhere in the nation. The interface standards, metering equipment, and payback mechanisms
must be clear and completely described and open to any reasonably qualified producer. This
should not be a hurdle.
8
The latest theoretical work is represented in Annabelle Gawer, ed., Platforms, Markets and Innovation, Elgar,
2010. An earlier treatment of the platform concept, with more explicit ties to the systems thinking tradition and to
Gregory Bateson in particular, is James F. Moore, The Death of Competition: Leadership and Strategy in the Age of
Business Ecosystems, 1997.
6
The platform owner takes on the burden of managing new, growing, and often unpredictable
sources. The platform owner can manage this burden in several ways. With significant
producers, he can enter into Service Level Agreements that constrain the contribution profile.
Producers might agree to perform some of the load leveling before reaching the grid, or the
platform can broker among producers. For example, solar and wind producers could coordinate
to cancel each other’s day-night fluctuations. A storage capability might join this small
producer's consortium. Or, the platform might itself solicit a counterbalancing producer in order
to capture efficiencies.
While the technical potential for innovations and combinations is high, capturing them all
depends on a well regulated platform, plus platform agents who have the incentive to incorporate
innovations rapidly and fully. The platform agent today is a disconnected group of entities,
including:
 Load Balancing Authority
 ISO/RTO that provides the transmission backbone and has no real control over where and
what kind of generation is located
 National Electric Reliability Commission (NERC) that provides grid reliability
monitoring
 Load Serving Entity whose pricing in driven by obsolete Public Utility Commission
policies. It depends on its own fully amortized, and/or new “rate-baseable” centralized,
subsidized, polluting, dangerous, and obsolete power plants.
In the American system today, the ISO/RTO/LBA entities are not integrated and have
competitive incentives to not be transparent. The key accomplishment of a platform that levels
the playing field for the utilities, the users, and the generators would be to create an incentive for
true value added competition instead of back room financial planning that is designed to enhance
shareholder value at the expense of other interconnected stakeholders. In addition to creating a
method for more transparent policies and self-regulation, the platform would drive all
stakeholders toward the most efficient energy management strategies. All will be the winners in
the race to lower rates, lower carbon, and make American industry competitive.
This role definition is not vastly different what some power companies have today. It could be
instituted through careful rule-making, often through existing regulatory boards. These rules
would be no more ‘artificial’ that the rules that exist today. Those entities that control the grid
are regulated and always will be. A platform pattern could be both in the interest of the platform
owner (whose revenue and profit can increase even though it is shared with partners) and in the
public's interest (to include efficiencies, innovation, and environmental control). All would be
well-served by a vibrant platform.
Clever production options are increasingly available, many of which are situation-dependent and
not highly scalable. This is how many power opportunities are presented in nature as well as by
society and modern technology. (We are simply generalizing on the principle demonstrated by
dams. Dams work only in some locations and only for so much power that nature yields.) The
institutions should be set up to welcome and manage diversity of sources as they appear, not
discourage these options. There is no technical reason to arrive at or even seek one dominant
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technology. The only reason to do so would be to sub-optimize in the interest of certain players,
against the overall and long-term interests of all system players and the public.
Potential as a design criterion. It is not a simple matter to decide the mix of sources, and there
will always be disputes. Getting honest, systemic cost information helps a great deal, of course,
but finding which options are the lowest costs doesn’t necessarily determine the best choice. The
system has to be managed for the long term, with the awareness that things will change for
reasons that cannot be foreseen. It is important to maintain adaptive capability, and that can add
some costs, in terms of investment in a flexible system. This is hard to justify, however, because
we are not talking about specific benefits and risks that can always be calculated. An approach is
to work from a set of criteria that help indicate whether an action reduces or enhances a broad
range of future options.9
The loss of potential became an issue in 2008, during the belated realization that there were
“systemic risks” in the financial system. Each player can hedge his own position and appear to
be safe, but the safety of the larger system may be sacrificed. The public cannot tolerate having
a power system that generates such externalities. The public’s regulatory power should prevent
this through rules imposed on the grid agent and how suppliers are assembled into risk-balanced
sets.
There are ways of assessing systemic risk, though they are not widely practiced.10 A simple
assessment approach can work down from very general qualitative dimensions by which the
system can vary.11 Cases can be found that would exploit this dimension, and one can then
consider whether these cases are blocked or constrained from occurring. We provide here a few
examples:
Some dimensions
slow and fast
Example grid-related options that exploit the dimension
flywheels storage for moderating bursts of supply or demand
connected and isolated
co-generation, power captured from waste of a primary process
product and byproduct
for new roof, incremental upgrade to solar collection shingles
True costs. Conventional cost accounting has weaknesses: it excludes known costs, applies
dubious discount rates contrary to social value, and often doesn’t integrate risks. And of course
there is simply false accounting. Enron’s corruption had effects well beyond those who were
directly hurt. The CFO of Duke Power described how he was pressured by keep up with the
“market leader” and find a way to be more profitable. He explained to his board that he knew
9
Myers is developing an adaptive capability assessment tool. When adaptive capability is weighed together with
measures of performance, the combined quality is robustness. There are many similar concepts and terminology, but
much of the risk or resilience literature focuses on the downside, the innovation literature focuses on the upside, and
other accounts focus inward on the firm with insufficient attention to the business ecosystem as a unit of analysis.
10
The Property Casualty Insurers Association makes some helpful improvements but remains tethered to an
accounting framework. http://www.pciaa.net/web/sitehome.nsf/lcpublic/392/$file/pci_systemic_risk_definition.pdf
11
A general set of “parameters of potential” are developed in Aron Katsenelinboigen, Indeterministic Economics,
Praeger, 1992.
