When it comes to innovative new grid technologies, every utility wants to be the third in line to try them. None of them want to be the first to take risks and iron out new processes. That's one reason grid-enhancing technologies, better software, and smarter internal procedures stay stuck in pilot purgatory, even as the industry faces the biggest buildout since rural electrification. PG&E's Quinn Nakayama and Microsoft's Hanna Grene discuss what's actually blocking utility innovation — and Quinn offers a novel proposal for paying someone to go first.
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US electric utilities are caught between a rock and a hard place. On one side, electricity demand in the US is rising for the first time since the 1970s, partially but not entirely due to data centers, and utilities are responding with record capital spending. However, on the other side, residential electricity rates have risen around 40% since 2021 and, as you might have noticed if you’ve watched the news recently, the public is extremely pissed off about it. There is very little political patience for further rate increases.
In short, utilities are being asked to build lots more, lots faster, while raising bills lots less, or even reducing them. There is simply no version of that math that works out at their current levels of productivity. The only solution is, in a word, innovation: rapidly deploy new technologies, new methods of planning and interconnection, and new types of partnerships in order to provide more and better electricity service at lower cost.
But that need has been visible on the horizon for well over a decade, and the record is not encouraging. American utilities spend about 0.2% of their revenue on research and development, lower than any other major sector of the economy. In 1992, NARUC, the utility regulators’ association, recommended they get to 1%. That was 34 years ago and they’re still nowhere close.
Why is an industry about to spend a quarter-trillion dollars a year in a political volatile environment so uninterested in figuring out how to spend more effectively? Is the technology not as ready as the start-ups claim? Is the utility business model fundamentally broken? Are regulators too hidebound and risk averse? Are the people and organizational processes inside utilities outdated and overly conservative or all of the above?
To hash through these questions, I have with me today two longtime veterans of this space. Quinn Nakayama (a previous Volts guest) runs the innovation shop at California utility PG&E, so he has seen the problem from the inside. With him is Hanna Grene, who spent years at a grid software company trying, and largely failing, to sell utilities new tools, and who now leads energy go-to-market at Microsoft. I’m eager to hear their perspectives on this question, which has never been more urgent.
Chapters
00:00 – Introduction
03:44 – Why grid-enhancing technologies stall in the US
07:54 – Selling grid software into utilities: what goes wrong
11:08 – From a pipes-and-wires company to a technology company
12:38 – Pilot program hell and the last 30 percent
15:04 – Innovation as a bolt-on, and the three muscles
17:47 – The digital spine, data quality, and smart meters
23:56 – Org chart versus work chart
25:09 – Strategy, structure, people, process, technology
29:24 – Build, buy, and the ecosystem skill set
36:15 – Data leakage, shadow AI, and paying twice
41:12 – Why utility product cycles run five to seven years
46:27 – Human in the loop, and EPRI's SAFERai.power
49:06 – Advanced market commitments and the kingmaker problem
53:22 – EPIC, and whether software counts as infrastructure
01:00:05 – The CapEx incentive problem and final advice
1:04:34 – Digital Infrastructure as Capital Spend
1:06:53 – Final Advice
Resources
People & Organizations
David Roberts (Substack - Bluesky)
Volts (Website - Podcast - Apple Podcasts - Spotify - YouTube)
Quinn Nakayama (LinkedIn)
Hanna Grene (LinkedIn)
Other Orgs Mentioned
Company & Industry News
EPRI Launches Effort to Reduce Risk in AI Power Sector Deployment
Microsoft’s Grene on Why People Are Key to Utility AI Integration
Books & Articles Discussed
Related Volts Episodes
Related Volts Posts
Transcript
David Roberts: With no further ado, Quinn Nakayama, Hanna Grene, welcome to Volts. Thank you so much for coming.
Quinn Nakayama: Thanks for having us.
Hanna Grene: Thanks for having us.
David Roberts: Cool. So let’s start here, Quinn, let’s start with you. So here on Volts, I cover all kinds of cool new technologies to help the grid, grid-enhancing technologies, dynamic line ratings, advanced conductors, power flow controllers, grid-forming inverters, VPPs, all sorts of AI control systems, on and on, et cetera, down the line. Many of these technologies have been deployed for a long time and at some considerable scale in other places, like in Europe. Why in the US are they still a rounding error? Why are US utilities not deploying them at scale? I’ll just start with the simplest form of this question.
Quinn Nakayama: Thanks for asking a really interesting question regarding what Europeans are doing versus the United States, and I would say, well, part of it is some of those systems that they operate, especially in the kind of the DER-related space, operates in a completely different regulatory market. It’s not that these systems don’t work. The applications are fairly basic in what their capabilities are. In the DER-related world, the issue isn’t necessarily the technology itself.
It’s more of how does each regulatory market perceive the value of distributed energy resources across its entire sector, from the system view versus transmission view versus distribution view. You have to actually get to something that works, that actually reduces rates. If you put together a DER strategy that just compensates customers, but you don’t get the actual value from the utility side of the house, then rates just rise, you know? And we’ve seen that in various other type of DER-related programs like net energy metering, and so on and so forth. You can’t do that, right? So you know, I don’t think it’s really necessarily a technology issue.
For other type of technologies such as like dynamic line rating, such as other type of GET-related technologies, we are seeing a significant increase in adoption in the California utilities. What I would say is that, you know, we want-
David Roberts: Can I cut in? Just for listeners’ benefit, GETs, G-E-T-s Grid-Enhancing Technologies. I’m trying to explain all our acronyms as we go here.
