On Utility Branding

For last two years, IDC has been doing a remarkable job in ranking electric utilities by their Intelligent Quotient (IQ). I wonder if someone could do a similar ranking for utility branding. Traditionally, utilities are super rich in tangible assets, but how do they stand on intangibles? Moreover, with so much of investments (and hype and hoopla) around Smart Grid, has there been any change in brand asset value?

If you look through Y&R’s model for Brand Asset Valuation, it’s clear that Brand Strength must have been refueled by the smart grid investments leading to energized differentiation. However, have there been any boosts around Relevance, Esteem and Knowledge? How differently do the consumers really feel about their utilities now?

Twisted value net for utilities

An ominous theory has been wafting through the air for sometime – gypsies like Google will eventually shrink the utilities to some dumb wires. A utility company will be like a skinny skeleton wearing other people’s fleshes. Before my imagination rolls down the gory trail, let me come to the point...

Recently I had the opportunity to speak at a DeTech meet, facilitated by DEFG and hosted by San Diego Gas & Electric. The topic was how the inclusion of third party companies will change the current business models for electric utilities. Intensely intriguing.

Smart Grid and associated technologies are essentially unveiling the electric utility industry out of their burkas. In the last three years, venture capital spending in the advanced metering technologies has been over $1.5 B. In 2010 alone, about $2.75 Billion has been spent on smart grid products around advanced metering, demand response and distribution grid management.

In HAN (Home Area Network) ecosystem alone, there are more than 200 vendors. The network providers such as Verizon are opening up their backyards. Demand side aggregators like Enernoc and CPower are mushrooming with froggy leaps. Google is up on its mission to “organize the world’s information” through the PowerMeter. Microsoft is using Hohm as their homing beacon to make inroads. Do not forget Opower. Galvin  is up with Microgrids. The list runs on and on. Too many smarty pants in the room, - and utilities, like selfless hermits, are cannibalizing their sales through Distributed Generation, Demand Response and Energy Efficiency. Huh!

Remember the value net by Brandenburger and Nalebuff? It becomes really interesting as you start plotting the newbies against the four pillars of the net. Not only that the list for Complementors and Substitutors start hanging below the bottom, - but in cases, the line of demarcation seems really slim. Sometimes, an entity could fall into multiple pillars. Take the example of DR Aggregators – are they Substitutors or Suppliers? Both, really. How about Distributed Generation? Talk about twisted value nets.

The question is - what should be the go forward strategy for utilities - compete, co-operate or co-opetate? I think co-opetition will be the name of the game. We will wait and see.

Texas nexus on Electric Vehicles

The auto show at the State Fair of Texas was not an iota less fascinating than the one for livestock. Spanning across 30o thousand square feet, it’s an orgy of cool cars – 2011 models of Chevy, Cadillac, Buick, GMC, Hyundai, Nissan, Ram and Toyota. Chevy Volt was probably the cynosure of the exposition.

I had the opportunity to attend both the VIP Reception (sponsored by Chevrolet) and the Panel Luncheon (sponsored by TXU Energy). It was reassuring to see how sincere Texas dignitaries are about Electric Vehicles and how effectively market participants are interacting with one another to make EV an early success in Texas.

As I touted in my last blog, two things have to go hand-in-glove to make EV justifiable to the cause – (1) high renewable portfolio standards (2) consumer incentives for off-peak charging. Texas is on track for both.

By the next few years, Texas will have more than 20,000 MW installed capacity of wind power; and Texas is building about $5 Billion worth of transmission lines (CREZ) from West Texas and the Texas Panhandle to the population centers. TDSPs (Transmission & Distribution Service Providers) in Texas are currently deploying 6.5 million smart meters, - which will provide the platform for dynamic pricing. Because of high night wind, off-peak energy will be greener.

Hail Texas! Here I come.

BTW – here’s Andy’s commentary on the panel discussion: http://smartgridsecurity.blogspot.com/2010/09/blazing-ev-and-v2g-trails-at-texas.html

Valuing Electric Vehicles...

Electric Vehicles have compelling value propositions in the US market. First, it can direct the dough away from OPEC to the pockets of US electric utilities. Second, it can create some cool jobs. Third, it will reduce demand for gasoline to further jack down oil price.

However, most people will not buy Electric Vehicle thinking – “Aha, let me bolster the US economy. Hey OPEC, you like the pinch, yeah?” Some of those saintly folks will buy EV because they are deafened by the carbon cry of our moribund planet, - and some of my miserly buddies will do it to save on fuel cost.

Well, emission continues: not through the tailpipes, but through the plant chimneys. Until renewables become a dominant mix in the generation portfolio, EV will only make just a little sense from the environmental standpoint.

But I think my cheap buds are wiser. EV, even in its diapers, can drive you up to 40 miles for less than 2 dollars. With dynamic pricing, this cost may go down to as low as 32 cents. If you are in Austin and you never have to drive more than 40 miles a day, your monthly fuel cost will be about $10. Pretty neat, indeed!

Coffee is not green

The buzz around greening has reached a point when it has become outright annoying. A year back, words like “environmental sustainability” and “carbon footprint” carried a lot of weight. If you could spit out those words in any coherent or even semi-coherent construct, people would look back at you as if you were a returning messiah. Now, - sigh!

I think “greening” is rapidly losing its cool as it has been taken as a silly excuse by many companies to reduce their OpEx. It's all about their green business case. It’s almost like – if you love your wife, give me a dollar.

If you are a habitual habitant of Sheraton, you must have seen those green tags tacked against your pillows. Well, at first sight, I was damned impressed. I get a $5 green coupon if I refuse a day’s room service. Cool! I went for it, with a simmering pride that I can save the planet a tiny bit through my towels and linens. Behold, the upshot – no coffee in my room! They did not replenish coffee in my room for green sake! I thought it was only about washing and drying, - what does coffee have to do with greening, anyway? Coffee is not green, it’s plain coffee!

