Navigant Research Blog

A Tragedy of Interests in Stalled Exelon-Pepco Merger

— March 17, 2016

modern square and skyscrapersExelon Corp.—the technologically progressive parent company to Commonwealth Edison (ComEd), PECO, and Baltimore Gas and Electric (BGE)—has faced multiple setbacks in its bid to integrate Pepco, which would make for the largest utility merger to date in North America. In 2014, Exelon’s and Pepco’s boards of directors unanimously approved a cash-based merger between the two companies. Both have been early smart grid movers, with Exelon’s subsidiary ComEd being among the technological leaders in both smart grid and smart cities innovation, and BGE receiving $200 million in Smart Grid Investment Grant (SGIG) funding for 2008-2012. Pepco Holdings, Inc. (Washington, D.C.) received over $50 million from SGIG for investments in advanced metering infrastructure, distribution automation, and customer experience improvement.

Ratepayer Advocacy, of Sorts

Following over 12 months of negotiations with the District of Columbia Public Services Commission (PSC), the merger has been delayed due to controversy over the insulation of residential ratepayers through 2019. The original plan, heavily advocated by D.C. mayor Muriel Bowser, had negotiated over $78 million to support environmental projects, low-income assistance, and workforce training initiatives, while funding a cap on residential rates for the next 4 years.

The PSC’s argument in rejecting the merger was that the plan created an imbalanced structure of support for residential ratepayers that federal funds and private businesses already supported. As such, it countered with a plan to place the $78 million in PSC-controlled escrow accounts, with none of that being set aside specifically to offset rate increase.  That plan has been rejected by Bowser, for the obvious reason that it removes her core requirement of placing financial protections on rates for citizens.

In order for the merger to continue, all nine parties involved in drafting the original version must agree to a revised merger proposition. And consensus among these groups, including the Apartment and Office Building Association (which supports the PSC ruling and protests the lack of assurances against commercial rate increases), and the D.C. Office of the People’s Council (which has rejected the PSC’s proposed changes reason similar to Bowser) might be a taller order than had been originally anticipated by the companies.


Reading for a Changing Utility Landscape

— January 6, 2016

If you have been on the Internet recently, you will have noticed that the end of 2015 brings with it endless online posts regarding some of the year’s bests, worsts, highlights, and lowlights. I’m following suit by listing a handful of my favorite semi-work-related books. Throughout the last year, many thought leaders introduced creative approaches that apply to current utility business challenges. These approaches include, but are not limited to, organic growth, disruptive technologies, and fraternal twins, and global warming and climate change. Here are my favorites from 2015:

  1. How to Fly a Horse: The Secret History of Creation, Invention, and Discovery, by Kevin Ashton.
    Now that the Internet of Things (IoT) has entered the energy and utilities industry in a big way, it is time for people in this industry to read something by the man who coined that term, even though the book itself is not specifically focused on IoT. Debunking the idea that greatness is the result of single moments of revelation, Ashton argues for the merits in repeated experimentation, failure, and gradual development. Utilities feeling pressured by an all-or-nothing approach to developing an integrated and smart organization can pivot their focus a bit more toward how they can start to get their hands dirty, focusing on small achievements to support the foundation of much larger change.
  2. Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry, by Jacquie McNish and Sean Silcoff.
    While I did not love the heavy historical narrative in this book, it did really hone in on the concept that one should never underestimate their competition (in BlackBerry’s case, the iPhone), and that competition can come from anywhere. Since the power utility industry has traditionally been protected by a regulated monopoly model, lessons in dealing with competition are likely less ingrained than in other deregulated markets. But as the regulatory environment changes, young companies in solar, storage, IoT, energy efficiency, and demand management have encroached on utility consumers like never before, and there are no signs that their momentum will slow. The utility-customer relationship is becoming more important than ever, right when it stands the most threat.
  3. Superforecasting: The Art and Science of Prediction, By Philip E. Tetlock and Dan Gardner
    Based on a 4-year study of random individuals tasked to predict outcomes based on common information, the authors of this book found that the best forecasters followed a common methodology based on data collection and objectivity. This seems like an obvious outcome, but the authors also noted that it is very rarely applied to business, economic, and political forecasting. Something for all of us to ponder.

These are just three books that felt pertinent to me this year given the changes occurring in the United States and globally, where environmental, political, and technological forces are shaping organizational change at an unprecedented rate. In a time of unruly transition, one thing that cannot hurt executives is to start reading up on the topics that have helped leaders in other evolving industries—and look for ways to apply lessons to their new challenges.