Quinn Nakayama: Oh, yeah, I’m tracking, yeah. Grid-enhancing technologies, like advanced conductors, new types of conductor-related technologies. You have dynamic line rating. You have advanced power flow controllers. The one that really comes to the top of the mind where the Europeans use much more predominantly than maybe in the United States is probably dynamic line rating, and I think the California utilities and the United States utilities in general, first off, didn’t really have a major need five, seven years ago, data center things were interesting, but not really need. Most United States utilities across the board had flat, in some areas negative load growth.
David Roberts: Yeah.
Quinn Nakayama: And so, you know, being able to pivot extraordinarily quickly into a technology is really difficult for utilities to do. In California, I think we’re a little bit more ahead of the area. We already have ambient adjusted ratings. So dynamic line rating from our perspective just is a wind measurement tool and a much more granular temperature measurement tool.
Hanna Grene: Mm.
Quinn Nakayama: We feel like we’ve already been able to do some of the things that technologies such as dynamic line rating can do, which measures temperature and wind and other factors on a transmission line and enables you to push more energy through than maybe what the common ratings of those assets are. And so I would say that the need has really progressed very quickly for the utilities and much faster than a lot of utilities are able to react to. And so you’re not seeing that type of adoption as fast as, you know, the industry might hope.
David Roberts: Yeah. Yeah. I think this is a theme we’re gonna come back to, is just that the speed of demand rising and the speed of new technologies developing is much faster than the speed of utilities operating, which is sort of kind of what we’re getting at throughout here. Hanna, I wanna talk about your current role, but before we get there, previously you were at a company called PXiSE trying to sell these grid controlling software to utilities, and of course, like they desperately need that stuff and yet it was a frustrating thing many times. And I’m sort of curious about, I wanna kinda start with a story of failure.
Like, when you tried to sell these things to utilities that would help them manage distribution grids better, Why did it fail? What did they say when they didn’t buy it? Why aren’t they buying these things? What sort of things would you hear?
Hanna Grene: Well, I’ll give you a slightly different perspective. I don’t know that a gigawatt of global projects is failure.
David Roberts: Well, I mean, at the scale of the US utility sector, they’re not doing it on anything like the scale I think we would want them to, let’s say. Like, your company can succeed, but the sector is not, I would say, succeeding on this.
Hanna Grene: I think more broadly, if you open up and you look at digital grid controls, the retail sector globally has matured it much, much faster than say, you know, traditional T&D utilities. And there’s good reasons behind that. You know, as you integrate more and more hybrid power plants, just larger solar sites, more complex, you know, natural gas tied to batteries and connected to solar, we’ve needed on the generation side, both retail and integrated utility, we’ve needed more advanced controls faster than you have necessarily downstream in the distribution space.
Some of that has just come from market maturity, market need. Some of the most productive places in the world that have advanced DERMS systems and that have been early to market are places like California. I had the great privilege of partnering with Quinn, the PG&E team, and our partners at Schneider Electric to work on their DERMS system.
David Roberts: DERMS — wait, we gotta explain our acronyms.
Hanna Grene: Distributed energy resource management system.
But places like California, places like Australia, we have more DERs. We’ve had more volatility and push to interconnect more devices within the distribution system, and so we’ve had a market need there. And so, you know, coming back to what Quinn said, I don’t know that this is a technology problem. Some of it has been more what is the problem we’re solving in the market, and does the market really need or demand this level of technology?
And, but I think anybody in grid controls, it’s been slow-going or bumpy at different times in the market. I mean, my goodness, if you’re sitting where we’re all sitting right now, the market is fast and chugging.
David Roberts: Mm-hmm.
Hanna Grene: And, you know, there’s a lot of capabilities that, you know, I might have heard like, “Well, we don’t need a Ferrari controller.” I might have heard that 10 years ago in parts of North America because, you know, we’re not California. We don’t have solar on every rooftop-
David Roberts: Right.
Hanna Grene: at Tesla in every driveway. But let me tell you, with data center demand, with reindustrialization, you know, even just with EV growth across middle America, I would sort of challenge the industry, like find me a grid that doesn’t need more advanced real-time controls than what we have today. Sometimes this all comes down to market maturity and market need, and we’re in a moment of market need. We’re trying to do hard things a lot faster than we’ve done them before.
Quinn Nakayama: Yeah, and I think if we’re to double down on that, right, Dave? Like, for example, we haven’t had to do a lot of changes to our applications or system softwares for the past, like, 100 years, right? Like, the utility industry has been fairly stable. So, you know, think about what a utility industry is. It’s a pipes and wires company. Yes, we transmit electricity, and we do, you know, it depends on the type of regulated or non-regulated type of utility, unregulated utility you are. Predominantly, you are a infrastructure company.
David Roberts: Yeah.
Quinn Nakayama: And so you put wires up in the air, and you dig trenches, and you put pipeline in the ground. And if you think about the type of skill sets that a utility really needs to excel at, it’s project management and engineering, right?
David Roberts: Yeah.
Quinn Nakayama: That’s what you need. You need to be able to design these suckers from an engineering perspective and make sure that they operate reliably and effectively, and then you need to have the project management capability to construct these things. And, you know, utilities are very similar to, like, a road construction or any type of infrastructure construction-related company. And now, you know, we are quickly needing to become a technology company.
