Other People’s Money and Poor Decisions

I always read the local paper when I am travelling. I may rely on the national papers for consistent use, but they cannot give you the flavor of the local town. I always get a fresh perspective on something from the local paper.

While driving up to drop my daughter off at College, we stopped overnight in Wilmington, Delaware. One of the top stories was the local electric utility’s industrial policy. The town proposed to give reduced rates to new industry moving into the area for a period of years. The details were still being hashed out, and I may misunderstand them. There was some discussion as to how to determine who was eligible, i.e., how many employees, were they really “new industries, and so on.

This sort of meddling with markets is wrong in nearly every way. It encourages continued poor decision making by companies. It is deceptive to the citizens while setting them up for disappointment. It leads to a misallocation of power within the market.

The company that takes up this offer is relying on subsidized energy costs to support processes that are not sustainable economically. It has decided not to re-engineer its work to acknowledge current and future energy costs. It has made this decision despite recognizing itself as unusually sensitive to energy costs to stay in business. When the subsidies end, the company will fail or move on to the next sucker. The local town council is paying them to continue to make bad decisions; corporate executives are accepting the bribe to meet short term revenue goals.

The true costs of this policy will remain unknown. City officials will never reveal information damaging to their self image as enlightened and beneficent. Local reporters lack the financial training to wade through the creative accounting that will cover up internal cross-subsidies and cost over-runs. The charge to each family, rich or poor, will never be itemized. The largest beneficiary will be the corporate officer, far away from the community.

This sets up a direct dollar transfer from efficient users of energy to the inefficient. Long term local industry will not get these rates to stay in the community. Homes will cut back or conserve to pay the inflated bills of the most inefficient industries. Local programs to encourage upgrades and insulation will be cut back. The community ends up with an economy bases around inefficient companies poorly positioned for the future.

Only economically unaware, who have been given control of other people’s money make decisions this bad. No one would ever make this decision with money pulled from his own wallet. When public officials decide to design policies to limit transparency in decision making, the public always loses. The public always does when systems are established primarily so that the decision makers never have to tell the funding citizens any numbers.

And the nation loses because Wilmington is paying companies to use more energy.

Managing the Impulse for Control

Monday’s Wall Street Journal included an article on how technology has reduced the impulse control of top executives. Empowered by cell phones and Blackberries, they can no long control the impulse to reach out and touch their staff. The electronic tether means these executives are always on, unable to go on vacation, to really take time off. This poses two classes of risk. The executive experiences a loss of recovery time and narrowing of interests that hurts his long-effective. The more insidious problem is that his staff and top managers are unable to take responsibility for their jobs. Constant micromanagement enervates most staff and alienates the best. The interference and implied lack of trust was cited as a significant cause of turnover among the hardest to replace staff.

The same issue included an editorial by Dick Armey on the FAA and Air Traffic Control. He recommends closing down large portions of the current system and moving to one based upon a pervasive GPS. He described this process as moving from Flight Control to Air Traffic Management. A significant barrier to progress is the desire of Congress to preserve control and patronage in each and every district. The delays caused by the inability of the current Air Traffic Control to handle the current volume of flights are a significant cause of the frustrations of flying this summer.

In oBIX, if we do our work right, we will significantly reduce the span of control in today’s over-integrated systems. Individual systems and their control systems will be isolated with their own interfaces. To the extent the interfaces become service oriented, they will eliminate central system micromanagement of control, to be replaced with coordination of services. As in business, this will allow the systems with better service agents to flourish. A significant difference is that in building systems, the best agents can be replicated, extending the benefits of their superior performance.

As the GridWise Architectural Council defines the Service Oriented Grid, demand/response and site generation will be additional services proffered to the market by building-based agents. These autonomous agents will negotiate with the site-based system services, in response to the goals of the local enterprises, and with the awareness of live electricity pricing to offer load management services to the grid. These agents will manage the economical production of heightened amenities to the building occupants. This will be far more effective, and far better accepted than is central control of water heaters and building chillers by the grid.

It’s hard to give up control. Giving up control means giving up cherished perquisites of authority and the comfort well-worm processes. Giving up control means establishing objectives and letting others perform. But giving up control means the best and the brightest will work with you. Giving up control means that that your organization will be as intelligent as the sum of your staff, and not just as limited as you are. Giving up controls lets individual agents compete on the most economical provision of the best benefits. Giving up control increases the intelligence of any service, human or machine, as the creativity and skills of all our allowed to compete.

If we could only manage the impulse for control…

AMI doesn’t make much difference without fundamental process change

Few changes in the utility industries have generated more interest and discussion that Automated Meter Information (AMI). AMI is the ability to get digital readings from [electric] meters at a distance. Industry articles tout AMI as “the biggest change since….” In most cases these, articles are wrong. Too many plans for AMI were designed to prevent any fundamental change, and so end up merely paving the cow paths.

I began my career in information technology working in and around Boston. Local legend has it that the original paths between the scattered houses of the settlement of Boston were made by wandering milk cows as they neandered from barn to field.

