Commercial, Industrial, Utilities - April 7, 2016 - By Amy Poszywak
Views from the top: Edison Energy chief on future of energy management, utility 2.0
Smart Energy Decisions exclusive
Edison International made waves in the utility world March 29 when it announced the launch of a new, nonregulated business subsidiary that will work in a consultancy/advisory capacity for large energy users. The creation of the new unit, Edison Energy, marks the first leap by a large investor-owned utility into the advisory and energy management services arena, though industry observers had long-speculated a trend in that direction may begin to unfold.
After conducting what Edison International called "perhaps the most comprehensive study ever done on the role of energy in large organizations and the challenges and changes in corporate energy management,” the company said it realized that electric power customers, especially large commercial and industrial companies, have more energy choices than ever, driven by a complex, fragmented and often confusing mix of technologies, business models, and pricing structures available in the market. Allan Schurr, president of Edison Energy, says his company, which is taking on an "energy as a service" model, will work to simplify things for C&I companies and the employees tasked with their energy management.
Prior to taking the helm at Edison Energy, Schurr spent more than ten years IBM Corp. after holding executive and leadership positions at Itron Corp., Silicon Energy Corp. and Pacific Gas and Electric Co. He brings with him a unique perspective from the IT world, an industry he says has undergone a similar change to the one currently facing utilities. One example? Just as the role of information technology managers was transformed at big corporations — think: the creation of the role of chief information officer — as technology advanced, so, too, Schurr expects, will the role of energy managers as energy technologies advance.
Schurr recently sat down with Smart Energy Decision for an exclusive interview to discuss the role of his new company in more detail. The following is an edited transcript of that conversation.
Smart Energy Decisions: The "energy transformation" Edison International mentioned in its announcement about Edison Energy — and corresponding white paper — has been underway for a number of years. I'm curious, what was the tipping point that caused Edison International to pull the trigger on a) the research and white paper, and b) launching this business?
Allan Schurr: I think this is inevitable for most companies, but the tipping point probably was the one more thing piled on the role of the corporate energy manager: the corporate sustainability objectives that are becoming much more public and at at much more senior levels of the organization. That's trickling down to the energy function, and that's relatively new. A lot of the pledges that have been made were done so in the last two to three years. I would say that Edison International, being in California, sees some of the rest of those trends — things related to distributed energy, demand respond, other kinds of pressure on managing energy — we probably see those in California sooner than other states. But I think it was the push for sustainability and the commitment that companies have made, that was the thing that lead us to think the time is now to build this new businesses.
So in terms of sustainability goals, I know a lot of corporations are working toward the 100% renewable energy goal. Is that what you're referring to, specifically, or are there others?
That's the primary one that's touches on energy, but as soon as you have to start disclosing carbon, things can go into a lot of directions. It can go into supply side, like these 100% renewable commitments. But those that have an 100% commitment, they still want to be as efficient as they possibly can be. So now that there's more public disclosure, there are more initiatives than just 100% renewable push that is going on.
When you began acquiring all those businesses — $100M worth at the end of the day is the number being floated around — was the end goal, the launch of Edison Energy, in sight, or did the strategy for those acquisitions change over time?
We're not done with acquisitions. But at least for the time being, we decided that we had enough critical mass to launch the company. The initial acquisition track started in 2013, when SoCore energy was purchased by Edison, and that was the rooftop solar business, focused a lot on the national accounts. They have operated on a standalone basis for the last couple years. The research, which we published some of last week, caused us to rationalize the strategy of a more comprehensive supply and demand advisory firm that can do systems integration work and own and operate energy assets. SoCore is a systems integrator and owner and operator of rooftop solar, very specifically. So with the acquisitions that we did, we broadened our capability to include the supply side with traditional gas and electric commodity advisory services, the supply side with offsite renewable advisory services and the demand side with energy engineering, retro-comissioning, energy planning, audits, construction management and the like. So we reached a critical mass with the acquisitions that we made last year to be confident that we could go out into the market more explicitly, knowing that we could serve, in a certain manner, market demand, with the scale that we've got.
But I would say again, . Again, both supply and demand side, but there's lots there. And eventually we want to move outside of North America as well. If you peel back what a corporate energy manager has to do in their daily job, what their responsibilities look like, they rely on a lot of companies to help deliver on their programs. And where we see a strong fit with those advisory services that we want to have, we may make an acquisition in order to bring those capabilities in house, rather than partner, in turn, with some of those types of firms on a client by client basis. So it's going to stay in the services realm, but I wouldn't like to disclose any further where those would go.
So we had a general sense that we wanted capabilities across the spectrum of supply and demand, North America-wide, and we wanted to find a customer intimacy, strong commitment to customer success, which is really the hallmark we're trying to build for Edison Energy. We want to be on the customer side of the table, not trying to sell a particular solution but helping the customer analyze their objectives and put them with a program in order to achieve those objectives in the most cost-effective and expedient way. So we're more a representative of an end user than a representative of a technology or a particular solution.
A number of news outlets have compared Edison Energy to some other recently launched companies like Duke Energy's Duke Energy Renewables or General Electric's Current. Do you think those are fair comparisons, or how are you different from those companies?
