Alex Thornton is executive director of LF Energy.
Late last fall, my neighbors and I received a notice from our utility, Pacific Gas & Electric, informing us of proposed rate increases from an eye watering $761.3 million Billing Modernization Initiative. Digging further into their filing with the California Public Utilities Commission, PG&E highlights the need to update a profoundly outdated system, featuring a potpourri of vendor and custom in-house software from the 1990s and 2000s, much of it written in a programming language (COBOL) that peaked in popularity last century and for which there are vanishingly few engineers with expertise in it.
Additionally, the filing highlights that the billing system has been unable to keep pace with regulatory needs, forcing delays and complex workarounds. In brief, PG&E’s key digital systems are unable to satisfy business needs and therefore need an expensive overhaul, raising customer rates. As a result, my monthly electric bill is going up.
I pick on PG&E because I’m their customer and they offer a good example, not because they are an industry exception.
Most utilities and regulators struggle with these very same digital modernization challenges. Billing is a core function for any business. If utilities can’t maintain their core systems, then how can they be expected to roll out and operate more advanced digital functionality such as dynamic rates, distributed energy resource orchestration, virtual power plants, demand response programs, electric vehicle charging optimization and AI, all while defending against ever-increasing cyber security attacks and maintaining affordability? Short answer: they can’t, not without a serious culture change to become technology companies that embrace best practices for digital innovation.
As part of their CPUC filing, PG&E notes that Southern California Edison and San Diego Gas & Electric launched similar billing system upgrades in 2016 and 2017, respectively. This key point offers us a thread to pull on and the pathway to that culture change. Let’s take a brief detour to other industries, and then circle back here.
Sharing is caring (about efficiency)
Software engineers are known to be proudly lazy, with a penchant for automating repetitive tasks and creating shared, reusable building blocks to avoid duplication of effort. These building blocks are like Legos that get reassembled, repurposed and built on top of to create ever more complex software applications.
You may think that this sharing is limited to within one organization, but in fact it is industry-wide and even frequently happens between competitors. This collaboration is done through an approach called “open source,” in which software code is shared freely with others to reduce barriers for adoption and contribution. These shared software building blocks solve industry-wide problems more quickly, cheaply and securely than any one organization can do it themselves.
This approach has been wildly successful, delivering widespread and pervasive technologies such as Linux (an operating system ubiquitous across data centers and embedded devices), Kubernetes (runs most cloud workloads), and PyTorch (used to create many modern generative AI models). All of your modern digital tools, such as Microsoft’s products, are built on top of open source foundations. From Microsoft: “Our developers use more than 200,000 open source components every month while building products and services.”
As open source technology and collaboration has matured, industries have embraced it as a key business strategy to reduce costs, drive interoperability and maintainability, and improve cybersecurity.
The most visually appealing example is the film industry. Technology companies like AWS, Microsoft and NVIDIA work with film studios like Dreamworks, Sony Pictures and Disney to co-create the shared digital infrastructure for movies. The results are Oscar-winning pictures like Flow and Dune, powered with open source technologies. For a more heavily-regulated industry, look to finance. These aren’t your grandfather’s banks. Modern financial institutions are tech companies, fully embracing digitalization as a way to drive customer value, lower costs and improve security. Through the FINOS initiative, dozens of banks like Goldman Sachs and JP Morgan join technology vendors like Google and Red Hat to solve problems faced by all banks, such as regulatory compliance, interoperability and data access. And to explore an industry using more operational technology, look to telecom where mobile operators like T-Mobile and Verizon collaborate with vendors such as Infosys, Nokia and Qualcomm.
These industries and others have learned that there is business value in creating an ecosystem of shared technology building blocks. All participants mutualize the investment cost to develop foundational elements necessary to drive the industry forward, pieces that are table stakes for the market to grow. Customers like the film studios, banks and mobile operators are able to work directly with their vendors not on static requirements documents, but on actual, working technology that can evolve and be iterated upon with industry needs. As an added benefit, working together in the open forces software development best practices, driving even more improvement. The resulting technology is useful, secure and scalable enough to execute sensitive financial transactions and operate massive telecom networks.
The status quo is a dead end. Open collaboration delivers affordability and more.
Now, back to PG&E and their Billing Modernization Initiative. They note that SCE and SDG&E recently launched similar efforts. Instead of each utility pursuing their own, independent initiative, what would it look like if they borrowed from the digital best practices exemplified by the film, banking and telecom industries?
The IOUs of California would get together and scope out areas of overlap. Once defined, they could engage with multiple technology providers to co-create the shared building blocks needed across all of them. The resulting technology assets would be open source, ensuring transparency to regulators and rate payers, straightforward cybersecurity audits, and implementation of software development best practices such as automated testing and continuous integration.
With these shared building blocks in hand, each utility could assemble them and customize as needed for their business, leveraging in-house expertise or technology vendors as needed. Because much of the investment burden was shared by utilities, overall initial development and ongoing maintenance costs are lower, and development speed is higher because resources can be focused on initiatives that directly deliver added value. Vendors waste less time on interoperability and instead can focus on strategic differentiators. And instead of going up, my utility bill goes down because PG&E is able to better optimize the grid through dynamic rate structures.
Keeping the status quo digital practices will yield more of the same — delayed projects, exploding budgets, and software that doesn’t work. We’ll never deliver on the energy transition if we stay on this path. It’s time for a culture change. Utilities and regulators should look to other industries and how they leverage open collaboration to lower costs, accelerate development and improve maintainability. Digital modernization should drive costs down, not up, allowing utilities to fully use physical infrastructure and avoid larger investments. Join the dozens of utilities around the world that are already moving in this direction and make this the industry norm.
