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CEO Forum: Facing the Future

Three CEOs, three business models, one shared outlook.

Fortnightly - June 2012

conservation as a competitive threat?

Crane: Almost everything in our industry is either a threat or an opportunity, depending on whether you try to fight it or harness it. I put DR in the same category as conservation and efficiency. Given how wasteful Americans are in terms of using electricity versus almost every other country in the world, one of the great threats to the utility industry is that Americans will actually get serious about not wasting electricity. Japanese consumers are something like five times as efficient as the average American, and yet when they shut down their nuclear plants and lost 40 percent of their base-load generation, they had no blackouts. The consumers just cut back. It’s breathtaking.

Overall, this is a trend line for the industry—with DR, efficiency, and conservation. It’s our job as business people to make that trend valuable for our company. I think it’s more of a challenge in the deregulated markets. In a regulated market, if you have a cooperative commission, utilities can find a way to get compensated for people not using their product.

Reliant has something like 300,000 to 400,000 smart meters, and related products and services focused on efficiency. The way we look at it, the biggest expense in a deregulated retail market is customer churn. If we help someone use less electricity, we’re reducing our profit margin for that customer, but we’re doing it in a way that keeps that person with us for five or 10 years, rather than taking the business to someone else. That’s a winning proposition for us.

Our vision for the future is based on a triumvirate of technologies in the customer’s home—PV on the roof, an EV charging in the garage, and a smart meter that allows us to manage the whole thing on the customer’s behalf. Not only do we want to manage the system so that people are efficient, but also so that when it’s 120 degrees outside and the system is screaming for power, we can do V2G and we can draw from solar panels, to support the system and avoid having to pay $4,500/MW. This will make the energy customer more efficient, and they’ll actually become a seller into the system. That will be a very appealing proposition to the savvy homeowner.

Fortnightly: That future seems a long way off.

Crane: Last year in the middle of August and the price cap in Texas was $3,000/MWh, because there was unexpected load. Reliant went into the summer hedged against expected load, serving customers who were paying us $100/MWh. I don’t need to tell you, that’s not a very attractive proposition.

Sometimes it’s not about making money, but about avoiding losing money. In certain market conditions, there’s an economically compelling market proposition for us to work with our customers to not use electricity when it’s very expensive to provide it.

And I don’t think it’s 20 years down the road before a lot of customers will be delivering power into the system from their own sources. If you think it’s 20 years away, then