The companies that have been mentioned since we launched last week, all are focused on enterprise-wide business solutions for large energy users; I would say there's that degree of commonality but then I think it kind of stops.
Most of the companies that are focused on enterprise-wide solutions are either retail energy providers, or they are energy service companies, or they are product companies that are trying to sell a particular technology across a large number of sites for these large users. We're not a retail energy provider. We don't have a particular technology to sell. We're really trying to advise the end customer on what we think are the best technologies, the best solutions that meet their requirements. It's a model that works in other industries, where there is a lot of choices, a lot of options, a lot of complexity, really different business models to contend with. And energy, I think, is ripe for that same kind of shift. So we want to have a point of view about what works, but we are not an interested party in whether it's technology “a” or technology "b." We want to bring the best technology to our clients.
You mentioned this model is used in other industries. What are some examples?
I spent ten years at IBM before I came into this role. I was an energy person before than, and even at IBM I was focused on the smarter planet, in the energy and utility segment. IT has gone through this same type of transformation, with a tremendous amount of complexity, new business models, strategic options, but it's rarely the core of any company's business. If you pick a company out of the Fortune 500, for very few of them is IT core to their business. They are into selling goods and services, making products, etc.
And it's the same thing about energy. There are very few companies where energy is core to their business. It's an important input, and therefore needs to be managed strategically, but that doesn't mean it's core to their business. In those other categories, such as IT, firms work for outside expertise that kind of drives outcomes, and I believe this can be the case in energy. The ability to take that strategy and even own and operate that strategy for a committed outcomes kind of a contract, that's what Edison Energy is positioned to do. We're not just a boutique consulting firm, we're not just a project implementation firm. We offer a wide range of capabilities, all of it under a category we call energy as a service. It contrasts with energy as a commodity, which is the way most firms buy their energy today; it's one size fits all, and it's really the model the utility was built around, and that's how you could get economies of scale, but more and more firms want energy to be tailored for their requirements. Whether that's a different profile for sustainability, lower cost, higher resiliency at the local site, there's a number of initiatives that companies want that are difficult for them to get, if not impossible, from their local provider. That's where we see Edison Energy stepping into the mix and helping to give them simplicity where it's fairly complex. So we provide the insight to the client, we'll help them integrate the solution to make it work for them and simplify, dramatically, from their standpoint, so they can get on with their core business.
There's a lot of talk about the evolving utility model, and some have suggested this move to "energy as a service" business model is one possibility. Is that what you see, or what Edison International sees as the so-called "utility 2.0"?
If you could disaggregate each part of the value chain into that question, for the wires business, the transformation going on in the utility business is all about being more flexible in operating the grid so that it can absorb more of these new technologies that are connected to the edge of the network. The New York Reforming the Energy Vision model, the California Distribution Resources Plan, I think eventually there will be several different ways that the wires business will evolve, as to who owns the asset, who operates the asset, who incurs maintenance and recovery during the storm, those kinds of things. That's the wires business.
The generation business is already transformed to a large degree. Most generation is competitively sourced, there are some exceptions, for example in the Southeast, but in most of the country, independent power producers have been building and generating power for decades, dating back to [the Public Utility Regulatory Policies Act] in 1978.
When it comes to the customer though, and how to tailor these services for individual customers, it's difficult to see regulated utilities being able to play much of a role. And in Edison International's case, they are asking the regulated utility to continue with the mission of accommodating these various, new technologies connected to their network, but they are asking Edison Energy to be the provider of these customized energy solutions, the energy as a service model. It's in part because companies span geography and many times have utilities. There aren't that many Fortune 500 companies that are just in a single utility service territory, and so as soon as you start adding them, two, three, four, ten? One of the companies that's here at the [EEI spring meeting] has 400 utilities. So, which of those utilities is ever going to morph their business in order to supply energy as a service to 400 sites? The answer is none of them can, because the regulated business is just not the model. So energy as a service is inherently a competitive proposition. And it may be affected by a number of companies that are willing to make the investments to build that business out, but having been in the IT space, I know that when you are a product company, it's exceedingly difficult to create a services culture that is independent of your own technology. It's just not in the DNA of those companies. So I think there are a number of firms that might recognize the same opportunity as us, but they see it as a way to sell more product, and we don't see it that way. We see it as a way to have long-term, strategic relationships with clients that will span a variety of technologies. And we'll monitor technology advancements over time, because what might be cost-effective today might not be cost effective in the future. The best option of today might be obsolete in five years. As an independent consultancy and systems integration company, we can follow those curves, monitor those developments and always be helping our clients take advantage of what works for their objectives.
SED's take: Our content director, Amy Poszywak, nabbed an exclusive interview with Edison Energy's President, Allan Schurr. His background and experience make him uniquely qualified to lead this new effort. I see Edison Energy's strategy as both a bold, forward-looking play to become the definitive “trusted energy advisor” to C&I companies nationally while also being an acknowledgment that it will be impossible for individual utilities to keep up with and meet the evolving needs of their large C&I customers. In my view, it's a solid strategic move by Edison International's CEO Ted Craver. As more utilities arrive at the same conclusion, I see a growing wave of acquisitions by utilities of energy service companies and advisory firms. Game on. - John Failla
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