David Roberts: Mm.
Quinn Nakayama: Those type of skill sets are completely different. How do you move from a project management and engineering over to having, for example, a chief technology officer or a chief product officer and then hiring people who have product backgrounds? That’s a complete mind shift and skill shift.
David Roberts: Well, relatedly, what you often hear, what I often hear from people, especially people who are in the business of trying to sell cool new advanced technologies to utilities is that they get trapped in pilot program hell, basically. Like, a remarkably high, like I was looking at this study, something like 70% of the startups they surveyed said, “Yeah, we were able to get a pilot from out of utilities.”
But very often that’s just where things stay. So talk a little bit about the dynamics of pilot projects, and who’s running those and why aren’t they you know, you would think what you would want is for pilot programs to be a pipeline of things that then become programs, that then become integrated, but that very frequently doesn’t happens. Tell us a little bit about the pilot dynamic.
Quinn Nakayama: Yeah, and I’d love to hear from Hanna, who’s seen a lot of other utilities around, but I can give you my own personal perspective is that there is no world where a technologist comes to us and says, “Hey, listen, here’s a technology that works exactly in the ways that you need to do. It is 100% baked. All you need to do is click the install button or put this onto your assets, and boom, magically it resolves all of your related issues, and makes you a cup of coffee, washes your car, and takes your kids to school at the same time.” That doesn’t exist.
And so, you know, throughout my entire experiences, what I’ve found is that technologies typically are around 70%, 60%, 70% baked, and what is required is the utility subject matter expertise and our data to be able to then work with these companies to modify their products or customize their products,
David Roberts: Mm.
Quinn Nakayama: whatever you might wanna call it, to fit our needs. And so this is where the product development skill set really comes into play, Dave, where you’re not just testing something and saying, “Oh, here’s the reason why is it doesn’t work. Thank you very much. We’ll talk to you in four years when you can get it done.”
David Roberts: Mm-hmm.
Quinn Nakayama: A product development mindset would be, “Hey, listen, we’re gonna commit to you as a technology, and we’re going to expose all of our data and our subject matter expertise into your product technology, and we’re gonna get it to 100%.” That’s a different mindset.
David Roberts: But isn’t that what the pilot program is supposed to do? I mean, isn’t that what a pilot is?
Hanna Grene: Yeah, I wanna challenge the mindset a little bit because I think where we’re at today with technology broadly, but I work for an AI-leading company, so I will lean a little bit more into what we’re seeing with AI here. I think the trap you fall into when you talk about pilots or when you talk about even just, you know, sort of having a dedicated AI strategy, is you fall into a trap that becomes a self-fulfilling prophecy of making it a bolt-on.
David Roberts: Hmm.
Hanna Grene: Well, we’ll try that thing over there. And, you know, I think we’ll hear more from Quinn about some of this innovation muscle and, you know, you do have to create safe spaces to fail in a utility, and sandboxing and trying things before you scale them is important. But how do you create a process that brings it back into your core strategy as a company? And do you-
Quinn Nakayama: Mm...
Hanna Grene: have technology and innovation as a core strategy in your company? That’s a really important foundation to have, because otherwise you could sort of treat these things like side projects, and that’s where you end up into trouble. And so there’s three big things that I see in companies across not just utilities, but retail power providers. My team works directly with oil and gas companies as well that play in this space, and we get to co-innovate and sit with them and work on their strategy and help deliver AI outcomes with them.
And so there are three big things that I’ve seen that really are the differentiator between a company that sort of treats technology like a bolt-on and those who make technology part of their culture and part of their core strategy and make innovation part of their culture and core strategy. The first is really obvious. They’ve invested in and have a strong digital spine. Do they have a mature data strategy? Do they have a strong IT and data information organization? Like, have you put down some good foundations to the house that you’re gonna build on it? So you do have to have that strong digital spine.
David Roberts: How common is that in utilities, right? Like, I think intuitively you’d like to think they would have that.
Hanna Grene: More common than not, but everybody’s foundation needs some work.
David Roberts: Mm-hmm.
Hanna Grene: So you are in this, we are right now as an industry in a big upgrade and refresh cycle for core systems. You know, I would sort of say find me a utility that’s not going through some sort of modernization
David Roberts: Yeah
Hanna Grene: Whether it’s in their customer system, their supply chain system, their geospatial system, their grid, and that’s healthy and that’s normal. But modernizing those and building up that good spine is key, and it’s part of being ready for this future and delivering affordably, I would say.
Quinn Nakayama: Yeah. I would also say, like, you know, the digital spine is one thing, but, like, your data quality on that digital spine is a whole nother ball of wax. So, like, utilities writ large may have that digital spine available, but either the data that they have in their systems doesn’t exist because they never had to collect it before, or it’s poor, right?
So Dave, like, one of the things that I think about is, as a utility, we never really had to care whether you were on what phase of our secondary and our primary system. No utility had to really record that because you could get things to balance generally on the system and you were fine. Now, with all the solar, with all this EV, with all of this two-way power flow, that becomes really needed in order to operate your grid well and effectively and efficiently, but you don’t have any of that data recorded or it’s poor. And so, you know, the digital spine is one thing, but-
David Roberts: Well, one of the things people complain about precisely in this area is the smart meter thing, ‘cause this was sort of a wave of, like, supposed innovation a few years ago. Everybody was pushing smart meters. They got installed all over the place. But then, like precisely to what Hanna’s saying, that smart meter data never really got integrated, it seems like, or used particularly well, or like integrated into operations particularly well. I mean, you can buy private products now that make use of that smart meter data to do really sophisticated things at the household microgrid level, and still utilities don’t seem to be using that information. Like, isn’t that information out there? Isn’t the data out there from all those smart meters?