People naturally walk along cow paths. The brush has been cleared and the way is smooth and packed. As the town grew, these paths were preserved as the roads were cobbled and then paved. The result is the winding mess of roads surrounding Milk Street in Boston’s downtown today.

Paving the cow paths is a classic source of failure in system design and a common pitfall of business process management. It is my sense that undue respect for preserving the cow paths is a significant cause of the failure of many large Enterprise Resource Planning (ERP) systems.

Universities have one of the lowest success rates in implementing ERP. Universities have an undue respect for the value of the way they have always done things. Universities run many businesses they have no idea how to run well; business managers have no respect for transparency or consistency even within their fiefdoms. At UNC, the new ERP project is already in trouble as units try to preserve the Carolina Way they have always done things. (Guys, let it go! If we really liked the old way of doing business, we wouldn’t have needed to buy a new one.) Some of my readers have observed this process within their own organizations.

Utility companies, used to state regulation of their business processes, and focused more on possible failure than potential success, make many of the same mistakes. By focusing almost exclusively on preserving and optimizing their pre-existing business processes, they are missing the transformative benefits of AMI. AMI is about driving slowly through the neighborhood once a month and having all meter readings without a single dog bite. In many areas, customers are by policy blocked from direct access to their own meter information because they might “misunderstand” or “misuse” it.

The real benefits of AMI stem from transparent immediate access to meter data by both the buyer and the seller. This information will create and drive new markets when it is also available to the buyer’s agents, including third party auditors and building systems operations specialists as well.

Human readable mechanisms are not enough. Personal web pages to get to your own meter data through the utility central office are designed to impede live response. Digital read-outs on the thermostat do not enable the buyer to develop their own automation strategies. We must demand that full information be computer accessible inside as well outside the building. All information formats should be compliant with e-commerce style standards. Only by doing so will the new mechanism for demand response flourish; only then will full markets for managing load flourish.

Transformation through Interoperability

I just got through reading some conference abstracts on energy reliability and demand reduction. Every paper brought intelligence and a deep domain knowledge to the subjects. Still, there were big differences between them.

The basic approaches are well understood and widely known. Your parents or grandparents, whichever generation it was that grew up in the depression told you all the key techniques of demand reduction when you were growing up. Turn off that light when you leave the room. Don’t run that water. Eat everything on your plate. Well, maybe not that last one. Under demand reduction, we merely automate these processes.

Power reliability is also well understood. There has been little fundamental change in the power grid design since the 40’s. The sensors have gotten better. The power crews now use cell phones with GPS. The standard is still for how many minutes a year I can light a light bulb.

Engineers are process oriented. Processes are about situation awareness and predictable results. Good engineers extend control over processes to increase predictability and reliability. Digital control has enabled good to extend and automate control of demand response and power reliability. Sometimes a technology like Zigbee comes in and gives the engineer a new tool to cost effectively extend sensing beyond where he could before, or in a more cost effective way than before. Most of the papers I read showed good engineers making incremental improvements to existing processes.

Real change is rarer. Real change comes when someone recognizes that the last incremental change enables doing something quite different. Often the engineer who develops that change does not recognize the value of his work. And so we plod along, getting another 1-2% efficiency at the cost of great effort.

So it is in building-based energy management, and in managing power reliability. Power grid operators who have long used demand response on the supply side are wrapping old fashioned energy management in the same old blanket. Some energy suppliers are beginning to discover what their customers have been doing since the energy shocks of the 70’s. This will result in another incremental improvement.

We need something better than incremental improvements right now. We cannot afford the power grid incremental improvement will demand. We will not stand for building the transmission lines and power plants incremental improvement will require. We must look for a transformation, for something that changes the rules.

The rules today are that energy customers, the buildings, are passive consumers of power. The rules today are that the Utility is responsible for providing as much energy as the building wants at whatever time the building wants it. The rules today are that members of a Utilities Commission, experts in neither power provision nor efficient operation, will decide on all innovations in society’s “best interest”. All the incremental improvements work within these rules.

We must use information technology to break these rules, not merely to enforce them with incremental change.

Using information technology, buildings and neighborhoods can be responsible for their own power use, and even power generation. These needs can be informed by the operations of the homes and businesses in those buildings. This can free up the Utility to be a source of power for homes, but not the only one. The utility can use information technology to focus on efficient delivery of energy; freed from the burden of instant response, it can make radical improvements in the efficiency thereof. Using information technology, building occupants will negotiate with their internal processes and with the power grid using instantaneous knowledge of the most powerful abstraction in the economy, pricing.

The transformation comes from trading the efficiency of control communications for the nimbleness of abstract interfaces built on open standards. In the grid, this will remove structural disincentives to new power sources, including “unreliable” ones based upon natural forces such as sun or wind. In the building, this remove the complexity of assembling diverse sources of on-site power generation and storage while enabling energy using processes to be responsive to the needs of the human inhabitants and current power availability as indicated by the live prices.

This transformation will make more of a difference than all of the incremental changes, even as its details will use and extend the craft learned through the incremental changes of the past. This transformation will only come from giving up control, and allowing interoperability.