8
what Enron was doing, but that it was wrong and could only lead to trouble. One wonders how
many others other professional staffs had such fortitude. We also need to consider the costs
through the whole life cycle of power, from generation, storage, transmission, and use through
environmental impact and a host of secondary impacts. The "real" costs are not one ultimate
truth. Interpretation is always necessary.12
The books need to be honest and extend to systemic and social value. This information needs to
be openly available, fully interpreted for the public, and verified (not rubber stamped by a
corrupt accounting firm). A successful platform, operating under fair rules, should have nothing
to hide and much to be commended for.
A special concern is accounting for coal and nuclear plants. Special tax and subsidy treatment
confuse matters. Coal, properly costed, can compete but it is hardly a good deal.13 Making
people sick, leveling mountains, permanently destroying vast acreage, are real costs.
Furthermore, coal plants require huge investments in the face of impending regulation and
popular opposition, and these risks are becoming less attractive. For example, a new coal plant
on the Ohio River was blocked for years. The design was switched from coal to natural gas, and
environmental groups relented and announced they would not oppose this.14 Similar
reconsiderations led to a cancellation of a nuclear plant in Maryland, but the issue here is not as
much change in regulation, but simply the skyrocketing risk and the inability of any entity, other
than the US government, to insure such plants.15
Coordination with other strategies. We are not ignoring or opposing other visions and
initiatives focused on the grid or the energy system more generally; rather, we are arguing on
behalf of a systemic approach, and specifically one that employs the structural advantages of
platform design. Alliances seem possible with these other movements:
 Smart/super grid. Technology will certainly make a difference, especially in controls.
But efficiencies could end up reinforcing unfavorable business models, or just playing
into competitive games that don’t further the public interest.
 Privatization/markets/regulatory reform. Simple deregulation has run its course.
What we could imagine now is re-regulation with rules that encourage highly active
business investment and competition but with the public interest firmly maintain in both
process in result.
 Secure/independent/low-carbon energy. The grid will mediate much of the transition
to new energy. It is important to prepare the grid to reward what is truly efficient, fair,
and prudent, as well as to be a facilitator for experimentation and innovation.
An example of how to think about wind generation costs is Donald Hertzmark, “German Wind Capacity
Revisited: High Cost versus Least Cost,” September 7, 2010. http://www.masterresource.org/2010/09/german-windhigh-cost-least-cost/ .
13
This cost comparison study juggles many factors fairly and shows that coal is not the bargain that it is often
assumed to be. Lazard contract report, “Levelized Cost of Energy Analysis,” September, 2010.
http://efile.mpsc.state.mi.us/efile/docs/15996/0145.pdf
14
“AMP Ohio plans large gas-fired power plant on Ohio River,” Cleveland Plain Dealer, August 23, 2010.
15
Steven Mufson, “Constellation shelves proposal for Calvert Cliffs reactor,” Washington Post, October 9, 2010.
12
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Linking thought to action
Grid decision makers (lawmakers, regulators, and major utilities) have shared mental models
through which they coordinate actions and resolve disputes. These habits are reinforced in
everyday interactions. These largely implicit mental models can derail many experiments that
impinge on structures and boundaries of the grid. For example, the working assumption of the
last 30 years or so has been that the grid must become ever more interconnected and capable of
carrying more electricity over longer distances. Supporting this assumption are beliefs about
economies of scale and markets that persist on the basis of less and less evidence of their
necessity or efficiency. Another persistent mental model is that the functions and actors in the
system must be categorized the way they presently are: generate; deliver/bill; use. This mental
model has divorced the provision of energy from its use and, in so doing, contributed to many of
the outcomes we now try to change through energy efficiency programs and codes and standards.
We can make headway as well by illuminating mental models, creating the system by which
many can question them, and providing samples of alternatives. This can bring a process of
thinking and acting more clearly in relation to shared values and to a high potential strategy.16
To those who are discouraged by the apparent inability of anyone to change the power system
that is currently locked into technology, control regimes, and a network of political favors:
consider how some of the analogue systems, seemingly unshakable monopolies, eventually
dissolved when enough people started to think differently and take action for their own good and
the good of others. Who would have thought that Linux server software, built by volunteers and
available for free, would have displaced Microsoft’s monopoly that was years ahead in technical
development and was serving as the key technology upon which the reliability of all computing
depended. The grid might undergo similar systemic transformation, perhaps mediated by the
currently moribund "laboratories of democracy" -- the states. Or perhaps the smallest utilities
could act as the vanguard for a different sort of grid. Their experience could minimize the
perception of risk that freezes the larger players and invokes defensiveness.
Our power gridlock might not last indefinitely. Yet we are not in a position at this point to
choose or drive toward the best path. With a platform strategy, however, we can continue to
discover a good path while keeping valuable options open.
Scenario
We play out a broader energy scenario (see box below) where a new kind of platform grid
operates behind the scene. Our scenario isn’t an ideal or complete energy future, just a plausible
picture that imagines that the nation has been capable of transition to a safer and more productive
posture, one with an open future of additional capability to meet new contingencies. No matter
the details – and we choose some unlikely details that many would not have predicted -- the grid
can adapt and play a crucial role, but only if it becomes a high-potential platform.
16
The practices of professionals often inhibit new strategic thinking that is appropriate for our unsettled situation.
This is explored, with some case material from the energy sector, in Kent C. Myers, Reflexive Practice: Professional
Thinking for a Turbulent World, Palgrave Macmillan, 2010.