Quinn Nakayama: I would say yes and no. I would say a lot of the smart meters that are out there are your, what I would consider your flip phone type of smart meters, right? And so you wanna browse the internet on a flip phone, good luck with that. I remember back in my day when I was doing this, I could play Snake maybe, if you were lucky. Right? These AMI 1.0 meters basically read your meter.
Some of them might read voltages. Some of them might send that back. It really just depends on where you are on that journey. And to be able to go to an AMI 2.0, which is exactly your smartphone built into a smart meter, I think that you have those type of capabilities. PG&E does, for example. We are rolling out AMI 2.0 that really measures voltage at a sub-second layer, 32 kilohertz type of resolution, and enables you to build apps onto that. But name me how many utilities have wide scale rollout of AMI 2.0, and I can count them on my hand.
David Roberts: Mm.
Quinn Nakayama: So, you know, you can’t program a flip phone to run massive apps that enable you to do all the things that you wanna do and you’re talking about on your podcast, Dave, until you get to that related infrastructure. I’m sorry, Hanna, I know I cut you off from-
Hanna Grene: No, it’s all good. I’m gonna come back to this. But it’s-
David Roberts: Yeah, Hanna, we interrupted, but how much of that data layer that you’re talking about here, you got two more on your list, but that data layer that you’re talking about, how much of that, in your experience, do they have that data to work with?
Hanna Grene: I sort of laughed when you said the AMI work we did a few years ago. AMI 1.0 rollout was like 22 years ago now.
David Roberts: Yeah, it’s all a blur. It’s all a blur. So,
Hanna Grene: you know, to Quinn’s point, it’s like, it’s time for the refresh, and the new meters are totally, totally different capability and very, very exciting to actually deliver more useful data in our low voltage networks and support customers. So we as an industry have more data than nearly any other peer industry. I think healthcare might hit higher than us.
David Roberts: Mm-hmm.
Hanna Grene: But we throw off so much data, this phenomenally engineered system that we all get to be a part of in the grid is the richest data resource. Our opportunity is to put it to work, and-
David Roberts: Mm.
Hanna Grene: this is really the, the gift that AI is gonna be able to give us in energy, is there’s not a utility out there that necessarily needs more data, but do we have that data in a clean and usable format? AI helps with that too.
David Roberts: Mm-hmm.
Hanna Grene: And then are we able to turn data into insights? If you go into any control room anywhere, you’re drowning in alarms, you’re drowning in data, but-
David Roberts: Mm.
Hanna Grene: you know, is that data usable? Is it insightful? Does it help you act? That’s a different proposition. So I think that’s really the opportunity in front of us. But yeah, do you have that digital spine? Is your data useful? Do you have a clear point of view on what you’re migrating and modernizing, and have you integrated AI into that vision? That, that’s the step one. The step two piece, to get through these quickly, the step two piece is people. The technology capabilities we have at our fingertips now are truly, truly incredible, and they can lift up and enable our industry to do more, faster, more affordably, which is the moderately crazy mandate we’ve been handed, right?
To go out and in some cases, some companies are talking about tripling the size of their generation capabilities in a very short number of years. I don’t waste a single second worrying about us losing jobs in energy. I spend a lot more time thinking about how do we empower people with this technology to do more in the really difficult and fun and fast-moving jobs that they have right now.
So what that looks like functionally is have you rolled out the tools to your people? Have you trained your people in AI capabilities? I’ll pick on Copilot ‘cause that’s what I live and work with. Have you skilled people up and, you know, given them the time and the capability to learn and to get familiar with tools like AI?
And then are you supporting it as a strategy? And some of that comes from tone at the top, from the executive level. Some of it comes from managers and team leaders who create space and have the mandate and the culture around them to be able to bring their team together and say, “Well, actually, how would we completely reinvent our residential interconnect process now that we have these tools? So are you creating those spaces, and do you have that culture?
David Roberts: Let me ask about this. There’s sort of giving tools to the teams and organization as currently constituted, but how much of this, the internal sort of the org chart, you know what I mean? Like, how much of this-
Hanna Grene: Yeah.
David Roberts: is how utilities are organized? Do they need to rethink the buckets or rethink the teams themselves? How much are they internally organized to innovate, I guess it would be the question.
Hanna Grene: I’d love to hear from Quinn’s perspective on this as well, but I will just say we at Microsoft, we already talk about org chart versus work chart.
David Roberts: Hmm.
Hanna Grene: And there’s a big difference between the people who report to me and the people that I and my team partner with on projects. And I think I sit at a big tech company, it’s not a utility, but I think you’re gonna see that more and more and more and more, and already in some companies, in energy you already are. Do you bring the right people together across disciplines to sit in a room and solve a problem, one team, one problem, one focus, versus sort of spend time in silos? In order to integrate technology and use AI effectively in an organization, you have to be cross-functional, so I think we’re gonna see this shift. But Quinn, are you already seeing it today?
Quinn Nakayama: Yeah, I would say structure is just a small piece of the overall issue for innovating quickly. You know-
David Roberts: Hmm.
