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Pamela’s Blog:
The Energy Utility - re-imagined, re-invented

The Energy Utility Industry and the Local Optima

April 28, 2013

Over the last several years, I have been taking classes and doing reading in decision-making and problem-solving.  One of the things one learns about in such classes and books is the notion of local optima.  The essence of thelocal optima idea is that there is a three-dimensional (at least!) landscape of possible “solutions” to a given situation or need or problem.  We search among these solutions following heuristics, such as “if you can go up or down, always go up” or “if the only choice is down, stay up.”  These heuristics cause us to get stuck on what are called local optima: high spots, but not the highest and, perhaps, not even in the top ten.

It struck me yesterday that the United States energy utility industry is on a local optima.  We identified this particular “peak” early in the 20th century, when we were simultaneously solving such questions as: how to get more customers for an electric utility business (Sam Insull); how to get horse-drawn vehicles (and their related environmental consequences) off the street (Chicago); how to out-do competitors (Westinghouse and Edison) and so forth.  The local optima involved, among other things, economy-of-scale driven electricity generation equipment, monopoly electricity distribution and sale grids, and one-size-fits-all pricing for broadly-drawn “customer classes.”    We’ve made a huge investment in this peak – one to which the industry plans to add significantly.  People rely on this peak: in the best case, failure to function on the peak can result in economic losses; in the worst case, failure to function on the peak can result in loss of life.

If the only choice is go down, stay up.

The trouble with local optima is that not everything is ideal about the situation there.  Some problems can arise at the time of arrival on the peak; others emerge over time from shifting conditions around the peak and interactions among the people and artifacts there.  Environmental damage.  Cost-plus, low innovation operations.  Expensive, fixed assets that sit idle more than half of the time.  Processes grounded – literally – in the mire of ratepayer versus monopolist.  Consumers who don’t know where the power comes from, the good and bad consequences of its conversion and delivery, how they pay for it, or how to manage its use.

If the only choice is go down, stay up . . . and fix.

We’ve been fixing for a long time.  We devote the vast engineering talent and considerable intellectual resources of the people in the industry to trying to make the system on the peak work with fewer adverse consequences: Smart Grid to shorten outages and enable higher average use of expensive fixed generation and delivery assets; more long-distance transmission lines to bring, central station renewable-energy electric generation from rural areas to cities and lessen the environmental damage of making electricity; complex electricity tariff  designs to send “price signals”; for some, competition among electricity generators, to help end-users get power from the cheapest source at any given time.

The last ten years or so, the industry has embraced a “back to the basics” theme.  I suggest we take this just one step further – back to surveying the landscape our local optima exists in and testing heuristics.  Is there – or are there – a “better” optimum or optima (because, after all, who says everyone has to do the same thing?) and, if the only choice is to go down to get there, should we still “stay up?”

Danger signs are flashing.  Down is really visible – although, of course, “down” looks different depending on who you are.  To utilities, down might look like broken business models, uncertain and bad financial results.  To ratepayers, down might look like higher costs, less reliable service, and even dangerous equipment.  To regulators, down holds the political nightmare of trying to keep everyone happy when no one is and won’t be for the foreseeable future.

And even if, dimly, it appears there might be some higher peaks out there, we can’t see them very well.  Which brings me to vision.

On a local optima, I believe we have trouble seeing two things very well.

First, because we are on top of it, we don’t see our local optima well at all.  We are too close.  In general, we look only at its workings within itself, not in relationship to the landscape in which it sits.  Why?  Because to see that, we would have to stand, at least in our minds, away from the peak – outside of it.  We can ask ourselves, why did we do it this way and answer by telling the story that leads, inevitably and inexorably, to exactly where we are.  It would be difficult to ask ourselves, as an alien might, why ARE we doing it this way?

Second, we don’t see other possible optima well because we don’t know how to look.  This result stems from the same handicap that limits what we can see about our current local optima: inability to take perspective, to stand away and see from the outside, suspending the answer to “why we did it this way” long enough to ask “why are we doing it this way.”

Vision is a creative act.  In my next post, I’ll talk about how we might go about creative observation, about finding vision.  But let me close this by highlighting the relationship between the vast engineering and intellectual talent in the industry and the dangers of “down.”  Dealing with down is like dealing with any change and I like how the authors in “Influencer” (Kerry Patterson et al.) reduce the issues of change to two primary questions:

          Can I do it?

          Is it worth it?

After almost two centuries of a technological explosion and related growth in ideas and adaptation, it’s difficult to treat “Can we do it?” as a serious question.  We may think we don’t have the time or the resources, but things take as long as they take and – when thousands of paths are open – resources are fungible.  We can construct wooden plan pathways to get us over swampy ground, spot and go around quicksand, build bridges over valleys that are just too low.

high bridge

swamp path


The question that stops us in our tracks is the other one: Is it worth it?  Well, sure, if I see the tiger behind me or the Emerald City in front of me, I can move.  What, you don’t see the tiger?  You see a Siamese cat?  You can’t see the Emerald City?  You see a garbage dump?

Which brings me back to vision, to seeing.  Look for part two under The Energy Utility Industry and Creative Observation.

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