10
A plausible energy scenario mediated by the platform grid
Per capita electricity consumption is higher. There are widespread efficiencies, but a big draw is
hybrid plug-ins, and ammonia is a surprise transportation fuel that is growing quickly. Power is
generated significantly by wind. Solar is steadily increasing as new techniques are refined. Natural
gas and nuclear are big now, but coal is being phased out, then natural gas, then nuclear. (Wild card
sources, such as black light power, are always being investigated but there is no breakthrough in
sight.) Biomass is a power source, but only in locations where it is convenient and part of a
complementary cycle. For example, bio char is needed for soil remediation, or biomass is used for
heating fuel in specially equipped agricultural sites. Cattle grazing, dairies, and other animal
operations are largely self-contained, using manure for heat and electricity onsite. Variable and
smaller energy generators rarely feed the grid but are frequently used for asynchronous and
localized uses, such as water purification and desalination, and for making transportation fuels such
as hydrogen and nitrogen (which can be recombined into ammonia for fuel or fertilizer). This
portfolio significantly reduces the growth of greenhouse gasses and improves jobs and quality of
life, especially in rural areas. The system is relatively safe and stable, though financial malfeasance
and general competition over resources threatens to disrupt delicate agreements and dependencies.
5. Combinatorial Opportunities
Whatever happens is probably going to be highly varied, simply because technologies and
investments are moving rapidly in different directions.17 There are several ‘cool’ technologies18 ,
even dazzling one’s such as quantum-effects solar cells. The bulk of the attention has been on
these discrete, money-making power products, and indeed many of them seem well worth
pursuing. Yet there is a mental model lurking here that we should be wary of. Processes,
relationships, and assemblages are less visible than component technologies. Even so, they
harbor systemic potentials that can really pay off. Our minds, and business structures, need to
incorporate their potential as well.
Very simply, we should always look beyond components to consider how they relate to the
system. If we just look at the component and its efficiency, we will often have failed to account
for opportunities for greater effectiveness afforded by changing relationships within the system.
We will attempt to demonstrate what we mean through some examples.
This is all to be done under the more general strategy sketched in the previous section.
Borrowing from the language of chess, we want to build a strong “position” with our strategy,
one of high potential from which we can continue to pursue various “combinations” as they
present themselves. A combination is a localized advantage created -- not by one component or
piece -- but by multiple components acting in concert. The grid should remain flexible enough,
17
How does the Microsoft thinking pattern apply to the grid? Bill Gates has invested heavily in a nuclear plant
design. At the same time he disparages small, distributed solar generation. Is this a reprise of his software strategy,
where he built a monopoly and shunned the web? He can afford to hedge his bets this time, however, and has
smaller investments in algae. “Bill Gates Powers Up,” Wired Magazine, July 2011, p108-113.
18
For an overview of breakthrough grid technologies, see Matthew L. Wald, "How to Build the Supergrid,"
Scientific American, Nov 2010, p57-61. http://www.scientificamerican.com/article.cfm?id=how-to-build-thesupergrid
11
on a long-term basis, to be able to accommodate these combinations and advantages. What
constitutes a combination? It may include -- and often should include -- resources that aren’t
normally thought of as part of the grid or power system at all. In fact, attractive combinations
might include entities that are normally considered waste, such as non-arable land, or the longterm unemployed. We have selected a few combinations that have particular interest from a
systemic point of view and that also fit well with the platform rearrangement that we have
proposed.
Transport
The continental grid loses 40% of generated power to heat. This is a huge target for efficiency.
Taking our own advice and looking first to the relationships that extend from the grid, we
observe that the worst “resistance” may not be in the wires themselves, but in NIMBYs who
block every proposed improvement. In Europe, much more of the grid is buried. Buried wires
would reduce local citizen complaints while also reducing blackouts. But it is expensive to dig.
Considering the combinatorial possibilities, if broadband cables were buried at the same time, or
if other rights of way (pipeline, rails, etc.) were coordinated, installation costs could be defrayed.
High-performance wire might be worth burying. There are two interesting options here. Over
long distances, separate DC lines can reduce loss. (The power can be converted to AC near the
point of use.) This could be a way to connect remote areas that have very high capacity for wind
or solar generation but poor ability to deliver this power to distant cities. There is no generalpurpose super-conducting or wireless option currently on the horizon, but it now appears that
metallic nanotubes can be scaled up into very high performance, general-use transmission wire.19
(Bear in mind that we are not proposing that the grid itself has to take up all the slack, or that
there is some silver bullet to be found in this portion of the system, only that there needs to be
some flexibility and renewal throughout the system, and that some attractive combinations are
available at this level.)
The platform agents need to be able to profit from investments that end up adding capability in
long distance transport. This capability may score well as a contribution to potential because it
allows new generators to reach new markets. If a wind farm in remote Montana is able to get
power to California with low loss and without having to make its own huge investment in
transport capability, wind suddenly gets a huge boost, plus the platform opens itself up to a vastly
larger set of producers. On the other hand, some of these remote producers can contribute a great
deal without recourse to this transport option, as we will explore in additional examples.
Load management
In another example of obsolete mental models, there is fear of variable sources and insistence
that the vast majority of power be “base” power that never varies. (This thinking is reminiscent
of a 19th century investor who clips coupons, owns no stock, and has never heard of portfolio
theory, hedging, or program trading.) Grid operators are acquiring the knowledge and controls
that allows them to construct and maintain a safe portfolio of power sources, including variable
“Pure Nanotubes by the Kilo,” Technology Review online, 7/21/2011.
http://www.technologyreview.com/energy/38102/?nlid=nldly&nld=2011-07-21
19
12
sources. After all, such management is just an extension of what already must occur in order to
make base power pay off. If you do not run the base constantly at peak efficiency, you waste
money. You need variable sources to fill in at peak demand, simply to optimize the use of base
power. Some facilities have become adept at using newer balancing techniques, such as flywheel
storage, compressed air storage, and pumped water storage. These many eventually compete
with more conventional supplements, such as gas burners. Many of these have potential for
greater refinement, whereas more conventional techniques have reached their peak.