I’d be curious to know Sheraton’s activity based costing for room cleaning. That’ll tell me their green business case.

Captain Haddock on Dynamic Pricing

“Thank you contacting Smart Utility. This is Smarty Pants. How can I help you today?” 

“Billions of bilious blistering barnacles, - my bill has ballooned three times.”

“Sorry to hear that, Sir.” Smarty Pants gets ready to tap on the mute button. “May I have your name and address, please?”

“Captain Haddock. 1234 Smart Lane. Smart City.”

“I see that your bill for this month is $450, and your average for the last 12 months was $150.”

“Tell me why, Vampire!” Captain roared.

“Hmm, your usage looks a little higher.”

“So, you numb-skulled fuzzy-wuzzy, why is my usage so ramshackle high if my usage is just a tiny-miny higher?”

“Can I place you on hold?”

“No. I am sick of that bleeping music. I was holding for last 20 minutes.”

“No problem, Sir. Just to comfort you, - lots of people have the same complain. So, don’t feel that you are alone, OK?”

“OK. Thank you.”

“Sir, I found the problem. We replaced your electromechanical meter with a smart meter.”

“Darn good. Why do I pay more?”

“Two reasons. First – your previous meter was very old, and so was recording readings lower the actual. Now you have an electronic meter which actually works.”

“I thought I am the only one losing my pace. Balkan Beetle! You have been subsidizing my whisky for all these years?”

“You should feel good about that. Second, I notice that you are in real time pricing. And you seem to be swimming in your heated pool between 8 and 9 AM every morning”.

“Gibbering ghost, how do you know that?”

“Ho ho. I can tell a lot about your personal habits looking at your data.” Smarty Pants continued boastfully, "We got our home area network, Sir. Let me see. You had a 10 days vacation last month after which you hosted a series of bacchanalia at your place...you gotta pay for all that, Mr Haddock.”

“Yes I went to Tibet. Holy moly, I have been violated. I don’t understand this... what pricing?”

“Dynamic pricing, Sir. You apparently opted for the most risky category – Real Time.”

“Yes, yes. I am the captain, I love risks... but explain this thing to me, baboon!”

“Ummm...I don’t know anything beyond this screen, Sir. But if you hold, I can transfer this call to my supervisor. She has just completed the train-the-trainer course. But I can tell you that your bill will be significantly reduced if you take your laps after midnight.”

“You fuzz-headed profiteer, you are not getting away with that. I will have my razor-toothed piranhas cut your wires.” Captain hung up.

Tiger Woods Scandal: Loss in Shareholder Value?

John Edwards, ND Tiwari, David Letterman, and Tiger Woods; - yes, I am thinking scandals, - the most highlighted sex scandals of 2009. Admittedly, that's quite an atrocious phrase to be linked to these very stalwartly individuals. But, unfortunately, that’s how our society, our minds and our media work. Despite their phenomenal accomplishments at different points of their lives, Google trend shows that number of hits on each of them has gone up manifolds after the scandals broke. The only exception was for John Edwards when Kerry picked him for Vice Presidency in 2004. That’s the power of a sex scandal.

Let’s put things in perspective. How do we value Martin Luther King Jr., Bertrand Russell and Albert Einstein? King was quoted to have a “compulsive sexual athleticism”, Russell allegedly suffered from "galloping satyriasis", and Einstein was a “prodigious lover with a string of mistresses”. And then there are FD Roosevelt and JF Kennedy and B Clinton and many more. We know them as people who defined our world as we live it. How would it detriment having Picasso as the iconic brand ambassador for Google or Electronic Arts?

I am not trying to justify or criticize anybody’s sexual acts beyond or far-beyond marriage. The point is that personal life is personal and effects usually stay personal (unless you are in politics). For public figures, it’s natural that any aberration from societal norms stirs up public excitement, but then they fade away quite quickly. People value what matters to them and discard what does not. It's a matter of time.

I was amused by the recent study carried out by UC Davis concluding that the Tiger debacle resulted in destroying $5-12 Billions in Shareholder Value.

The fundamental flaw in this study is that the concept of “Shareholder Value” has been brutally abused. Assuming shareholders are not only day-traders, assessment of shareholder value destruction is strategically insignificant 15-days after any event - an earthquake or a security alert or a car crash. It may even be insignificant 15 days after a one-off poor quarterly performance report. “Shareholder Value” is a long term thing, and must not be associated with short term market volatility.

Without juggling the esoteric model that spit out the strategically significant evidence of the demonic destruction, let me run a common-sense hypothesis test. Assume for a moment that you are the CIO of a Fortune 500 company venturing into an enterprise-wide technology transformation initiative and Accenture (ACN) is at the top of your bidder’s list. In your right mind, would you stop awarding the project to ACN just because Tiger allegedly slept with multiple ladies?

Well, understandably, an overly sensitive buyer planning to buy a Nike may go buy a Reebok instead on an emotional impulse. So, if this is worth any financial analysis, it should be done bottom-up, accounting for the shifted consumer behavior. However, these behaviors would be very short-lived because of fading excitement and discontinued endorsements. I think it’s too ambitious to assume that our market is efficient enough to capture this information so quickly with any reasonable accuracy.

I am a big fan of statistical models, but then I agree with this quote by Gregg Easterbrook: "Torture numbers, and they'll confess to anything." Screening models through commonsense is the first step for any financial analysis. Otherwise, someone can even claim that it’s not the stimulus funds but the prodigious Portuguese dog that is working on the economy. Indeed, there is an amazingly high correlation between the growths of S&P index and Obama’s Bo since April 2009.