Quinn Nakayama: there’s a couple of things that I think about. You need five things, or at least four things predominantly to make innovation work, the fifth thing being given. The first one is strategy. So let me go through the five. You need to have strategy, structure, people, process, and technology. If you don’t have those five things lined up, things are never gonna work. The strategy is usually the top-level strategy of the company or the utility that you’re talking with. Do you have the right KPIs at the very top that you can then attach your innovation to and saying, “We’re gonna make a difference on the following KPIs and move it from this to this”? And that is the-
David Roberts: What are KPIs, Quinn?
Quinn Nakayama: Key Performance Indicators. So, like, whether it’s your reliability Key Performance Indicator, whether it’s your affordability Key Performance Indicator, whatever it might be. You have maybe, like, a three to five-year trajectory that’s set at the very top of the company that says, “We’re looking to target between now and 2030 the following trajectory of our top-level metrics, and that’s our strategy.”
So if you can attach your innovation to those top-level metrics, you’ll have a more chance of succeeding because it’s really, really important to the company. And if it’s really important to the company, people will pay attention and they’ll invest. The second portion is what you’re talking about, Dave, which is your structure. Are you structured correctly to be able to take technology and roll it out quickly? There’s a question regarding whether you go centralized versus decentralized, and what’s the best way to do that, and we can spend a whole podcast arguing about organizational structure on centralized, decentralized.
You have Skunk Works. That’s the epitome of the examples of a centralized R&D, and then you have companies that just leave it up to their functional areas and do what you want. Hanna touched upon the people side. You know, I touched upon that a little bit on, like, what are the people that you have and how are they skilled to be able to adopt technology fast?
Then you just have process, and there’s actually a, there’s a process for innovation and product development. Venture companies use it all the time. Startups use it all the time. But, you know, a utility doesn’t have an innovation process.
David Roberts: You mean process just, like, iterating, assessing, et cetera, just a process for development?
Quinn Nakayama: You have the ideate, incubate, accelerate, and scale. There’s different words depending upon what consultant you talk to, right? They all brand it a little bit differently. But, like, you know, you wanna take all these ideas, you might have hundreds of them, and whittle it down to 10. Your no rate should be at least 90% or greater of every single idea that comes across your desk, ‘cause you don’t have the capacity to do all this related stuff.
David Roberts: Hmm.
Quinn Nakayama: Then you have the incubate process, where you really wanna get down to, what is this going to achieve for my business? Do I have an operating model? Do I have a business plan? Do I have the go-to-market strategy? These are all terms that a utility never really has to deal with, but if you’re a startup, you’re all about these three or four real big things. And unless you have that, you’re never gonna make it. The accelerate function is like, okay, I’m gonna take by quarter, what am I trying to achieve? And if it doesn’t hit those particular success metrics, we’re gonna fail it, and we’re just gonna move on to the next thing. Too many times do you sink too much time and effort into a technology, and then you burn away all this, like, people and capital, and it doesn’t work, and you should fail things fast, and you have very clear dictated ways to go through and accelerate.
And then scale, the scale portion is probably the hardest for utilities because every single functional area is, feels like they’re 30% to 50% underfunded. And so you’re gonna be asking them to take an additional haircut to be able to scale a technology. Like, if it doesn’t have a payoff within year, those VPs and those directors that are owning those budgets are not gonna give you more money to scale.
But if you can demonstrate that these technologies, through your accelerate phase, does pay off within year of a financial year, they’d be much more willing to fund it within their already constrained budgets that they feel like they don’t have. So, you know, you gotta have the process too. You can’t just deal with this on structure alone.
Hanna Grene: And I think kinda coming up a meta level, even on top of process, this is where I would land my number three on my like, you know, big three muscles that we see companies-
David Roberts: Mm-hmm.
Hanna Grene: exercising to effectively integrate innovation and digital technology. The third one for me is do you know how to build and use your ecosystem? And so your own internal process is part of that. This is a real skill set, and there are varying maturities of this across different companies in the industry. Do you know how to build and use your ecosystem? Do you know what you wanna buy that is not worth your time to innovate, it is not worth your time to rethink, you just wanna go buy it? Do you know what you wanna build? That is probably a pretty thin list-
David Roberts: Mm...
Hanna Grene: even though it is much, much, much easier to build new product and build new capability than ever before with AI. Writing code is no longer a problem. It’s really easy to build stuff. But what do you wanna be in charge of the care and feeding of long term, and what do you wanna own-
David Roberts: Mmm.
Hanna Grene: the enterprise scale behind? Enterprise scale is a very real skill set in development, and there’s a big difference between vibe coding something and rolling it out to 45,000 people-
David Roberts: Mm.
Hanna Grene: securely over time. And so what do you want to build, and then what do you wanna buy and build with? And I think this is the fastest changing part of the industry, and Quinn touched on it earlier too. What do you wanna look at the market and see and then build on top of? Some of that might be partnering with a company who has most of a solution, but I think even more it’s gonna be working with this is what my team does every day, so working with teams like mine to come in and build the capabilities that you need with AI to move you forward.
And that doesn’t mean you start from scratch. We have lots of blueprints. We have lots of capabilities. We work with a lot of partners. But do you have a core group of strategic partners who can innovate with you? They’re not just, you know, hawking you a $10,000 contract, but they understand intimately your strategy, and they’re part of your success team, and that’s a muscle.