Consider also that centralized base power isn't always safer. While it may not be likely, big
facilities can go down all at once, as they did in Japan. Alternative and smaller sources can be
mobilized more rapidly than large facilities when backup is needed, and there is less risk in the
first place if no single source were a huge percentage of capacity. Rather than disparage
renewables because of their limited contribution, this feature should be recognized as a possible
advantage within a superior, lower risk portfolio.
Yet the grid operators are not being obtuse. They really do need steady inputs, and they need to
follow rules on using least cost sources. Alternate, supplemental power is still expensive and
variable. That is what makes it less desirable and less in demand compared to centralized base
options, even thought it might have other advantages. Are there a combinatorial approaches that
could change this calculus? Let’s start with one example, and then follow with another that
poses the question differently.
Pre-packaged power. Gas and wind producers often think of themselves as competitors. They
point out each other’s deficiencies, and the grid operators take heed. These sources are given a
lower priority than cheaper and steadier base sources. Wind producers can even be penalized for
dumping power on the grid at night when it is not needed. Yet it is possible for these two sources
to team up to offer near-base characteristics, at a price that is lower than gas alone. The gas
burners can adjust quickly enough to compensate for variance in wind’s contribution. At night,
the wind may contribute the bulk of power. Together, they can meet strict SLA delivery profiles
that the grid operator values. Under this scheme, the wind company is now selling more power
and is not being penalized for its variability and high output when demand is low. The gas
company is now selling more power because it can beat the overall price of its gas competitors,
since it is using the inherent controls in its plant as a means to incorporate very low cost
supplemental power from wind. There are obviously some complications in this partnership and
requirements for new technical designs and skills in controls, but there are ample benefits to all
parties. From the public’s viewpoint, there is lower cost, less public investment and reliance
upon dominating base power, less entanglement with coal, more use of renewable wind.20
Displacement of demand. Sometimes it is best to shift functions off the grid, and the grid
should welcome this as well and not encourage mindless growth in electrical consumption. In
California and elsewhere, 20% of daytime power usage is for pumping water, mainly by large
municipal and agricultural facilities. The water authorities just let the pumps run when needed
during the day, and they are relatively idle at night. Meanwhile, the wind operators have
abundant cheap electricity at night. Obviously, water should be pumped at night into tanks, then
distributed during the day, powered by gravity.
20
The details of this concept are available from Altresco, www.altresco.com.
13
There is nothing new about this combination. What might be new is the loss of American
initiative and mechanical sense, under the influence of institutional rigidity. Any mill operator
from the 1800s would have seen the connection and tried to do something about it. Americans
were genius mechanics who strapped on belts and made one-off, local production facilities.
Now, we only seem to see the problems as they are defined by our bureaucratized institutions.
Few are in a position to formulate the designs, approve the deals, or execute such projects that
span boundaries between static, inward-looking institutions.
At least in other countries, ingenious designs have been demonstrated for buffering loads. In
Portugal, for example, the turbine/generator sets on dams are able to work in reverse as water
pumps. During low demand periods, otherwise useless wind generation is used to power those
motors to pump water from a lower level dam to a higher level dam, converting wind energy into
potential energy (or wind power into hydro power).
One of the big users of power might become water purification or desalination, as water demand
rises and becomes scarce due to many factors including urbanization and climate changes. More
decentralized, off-grid, co-generation approaches might make more sense in these applications.21
Waste associated with power production can be processed as well, to turn pollution into profit. It
can be as simple as using gas flares to heat water. Or carbon monoxide can be fed to
microorganisms that generate fuel.22
Broader combinations
Our platform power strategy links up with even larger economic and social strategies. The US
has a lot of wind energy that can be tapped, more than in most countries. This suggest that there
could be a long-term trade advantage for the US in goods with high energy input, plus other
inputs unique to America, including land and, perhaps, innovation -- if it were actually
cultivated. As in a past era, where Pittsburgh and Cleveland flourished at the interstices of iron
ore, coal, and water transportation, our next era would become organized around new
combinations of resources that have world-class advantage. Let’s sketch one example.
Arid dairy region. The US can expect to be a food exporter. There is not much margin in corn,
however, which is over-subsidized and causing trouble with soil, water, and much else. Row
crops are not ideal for the region from Texas to Missouri, and the current agricultural water use
there is too great. Powdered milk is a better export product since it is easily shipped and
nutritionally dense. Compared to row-cropping, pasture in this region of the US would require a
lower, sustainable amount of water. Off-grid wind power could pump the water and run
processing plants. The dairies would create good, permanent jobs. The product would be
unbeatable in world markets.
21
In a simple example, power plant chimneys contain a great deal of recoverable water. New membrane
technology could extract it at an acceptable price in arid regions.
http://www.buildings.com/ArticleDetails/tabid/3334/ArticleID/12565/Default.aspx
22
“Turning Exhaust Gas Into Fuel,” Technology Review Online, September15, 2010
http://www.technologyreview.com/energy/26283/?nlid=3505
14
There is a great deal of underutilized resources or waste energy that can be captured and brought
into productive relationship with the grid. Usually it is not the technology or financing that holds
things up, but the approvals and negotiations within institutional frameworks and mental models
that are not always aligned in the best interest either of the ecology, the general business
community, or the general public good. Amory Lovins provides ample evidence for his
recommendation that co-generation schemes can go much further, as long as professionals learn
to think about them correctly (i.e., systemically).23 A leader at the National Renewable Energy
Lab said that they were forced to work only on large-scale options, and that many small-scale
options were overlooked that seemed at least as good. He added that his organization was forced
to abandon algae research in 1996, but he was pleased to see that algae was now making progress
as a small scale option.24 As an experimental process, cellulosic biomass can be counted as a
success. It has been fairly evaluated and the conclusion has been reached -- with reasonable
speed and expense -- that it is not ready to scale.25 Battery technology, on the other hand, may
have escaped proper scrutiny and an understanding of where it fits systemically. Investment and
subsidies sailed through, with the result that society may have overcommitted itself ahead of
both technology and the market.26
6. Systems Thinking at a Power Company
How would a company find its way toward a platform role? Many variables factor into power
company decisions; this complexity can seem like chaos. Some common evasions are to
oversimplify, follow habit, or ignore whatever seems unclear. This is not good thinking. We will
review an example of where a power company engaged in some systems thinking that helped
them see strategic options more clearly.
