Will the Smart Grid Be Made of Dumb Pipes?

When it comes to the smart grid, utility executives seem willing to embrace the dumb pipe status that their cousins in the telecommunications world are so leery of. That’s because the history of heavy regulation — and near-monopoly — has created an environment where competition and innovation aren’t commonly baked into the utility business model. At a panel discussion held at the Clean Energy Venture Summit in Austin, Texas today, utility executives debated the idea of whether utilities should focus on adding value-added services on top of the power network (like phone companies have rushed to do on their data networks) or if utilities should remain content to provide the basic energy pipes.

Mark Rose, general manager and CEO of Bluebonnet Electric Cooperative, was perhaps the most vocal on the subject, saying that he believes a utility’s role was to provide a service, and an open platform upon which consumers and businesses can track their energy from end to end in whatever way they want. But when it came to providing new applications and services that could be built on top of that service, he questioned if the utility was the right entity to provide that.

However, others on the panel clearly disagreed with that vision. Carl Richie, vice president of government affairs at TXU Energy, said that applications and services built on top of the smart grid will be what differentiates providers in a competitive market. The Texas market is a little different than other states, however, and there is some level of competition in the Texas power provider market. TXU Energy has based its business model on reselling energy and offering customers innovative and interesting products, like some of its broadband-based tools.

As a wireless reporter for GigaOM, the utility market reminded me of the telecom world some three years ago, which required developers to go through the phone companies in order to deliver an application on a cell phone to a consumer. That’s since changed, and open operating systems like Google’s Android have made it possible for an application developer to build to a specification and let consumers pick it up if they want, without the phone companies’ involvement.

In the earlier days of telecom, carriers hoped to make money and differentiate themselves by acting as a gatekeeper to products and services that the consumer would get on their network. But let’s face it: The phone companies were never that good at developing consumer-focused value-added services that run on top of the network. Thus cell phone-based data applications never really hit the big time until Apple forced the market open with the introduction of the iPhone. Now, applications are a big business, and carriers are running to embrace them — all while still trying to escape being a service provider that offers an open voice and data platforms.

So if the telecom world is any indicator of how the utility sector will pan out, it appears that if utilities try to tightly manage consumer-facing smart grid applications (like home energy dashboards and online services), they could run the risk of stifling innovation and stunting that market. While that might mean they have to be the dumb pipe of energy, they need to create an open platform so that these tools and technologies can flourish.

There’s another similarity between the two industries: their business models are under threat. Wireless companies, for example, are seeing a huge influx in data use that requires expensive network buildouts, but are still figuring out how to get people to pay more per megabyte to support those network buildouts and existing profit margins.

The utilities on the panel were worried that the creation of a smart grid, which encourages folks to conserve energy and contribute their own renewable power to the grid, would result in utilities selling less power, yielding lower sales and profits. As a result, some of the utilities said they were looking at charging differently for their products and unbundling some of the services they offer.

Something’s gotta change for the utility industry. Both John Baker, the chief strategy officer at Austin Energy, and Steve Hauser, with the National Renewable Energy Lab, talked about there being different types of power (presumably based on the time of day and the power source) in the future, with each type having different pricing. Baker also noted the idea of unbundling electricity service, which would add more risk to a customer’s bill, but would help utilities recoup costs. Consider how wireless carriers charge different rates for texts vs. data plans on a per-megabyte basis, and clearly the two industries have a lot to learn from one another.