David Roberts: Let me surface what might be a slight disagreement maybe between the two of you, or just flesh it out a little bit, ‘cause Quinn, one of the things you were saying, you said in an email to me, and I think you mentioned before, that when technologies get delivered to the utilities, they’re, like, 50 to 70% what the utility needs, and there’s that extra work of integrating them into the actual utility operations and flows.
You have said that utilities need to hire people to do that, who are good at that, engineers who are good at that final bit. But basically, like, Hanna’s business model at this point, I mean, I don’t know if she’d agree with this characterization, but it kinda seems like Microsoft is like, “Fine, we’ll do it.” You know, like, “If you won’t develop that internal expertise, just rent our engineers. They will come sit in your rooms and do that final 30% of development for you.”
Is there a tension between how much in-house expertise utilities need to develop on this stuff and how much they can rent from a partner like Microsoft, and is there any risk in renting from a partner that you get lock-in or if the vendor disappears or if something happens to the vendor, you’re, you’re bereft? Is there a tension there? Both of you.
Hanna Grene: Let me reframe a little bit first, ‘cause I wanna be clear on where I see the market need. You’re going to have a big, robust ecosystem of partners. Every utility does. A subset of them are gonna run your core systems. A subset of them are gonna be, you know, big technology platform providers who might sell you some core systems, but you also use a lot of their development tools.
I think we would sit in that space as Microsoft. And then there’s a subset of them that you’re gonna do innovation and, you know, create the future together work, and those aren’t mutually exclusive. You could have the same logos in the same buckets, but you’re gonna have different flavors of relationships. I don’t think any part of that ecosystem reduces the need for you to have a great set of in-house technology and innovation talent.
David Roberts: Mm.
Hanna Grene: So I don’t see them as duplicative. When my team gets to do what we get to do best, which is come in and develop with and accelerate with and partner with the utility, we are partnering with the phenomenal group of technology and innovation leaders on the other side of the fence.
Quinn Nakayama: Yeah.
Hanna Grene: And so it’s definitely not a replacement of, it’s high five and let’s go faster together.
Quinn Nakayama: Yeah, I don’t think Hanna and I are saying things that are actually conflicting with each other. Like when I talk about product development, I’m not saying that we are going to be doing all the build on our side, right? We don’t have that type of capability, and I don’t think we even are looking to do a significant amount of that related work, but we do have a lot of subject matter expertise when it comes to our engineering and how we do planning and how do we do construction and all that other type of stuff. We also have a all of our data.
So it’s about, like, working with a vendor partner to utilize all that subject matter expertise and data to be able to product develop their product so it gets it to 100%. And I think Hanna and I are saying the same things here. Here’s what I would tell you, though, is that this whole build by partner thing, you just have to be careful in the fact that, like, I can hear my CIO and CIOs across the entire country out there saying, like, “If you start to have a thousand applications that you’re working with on all these related startups, you have data flying everywhere.”
David Roberts: Yeah.
Quinn Nakayama: You have all these APIs that you need to maintain.
David Roberts: Yes.
Quinn Nakayama: And, like, the cost structure just becomes insurmountable. And so we have to weigh, do I wanna work with a startup or even a small technology company, versus do I wanna build this with the partners that I already have, the big partners like Schneider, SAP, Oracle, you know, and build it through there? Or is there, like, a matchmaking opportunity where these big companies can then do the B2B, right, the business to business transaction between them and a small startup, so that I don’t have to take all the integration risk, and they can create it like a module? Again, that might even be an exit strategy for a lot of these startups.
So some of this is us playing like a matchmaker related, and Microsoft does this really well, of trying to say, “Hey, listen, you know, these big utilities, they use these massive systems that they’ve invested a ton of money for. Instead of trying to go to them directly, maybe it might make sense if you try to work with them through GE Vernova, or work with them through Schneider, or work with them through SAP or Oracle. You might have a better chance of success.” And so that’s the balance.
David Roberts: Well, in addition to the sprawl and the budget sprawl, presumably there’s security questions, too. I mean, everybody-
Hanna Grene: Yes.
David Roberts: you know, is always mocking utilities for being so slow, but there’s a reason they’re slow, is that there’s a lot at stake, and they don’t have a lot, of a very big margin for error. And the more interfaces you open up, the more APIs you have, the more kind of things you have going on, the more attack surfaces you have, the more errors are possible, et cetera, et cetera.
Hanna Grene: Dave, I wanna punctuate this because it’s even more, We’ve always talked about attack surface area and endpoints and APIs, and then that’s all still true, but it’s the velocity of this has changed with AI. And there is a business model out there where you give company X a bunch of your data and they ship you back AI-driven insights on it.
And that is data leakage. That is not just your IP leaking, that’s not just your PII leaking, but that is a security risk. And I see this in a few different forms in companies a lot. The first is, this comes back to my people point, if you have not enabled your people with AI tools within your governed enterprise data environment, your people are super smart, and they’re gonna go use the best tools out there to get their job done. And we have a ton of survey data on this, and the number of people using AI at work keeps going up. The number of people using unsanctioned AI at work is, like, stayed the same because people are doing it. And so you do-
David Roberts: Well, this is a nightmare when you think about utilities. If you’re building a widget, but if you’re running a grid and your people are using LLMs on the side without telling you. That just gives me chills.
Hanna Grene: You’ve gotta give your people the structured enterprise environments and the training so that they can be successful with AI. And, you know, just one more point on this, and I wanna come back to the cybersecurity piece. I sort of feel like the way we’ve rolled out, some companies have rolled out AI tooling, where they’re like, “We’re a 40,000-person company, but we’ll give it to 200 people.” It would be like if you gave email to HR and legal- and a couple of people in C-suite, and you were like, “Let’s test the efficacy of email.” Like, it’s just not the right way to do this.