Our brain is attracted to clumps and narrative as a mode of understanding. The Spire modeling
technique relies on these patterns to bring some order out of chaos, without at the same time
oversimplifying. An interesting application of this technique occurred at Florida Power and
Light in 1991. 27 The results seem remarkably up-to-date. Topics such as carbon dioxide and
Amory Lovins, “Integrative Design: A Disruptive Source of Expanding Returns to Investments in Energy
Efficiency,” Rocky Mountain Institute, 2010. http://www.rmi.org/rmi/Library/2010-09_IntegrativeDesign Lovins
also demonstrates that systems thinking can find superior strategies for solving truly giant, intractable problems.
Though pitched at a level above the grid, the following work is highly instructive on how to synthesize new patterns.
"On Proliferation, Climate, and Oil: Solving for Pattern" (Rocky Mountain Institute, document ID S10-03, first
published in Foreign Policy in a shortened version, January 2010.)
24
The DoD-sponsored speaker series, Energy Conversation, was abandoned just before a scheduled algae
presentation. This was a very popular series, attracting hundreds. The National Renewable Lab presented at the
session on “Gigawatt Renewables,” May 13, 2008. A smart grid event was held September 15, 2008.
http://www.energyconversation.org/conversation/barriers-and-challenges-building-smart-grid
25
David Biello, “The False Promise of Biofuels,” Scientific American, August 2011.
26
“Will Inverters Compete With Storage? Will They Take Over the Grid?” Green Tech Media, July 2011. The
discussion here, and in related articles on battery manufacturing, indicates many choices and uncertainty over where
storage is needed and how it can be achieved.
27
Harold E. Klein, “Designing Scenarios for Planning and Decision Making: A Demonstration of the Spire
Approach,” Electric Power Research Institute, October 1991, EPRI TR-100396s. Under the leadership of Marshall
MacDonald through the 90s, FLP was a standout in strategic management. In 1989 it was the first American
company to win the Deming Prize. These broader efforts are described in Frank Voehl, Macrologistics
Management: A Catalyst for Organizational Change, CRC Press, 1997.
23
15
electric cars were live concerns. This study also gives us an opportunity to observe some change
in trends and perceptions, affording us clues on how a power company might change its thinking
over time as it interacts with the developing situation and reconsiders its role.
Here are some general guidelines on how to read the four-page diagram in Appendix 3.
Influences moves from left to right. Feedback is not represented. One variable influences no
more than three variables. The variables that have more downstream effects are to the left, and
those that receive more influence than they give are to the right. The variables that are more
highly interrelated are gathered together, though there are also connecting links between these
clumps.
The diagram is a summary of influences. Underlying this summary are a large number of
specific statements describing influences from one variable to another and to key decisions. All
the label terms have more extensive definitions. These statements are the source from which the
diagram is generated according to rule. The statements remain part of the model and the means
to modify it. If something does not seem right in the summary, one can inspect the statements
that give rise to the result and either accept those consequences or modify the statements. These
statements are associated with available decisions. This is helpful for identifying what can
actually be done, for priming the organization for change, and for clarifying what needs to be
monitored and under what conditions. FPL identified 23 strategic decision issues in 4 general
areas. These decisions are listed in the box and are indexed to the diagram nodes where they are
most directly affected.
FPL’s strategic landscape. “Consortium utility enterprise” is at the end of the line. This
variable from 1991 is very consistent with what we have been calling here a platform system. It
is a sort of culmination toward which the system is headed, though much needs to happen
beforehand. Backing up from that state, it is interesting to see that the final and most influential
lock, before we get to “consortium”, is nuclear power. If FPL buy’s nuclear power, the
consortium concept is unlikely to fire, since FPL would become devoted to making that single
nuclear investment pay. The immediate concern was proper characterization of demand, so that
the very risky proposition of investing in nuclear power could be assessed.
One is struck by FLP’s wariness concerning all the conditions that kept their business stable.
“Consortium enterprise” was understood in 1991 as the likely consequence of knocking away
these conditions. It was a bracing possibility, changing their assumptions regarding ownership
and investment roles, shifting from a position where it was guaranteed that their costs were
covered and profit would be steady. Their new role was neither articulated nor guaranteed.
But it wasn’t all threat. Tension toward competitors might lessen within a consortium. All the
players would benefit from success of the consortium as a whole, and thus the interests of all
players would be fundamentally aligned, even though there would be secondary bargaining. FPL
discussed partnerships at the time, but with more emphasis on spreading risk among secondary
investors where they remained the lead producer and owner.
A significant uncertainty was the electric car. The car would drive many other changes and
controls in the grid. There was a sense that elaborate measurements and controls would throw
into confusion the pricing of power and its sources.
16
In sum, it appears that FPL’s strategic exercise had anticipated the basic shifts we are presented
with now. Some issues did change in the particulars without actually going away. For example,
investment in the first wave of “management information systems” has passed, and the “smart
house” never materialized in the form it was expected. Yet there are even larger waves of IT
ahead, to address smart metering, cyber security, and whatever “the Internet of things” might
lead to.