India’s 100 Smart Cities Program Spurs Investment and Criticism

— October 28, 2015

Narendra Modi, India’s new prime minister, has embraced technology more so than any of his predecessors. With 15.7 million followers on Twitter (I was happy when I reached 100) and more than 30 million Facebook followers, the global leader recently made an imprint on the high-tech epicenter of Silicon Valley, visiting a number of companies there last month to talk about how technology can help India face difficult social, economic, and environmental issues. His 100 Smart Cities program is a landmark of this philosophy, aspiring to develop new urban spaces to support overwhelming population growth, adapt to climate change, and create a modern economy. But many have asked if this program really has the capability of supporting these development needs, and if it is instead channeling funds away from areas that desperately need support.

Modi introduced his program in June of 2015, just a month after taking office, pledging a short term investment of $1.2 billion for the planning of projects across the country to be completed over the course of 7 years. Other countries such as Japan, the United Kingdom, Singapore, and the United Arab Emirates have also promised billions in investments. Indian cities planned for upgrades and development are predominantly located in the economic corridor between Delhi and Mumbai, as well as in Special Investment Regions and Special Economic Zones where there are fewer restrictions upon international business and investment.

The program’s flagship city of Dholera, located in Modi’s home state of Gujarat, has been in planning mode since 2009 and is currently under construction, with completion expected in 2020. Plans for the megacity include a modernized smart grid infrastructure that supports high levels of renewables and a citywide communications infrastructure and smart city platform that supports both public and private sectors.

Challenges Loom

But aside from Modi’s smart city plan is the fact that much of India will still remain severely underdeveloped. A number of Indian and international development groups have spoken out about the negative impacts of developing isolated super cities while the rest of the country remains underdeveloped and without adequate public infrastructure and access to utilities. Large parts of the country still need to be electrified, and many that are suffer from as much as 40% capacity losses from theft. This has led to a troubled financial state for many of India’s utilities, which are expected to struggle to balance these issues and attract financial support for smart infrastructure investment.

Developing smart cities as a top-down initiative leaves room to overlook the ground-up steps required to effectively meld together technology and community interests. Without citizen participation as an integral part of planning, even if citizens have access to smart city infrastructure to some degree, what are the chances that it will be relevant to them? This is a concern particularly with the country’s poorest citizens, which remain a majority of the population in the country, and may face loss of farmland in areas where smart cities are scheduled to be developed on top of it. Additionally, a large part of this population is dispersed among the outskirts of many cities—how can centralized smart infrastructure provide support to those that can’t easily access it? Modi’s planning, as big and impressive as it sounds, still has some issues to address in order for it to enable economic growth for all of India’s citizens.


Digital Strategies Help Bridge the Bike Infrastructure Gap

— October 5, 2015

The number of Americans switching from cars to bikes for their commute of choice is increasing at a rapid rate—up 62% between 2000 and 2013, according to U.S. Census data—and is challenging cities to develop solutions that can address the safety and convenience needs for this new set of commuters. Cyclists in San Francisco and the Netherlands have famously demonstrated the need for separate infrastructure and rules, causing large traffic jams as a form of protest. However, developing bike infrastructure can be prohibitively expensive for cities burdened by transportation department regulations, and as some cities have experienced, reducing lanes in order to allocate more space for bikers can be extremely unpopular among citizens.

In recent years, new, more cost-effective and data-based approaches to planning and managing bike infrastructure have emerged. Cities like New York and Chicago are proving that improved data collection has the ability to inform where and how cities can strategically develop bike lanes (based on the number and location of bikers at any given time during the day) and also better enable cyclists to pass through not so bike-friendly areas through better integration with public transportation.

Motivate, formerly Alta Bicycle Share, is a for-profit organization based out of New York City that manages bike-share systems in New York, Washington, D.C., and Chicago. The company has struggled financially in recent years, and in its (so far successful) attempt to turn itself around, Motivate has developed a technology-based approach to engaging with members. This involves pulling together information on road and air conditions, public transportation schedules to optimize internal operations and development, and trip planning for members that includes other forms of public transport.

In Portland, Oregon, Open Bike Initiative and Knock Software have also recognized the need for improving open access to data in order to support bike travel. Knock Software is currently developing two projects to support the city’s efforts to be more bike friendly. The first is a low-cost sensor network that monitors and analyzes bicycle traffic and car traffic trends to provide planning insights for the city. The second uses this same data, paired with other sources such as weather data and road conditions, to help bikers plan and optimize their travel via an app called Ride. Similar to Google’s Waze for drivers, Ride provides information on routes and weather and allows members to give feedback on their commute.

Technology-based approaches have the benefit of improving safety and convenience and can result in much more strategic—and less expensive—transportation planning for cities. While cities like Portland, San Francisco, and New York have been open and supportive of their cycling populations, other cities where bike commuting is still just emerging have not quite figured out how to support this demographic in a low-cost manner—and something as simple as a smartphone app could be an easy first step.


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