And so democratize the access to the AI tools, train people, set them up for success so that you don’t have this data leakage, and so that you get the broader benefits of people using this technology inside your company. But the other part of it is we talk about it as people paying twice. You’ve paid a company to give you some insight or capability back, but you’ve also paid them with your data.
David Roberts: Mm.
Hanna Grene: And this carries a cybersecurity risk, it carries IP risk, it carries legal risk. And so where we really want to encourage companies to think about, you know, building in protected enterprise environments. Like, your data is your data, is your data. Let me shout it again from the rooftops. Your data is your data. Like, we don’t backhaul it for our AI models. You know, we think you should be very critical of companies that do.
And so, you know, then you come back to this premise of do I have the right companies in the boat with me to go on this hyper-accelerated journey that I need to go on over the next three years to do things that we’ve never done at this speed and scale in this industry before? And that’s where, you know, it comes to do you have the smaller set of close partners who understand your strategy, can run with you, and can innovate alongside you and add those capabilities to you?
Quinn Nakayama: Yeah, I would say, like, I’m not trying to... , I’m not gonna defend the slowness of innovations adopting technology by any means. I will say that we do need to be faster. We do need to come with a product mindset. We do need to have, like, utilities need to start thinking about whether they need to have a chief technology officer to sit aside, to sit besides a chief information officer. Like, these are things that I think utilities need to think about. But the higher that you go on the innovation scale of your system, the larger your risks are. So-
David Roberts: Yeah...
Quinn Nakayama: as we innovate on, like, data centers and transmission, I’m not talking about 4,000 people losing power. I’m now talking about 300,000 people losing power. And so I can’t just be like, “Well Dave Roberts or these other podcasters are telling me that I’m not innovating fast enough. And so therefore, it’s their fault that I had this 300,000 customer outage because, you know, this technology didn’t do exactly what we need it to do.
And so I would say that, yes, we do need to innovate faster, but you’re right, there are risks involved with as we move higher up the energy supply chain, right? Or the energy transmission chain, the amount of risks that we carry that if we get this wrong could result in massive number of customers outages, and not to say that’s the reason why we shouldn’t do some things, but it’s just something just to consider as we’re going through how fast we can adopt these technologies and ensuring that those risks don’t happen as we adopt those technologies.
Hanna Grene: Totally, and I think for me, one of the mindsets that I am in, being at a tech company for the last five years and going through and living through AI projects the way we are right now, I think we’re gonna see some more shift on that process that Quinn talked about. Traditionally, you know, as an industry, we will, like, plan a project for two years. You know, it’s sort of a planning phase, and then you get this hard ramp when you go into deployment phase, and then there’s a run rate phase and, you know, if you were plotting it on a chart-
David Roberts: Well, Hanna, you told me in an email, you said that these sort of, like, product development cycles at utilities, this is something that was kind of a revelation to you, are, like, five to seven years, and you just back that out and do that math, and you’re like, “If it’s five to seven years for everything, we’re doomed. We’re never gonna get there as fast as we need to get.” So I’m, I was wanting to ask you, like, what is going on during those five to seven years? As you say, at this point, you can build these AI tools and agentic systems and whatever, you know, on, like, months cycles. What is taking up those five to seven years? What is taking so long?
Hanna Grene: Well, we’re living in between, you know, a bridge between two worlds. And the world we’re coming from are these sort of big chunky core system implementations where, you know, if you were to chart it on a something that was like a graph, they would look like big blocks, right? That you were standing up a big block, running a big block, ramping down a big block, starting a new big block. And where we’re seeing this shift with AI, it’s going to look a lot more like a bunch of little loops.
David Roberts: Hmm.
Hanna Grene: Because the market is moving really fast, the capabilities are moving very fast. Future that I’m seeing is every company is gonna use multiple AI models. You need that strong data foundation, but you’re gonna use different AI models to do different things. You continue to need those strong systems at the base, but you’re gonna have different agents in different parts of your company, and so you need visibility into those agents. You need a very clear control plane to be able to see how people are using AI within your enterprise.
And then more and more for, you know, big things you do, meter to cash, like supply chain ordering, like interconnection, like planning, you are gonna have these more agentic systems that integrate AI into different parts of a big chunky process. But instead of that being a monolith of one big project that you undertake, you’re gonna be building and iterating, and building and iterating in a much faster manner. And that’s just the nature of how the technology is changing and how much easier it is to build and adapt with AI technology.
And so Agile has so much pre-existing culture around it as a software development capability, so I struggle not to use Agile. But the the activity will require more agility. And this interesting and extremely important intersection is gonna be how do you balance between that rigor and that safety culture that is essential to everything we do in energy, period, and the recognition that technology is moving a lot faster. And developing the process between the two is, I think, where a lot of the really productive and interesting work is happening right now.
David Roberts: I can tell you right now that there are listeners out there listening to you talk about integrating AI into this system and that system quickly, and just the hairs on their arms are going up. You know, a lot of people have a lot of leeriness about AI. You know, some of it informed, some of it not, but, like-
Hanna Grene: It’s true
David Roberts: there’s a lot of fright out there, and the idea of just rapidly integrating it into infrastructure I’m sure just makes a lot of people extremely nervous inside and outside of utilities.