The platform company could argue for a better grid and gain a hearing with regulators, but only
if that entity’s role is clear. Its incentives would need to be tied to its responsibility for
consortium services, not in monopolizing power sources, suppressing competitors, raising rates,
or generally driving sharp deals with those who are ignorant of the details. In Nantucket,
apparently, the wind project was scuttled partly because the deal was not transparent. There were
strong suspicions that current rate payers would be stuck with bills for benefits they were not
going to receive.
Rather than wringing one’s hands about huge investments in generation, the platform agent could
focus on platform services, the inclusion and balancing of producers, and sales between grids.
For this, the platform charges an equitable tax on the producer partners. When the grid agent
invests in grid efficiency, the returns are shared by the agent and the public, and the consortium
players gain an indirect benefit that makes them more competitive as power exporters.
7. Recommendations
An adaptive grid takes the form of a business platform that supports a wide variety of innovative
producers. It is the infrastructure needed for our epochal energy transformation, but rules and
habits need to change in order to bring it about. Our recommendations are not a complete
roadmap by any means, but we do point out some different ways of thinking about strategy that
would allow systemic redesign to proceed.
Recognize unknowns
Debunk overly confident “end-states” and “solutions” and the strategies that follow. Show that
we don’t know the solution, but that we can find and adjust our path through the use of a highpotential, adaptive structure. A very subtle and dangerous kind of ignorance is to presume that
you know more than you do. Many professionals encourage and even indulge in this wishful
thinking when they should know better. Some of the best, such as Mark Zandi, are quite willing
to say, "I don't know." He is aware of his own lack of knowledge. This is the beginning posture
for pursuing what could be a revival of the US economy on a new footing of systemic
innovation.
Enforce transparency with security
17
Transparency is possible and is on the march.28 However, the power system has pulled back
from this trend, based on dubious claims that open information is a security threat or that
proprietary information is an absolute right within a regulated environment. Detailed
transmission grid maps and power flow data is a public asset and should be published openly on
a web page, without background checks or NDAs. This includes a mapping of MISO CP nodes
to physical locations, overlaid on Google maps. What is more difficult is true cost information.29
We need to assess the systemic consequences of options, and also hold projects up to the light of
social value, to include the moral issues of discounting over long periods.30
Better digital security schemes are certainly necessary, but withholding useful management
information provides no protection from criminal attack or malfeasance. Guidance on security
can come from new cloud computing approaches, where maximally open and shared systems can
now offer better protection than conventional perimeters and patches on connected devices.
Apply a high-potential strategy with a platform structure
A great deal of national innovation is in the energy field and the grid can act as a huge multiplier
force, either for or against valuable designs, raising the stakes on how the grid is managed. The
structure should encourage many investments but without overcommitting or retarding future
development as innovation and environmental changes continue. This high-potential approach is
different from finding a specific design and moving toward it, which is the default mental model
of planning.31 An adaptive posture, in particular, includes active experimentation over the full
range of potential. The platform structure is the basis for pursuing such a strategy where all
players are rewarded and aligned to the common good.
Apply nudges
We should know what subsidies and market favoritism exists, and then choose to favor what is in
the public interest. Neither coal nor corn ethanol subsidies are in the public interest. If we
choose to favor wind, it needs to be done consistently for a long period, with agreed-upon
stopping conditions.
Money is not the only way to influence attention and thinking. The Energy Star program, in its
original concept, was an interesting systemic nudge. It avoided setting standards that could be
easily met or manipulated. The program was to encourage technological improvement and
28
Don Tapscott, The Naked Corporation: How the Age of Transparency Will Revolutionize Business, Free Press,
2003. His later work on “macro-wikinomics” elaborate on how transparency connects to learning.
29
C. Fernando, P. Kleindorfer, “Unbundling the US Electric Power Industry: A Blueprint for Change,” Wharton Risk
Management and Decision Process Center, March, 1995.
http://opim.wharton.upenn.edu/risk/downloads/archive/arch22.pdf
30
Herman Daly, John Cobb, For the Common Good: Redirecting the Economy toward Community, the
Environment, and a Sustainable Future, 2nd ed., Beacon Press, 1994. This has some of the most thorough discussion
of discounting, and how it plays in measurement and assessment schemes. This continues to be an active and
important area of research.
31
Tom Stewart makes the argument in a very compact way: learn to be fluid. “What’s the Toughest Strategic
Challenge of 2010?”, BNet, August 16, 2010. http://www.bnet.com/blog/strategist/whats-the-toughest-strategicchallenge-of-2010/101?tag=content;drawer-container
18
change, along with greater managerial efficiencies that will move the wider market to change.
The award was to be given to those demonstrating capability to adopt a system-wide solution
that takes advantage of unrealized opportunities, uses a sound financial foundation, shows
greater future promise, all the while using less precursor energy and causing less environmental
and social damage. Consideration was to be given to how the technology improved social
connections while also increasing the system potential for greater justice and other aspects of
society value. The criteria were intentionally ambiguous, as a way of teaching about systemic
solutions. It provided grounded education in what design for the social good means and how it
can bring rewards to individuals as well. It supported the cause of improving the capacity for
good governance and making good judgments about long-term paths. It was a non-regulatory
approach to improvement.
Revive energetic good government
The grid is regulated and always will be. Government is committed to intervening, and therefore
must intervene well and decisively. Regulators should apply a very different set of rules, not to
decide outcomes, but to secure the grid while also enhancing innovation aligned to the public
good. A two-level system, on the model of a business platform, can achieve this. The
regulatory changes can be worked out,32 but success also depends on different thinking from
professionals, plus a public vision from decision makers. This is where we may be suffering the
greatest power shortage.
32
Paul Kleindorfer recommends essentially the same platform concept and spells out eloquently many of the
economic and regulatory details. His study resulted from a larger effort to diagnose the great blackout of 2003 and
to provide remedies. “Economic Regulation under Distributed Ownership: The Case of Electric Power
Transmission,” Wharton Center for Risk Management and Decision Processes, 2004.
http://grace.wharton.upenn.edu/risk/downloads/archive/arch319.pdf
19
Appendix 1: Note on Virtual Systemic Inquiry
The VSI program is:
 A research protocol that provides public sensemaking on vital issues of the day. We align
ourselves to a set of systems thinking principles and methods.
 An emergent, self-organizing capability. The capability is not owned by anyone and is
available to any client whose needs are of a character that will elicit a response from the
network of participants.
Every VSI project follows the contours of the resources that present themselves. In this case, our
greatest boost comes from Systems Thinking World which affords us access to highly capable
volunteers with knowledge of the power system. Gene Bellinger, the director of STW, also
provides tools and advice on collaboration. Bill Williams, without being aware that he was
initiating a VSI project, posed the initial issues and engaged members in conversation about the
grid. Kent Myers took on the role of VSI facilitator and wrote the report. Below are notes on the
contributors. All can be contacted via LinkedIn or through the STW group that is hosted there.







Kent Myers. Associate with Booz Allen Hamilton. Strategy consultant to broad range of
Federal agencies. PhD, Social Systems Sciences, Wharton School.
William R. Williams. Founder of Altresco www.altresco.com. Veteran of the power
industry, developing many combined systems and development projects.
Dan Strongin, management consulting. See programs at: managenaturally.com
Frank Voehl, long-time executive at Florida Power & Light and consultant to the power
industry. Author of several management books, most recently The Organizational
Alignment Handbook: A Catalyst for Performance Acceleration.
Pamela Morgan, consultant to energy industry. See programs at gracefulsystems.com.
Troy Benjegerdes, engineer and agronomist, involved in regional power planning with
public and private stakeholders.
Mary Ritenour, consultant in strategy and change management.
Those who seek further details on the VSI program should contact Kent Myers
(myersk1@gmail.com).
20
Appendix 2: Endorsements
From Frank Voehl:
Louis Brandeis had it right; openness and light are the answer to many of the world's problems.
The present public utility environment is out of integrity and casts nothing but shame upon many
of its leaders. We are told, for example, that particular executives must disclose fully all
elements of their compensation in proxy statements; then, we find out in divorce hearings that
substantial and significant items are omitted. This is not a matter of vast significance in itself.
What is important is what it tells the world about us as a people.
Notwithstanding the clear intent of regulatory statutes, responsible people with responsible
professional advisors only disclose what they want to disclose. One has to wonder how this
inclination affects information about other aspects of the impact on society of public utilities and
corporations in general. The various communications revolutions - computer, internet, email now make it possible to disclose information to all relevant persons virtually without cost. We
should insist that this be the guiding principle of the public utility power company functioning
towards the new grid - disclose, even those items where cost to the utility in the form of
tightened regulations may be involved. Long term value will be enhanced for those utilities that
can be trusted by the public - trusted to tell the full story short of judicial proceedings.
This paper opens up a new and important aspect of modern life. Zeroing in on the heart of a
momentous change that is stirring in the world and explaining it all clearly and completely is
what this paper is all about. At the heart of new grid is the notion that citizens, shareholders and
other stakeholders are empowered by technology to know more and more about their energy
options faster and faster, which in turn greatly emboldens them to take action based on their new
knowledge. In other words, perhaps the old adage "there's one born every minute" needs
updating. They're still being born, but hopefully now a few per hour, or one per nanosecond. It
also attempts to be ahead of the curve in accurately predicting and understanding critical
business and cultural shifts that have the potential for enormous impact. The general thesis is
that greater transparency is at the core of the solution. However, the response of most power
companies seems to be shallowly focused on compliance with EPRI and S-OX regulations-missing the point of the exercise.
The paper argues that this is the time to rethink the fundamental values and leadership of the
electric utility in context of external and internal stakeholders. It’s premise is that it will be
heartening to see examples of leaders that live and manage to their values and take the bold steps
to go beyond focus on their quarterly financial results and regulatory compliance. This paper
convincingly outlines both the business rationale and the path to a return of trust and loyalty in
the institutions we invest in, do business with, work with/for.
Finally, this paper describes a significant shift in public utility business. Many companies will
fear or try to ignore the shift and a few companies will embrace the shift. This paper provides a
compelling prescription for a power company’s business success profile. A careful reading will
identify some 24 "gems" (actions) to improve the corporate performance and ‘competitiveness’
of an enterprise such as FPL As a contributor to this paper, I see light at the end of this very dark
21
tunnel in the evolution of business and personal conduct, only if we all take action and
accountability. For this paper explains how transparent and open the world has become as the
national grid continues to unfold. But better than that, it articulates why it is beneficial. With so
much information at our disposal, it is at times overwhelming, is it not?
22
Appendix 3: Power Company Strategy Diagrams
23
Business structure
of MOGs
54
DECISION ISSUES
Market
1 Generating capacity requirements
2 Product mix
3 Lines of business
4 Target markets
5 Joint ventures
6 Generation ownership mix
7 New end-use marketing/promo
8 Degree of vertical integration
9 Outsourcing
4.02
rd
3 Party compet.
for distribution
services
2 21
4.01
Customer concern
for secure oil
supply
13.06
US capacity to
dispose of solid
waste
Electric car market
Aggregate
demand for
electricity (load)
74
1
6.08
5.02
Waste to energy
technology
18.04
3 24
Societal pressure
for a clean
environment
Air quality
standards
14.01
24.03
Nuclear power
options
11
13
2.05
Underground
transmission &
distrib facilities
14
12
Centrat station/
total generation
mix
Photovoltaic
generation
3.01
Consumer
expectations for
reliable service
13.05
Remote
generation
capability
Management
31 Corporate culture
32 Work practices/methods
33 Comp/incentive reward system
34 Cost/profit center reorganization
10.01
Microprocessor
use among comm
& resid users
6.09
2.03
Storage battery
technology
Health risk from
environment
14.02
Finance
21 Pricing/rate schedules
22 Pricing philosophy
23 Unbundling
24 FPL risk profile
25 Outsourcing
26 Financing capability
27 Cost structure
28 Demand-side management
29 Demand-side mgmt vs add generation
8.03
Increased demand
for non-fossil fuel
generation options
6 1 16
Electric/gas mix
3 15 2 4 1
2.01
2.06
On-site generating
systems
Customer concern
for secure
electrical supply
Technology
11 Alternative generation technologies
12 Delivery system for electric vehicles
13 Nuclear vs fossil
14 T&D configuration
15 On-site generation
16 Local generation
17 Fuel supply/mix
18 Fuel type for new generation
19 MIS requirements
2.07
1.11
13.04
2.04
Figure 2: Strategy for Florida Power & Light
24
Availability of
natural gas to FPL
17 18
2.09
DECISION ISSUES
Competition for
commercial market
segment
1.13
Advanced “smart
house” technology
11.03
Cool storage
technology
21
Market
1 Generating capacity requirements
2 Product mix
3 Lines of business
4 Target markets
5 Joint ventures
6 Generation ownership mix
7 New end-use marketing/promo
8 Degree of vertical integration
9 Outsourcing
11.04
Microprocessor
use among
commercial &
residential users
6.09
Consumer exp.(?)
for reliable service
23 2 4
Technology
11 Alternative generation technologies
12 Delivery system for electric vehicles
13 Nuclear vs fossil
14 T&D configuration
15 On-site generation
16 Local generation
17 Fuel supply/mix
18 Fuel type for new generation
19 MIS requirements
13.05
Finance
21 Pricing/rate schedules
22 Pricing philosophy
23 Unbundling
24 FPL risk profile
25 Outsourcing
26 Financing capability
27 Cost structure
28 Demand-side management
29 Demand-side mgmt vs add generation
Retail wheeling
control technology
12.03
Customer desires
for choices/options
7.01
Mandatory retail
access
21.03
Unbundling
2 4 22
Number of
qualifying facilities
1.12
Transmission
access
3.03
25
61
4.03
Management
31 Corporate culture
32 Work practices/methods
33 Comp/incentive reward system
34 Cost/profit center reorganization
Utility industry
competitive
structure
31 32
1.01
DECISION ISSUES
3rd Party compet.
for distribution
services
34
Markets served by
non-utility
companies
4.06
4.01
Desire for
differentiated
power quality
Customer desires
for choices/option
7.02
31 32 33
7.01
Utility cost
structure
31 32
Market
1 Generating capacity requirements
2 Product mix
3 Lines of business
4 Target markets
5 Joint ventures
6 Generation ownership mix
7 New end-use marketing/promo
8 Degree of vertical integration
9 Outsourcing
5.02
Utility deregulation
Technology
11 Alternative generation technologies
12 Delivery system for electric vehicles
13 Nuclear vs fossil
14 T&D configuration
15 On-site generation
16 Local generation
17 Fuel supply/mix
18 Fuel type for new generation
19 MIS requirements
31 32 34 33
22.05
Trend toward
deregulation
Finance
21 Pricing/rate schedules
22 Pricing philosophy
23 Unbundling
24 FPL risk profile
25 Outsourcing
26 Financing capability
27 Cost structure
28 Demand-side management
29 Demand-side mgmt vs add generation
14.06
Non-utility
generators
Transmission
access
4.04
Wholesale
competition
3.03
Wheeling
technology
1.08
34
12.02
Transmission
pricing system
34
Management
31 Corporate culture
32 Work practices/methods
33 Comp/incentive reward system
34 Cost/profit center reorganization
Unbulding
3.04
26
1.12
DECISION ISSUES
Consumer
activism
Rate setting noncost based
(market price)
14.03
Market
1 Generating capacity requirements
2 Product mix
3 Lines of business
4 Target markets
5 Joint ventures
6 Generation ownership mix
7 New end-use marketing/promo
8 Degree of vertical integration
9 Outsourcing
Utility cost
structure
22 27 24 26
8.03
24 26
1.06
Incentive
regulations / price
caps
Technology
11 Alternative generation technologies
12 Delivery system for electric vehicles
13 Nuclear vs fossil
14 T&D configuration
15 On-site generation
16 Local generation
17 Fuel supply/mix
18 Fuel type for new generation
19 MIS requirements
20.02
Cost-based
regulatory
compact
Societal pressure
to limit plant inv(?)
3 28 17 27 24
26
21.04
14.04
Societal pressure
for demand-side
management
8 28
13.02
Finance
21 Pricing/rate schedules
22 Pricing philosophy
23 Unbundling
24 FPL risk profile
25 Outsourcing
26 Financing capability
27 Cost structure
28 Demand-side management
29 Demand-side mgmt vs add generation
Regulatory
incentives for more
demand-side
management
29 28
20.07
Exempt wholesale
generators
Management
31 Corporate culture
32 Work practices/methods
33 Comp/incentive reward system
34 Cost/profit center reorganization
23.02
Demand for nonfossil fuel options
11 13
Societal receptivity
to nuclear power
2.05
13.02
Risk of nuclear
investment
9 13 24
One step licensing
(NRC regulations)
13 22
Utility ind.
competitive
structure
23.03
16.06
Risk of high capital
investment
Pricing by end-use
segment (vs CUS
16.05
1.01
21 19 22
“Consortium” utility
enterprise
20.06
27
1.05