Hanna Grene: Well, and that’s an important point to make. This is always a good point to remind everybody that our industry’s been using AI for 20 years. I think the part that’s rapid is the speed that the technology is evolving, not necessarily the speed that you’re integrating it into core infrastructure. So that’s the important part. It’s how do we as an industry stay abreast and stay current with this technology that’s evolving?
How do we get the best from it? And then how do we very thoughtfully integrate it into the parts of our business where it makes sense? Companies have moved very quickly in some spaces, using it to improve customer experience, using it to improve things like billing, supply chain, safety for field workers. But you know, there will be more a methodology and a higher standard for anything that’s about core infrastructure and core operations.
And I should say, too, you know, my personal perspective, but the perspective of the team that I’m a part of, is human-led. And so you are using AI in cases to augment human capacity, to support automation of a process with human oversight, but we are very much AI-enabled, human-led operator-led, and I do think that’s an important distinction.
Quinn Nakayama: Yeah, and I think this is really important. Utilities wanna make sure that if we're gonna be embarking on doing higher and higher level things with AI, you always have a human in the loop, and that human in the loop, whoever that person may be, understands false positives, false negatives, and hallucinations so that they can find and catch those and identify those and feed those back into the system to make it smarter. But having automated decision-making is a whole nother ball of wax.
David Roberts: Yeah, you want somebody accountable at the end of the, especially on infrastructure.
Quinn Nakayama: That’s right, And-
David Roberts: If something goes wrong, you want a human accountable.
Quinn Nakayama: Yeah, and there’s like, for example, if you start to do AI-informed asset health ‘cause you have all these sensors out there, and they’re telling you, you know, how the pole’s doing or how the wires are doing, and if you have a whole bunch of false positives, your maintenance program is gonna be underwater. If you have a whole bunch of false negatives, you’re not aware of potential asset failures that may be occurring.
So having that type of human in the loop, taking a look at how that AI matures is gonna be really important. Now, one day, you may find yourself in a position where that type of dynamic doesn’t require human in the loop because the technology has matured, but I think you can’t just start there. You have to always have that type of human in the loop, make sure that it’s running, not hallucinating, not creating that positive negative value, and then just continue feeding it until it gets to that position.
And you’re right, Dave, the higher you go, the more consequences there are, the more careful you need to be, and that may lead to what may be considered slowness from the utility’s perspective on adopting some of these technologies.
Hanna Grene: And this is an area I spent some time recently with EPRI, which of course plays a big role in disseminating innovation out across our industry globally and helping us innovate together.
David Roberts: This is the utility trade group.
Hanna Grene: Yes, I, you know, I think of them as a lab for the industry. You know, less of a trade group, more of an innovation center that helps disseminate and hold R&D for our global industry, the Electric Power Research Institute. And something that we’ve sponsored and have been an early supporter to is what they announced just this week with SAFERai.power.
This is an initiative to actually work through AI use cases that might be more sensitive and to help drive some industry consensus on how you’d approach them, how you’d apply, you know, well thought out. We’ve been doing responsible AI work at Microsoft for over 10 years, and so, you know, just as one example, like how do you take things that companies have been doing for a long time to de-risk and be very thoughtful about where you use AI, and then build on top of them for the very specific critical infrastructure needs of our industry so that we’re not all having to individually make those calls as companies and as leaders.
David Roberts: Mm.
Hanna Grene: But you could go to a framework and say, you know, “This would be the way that I, the methodology by which I would assess this risk, and also the risk that it’s been assessed, and here’s how I can think about it.” So, you know, this is an area where the beauty of our industry and how we share and how we collaborate allows us to partner up and work together so that you don’t have to think about these things alone in a box.
Quinn Nakayama: I wanna double down on that. Like, Dave, one of the things that you’ll hear is the sales cycle in a utility is super long, and it crushes some of these startups, right? Like, or crushes some of these companies. It’s like, all right, even if I work with a utility, it’s like a three-year sales cycle, and then I get one utility, and then I get-
David Roberts: Yeah.
Quinn Nakayama: you know, I have to go to another utility, and the sales cycle is three to five years, and it’s just super slow. I think, you know, organizations like EPRI could be really helpful in doing, you know, I love the concept of advanced market commitments. Like, there could be a king maker-
David Roberts: Yeah.
Quinn Nakayama: out there. Like PG&E for example, we have to innovate on things like wildfire faster than the rest of the utilities, or maybe it’s drone-related technologies, or maybe it’s computer vision. Either way, whatever it might be.
David Roberts: Well, on all of these things, I mean, one of the big problems is that none of the utilities want to be the first to go, well, or even the second to go, really. All the utilities want to be the third to go. All the utilities want someone else to do the first thing. But, like, somebody’s got to do the first thing.
Quinn Nakayama: Right. And so let’s say PG&E is gonna be the first one, right? Just because in the West Coast you have wildfires, you have electrification, you have data centers, you have all this type of stuff all happening at the same time. Fine. We’ll be the kingmaker. That’s fine. What we would love to do is work with an organization like EPRI, as an example, and say, “Okay, fine. If I build it, can you do an advanced market commitment with seven different other utilities? And if we build it, they buy it too.” They’ll put up, let’s say, $10 million. I don’t know.
We’ll just throw that out there as a rough number of sales that says, “Hey, if PG&E can build it, builds it to these specifications, can prove that it works on their system and requires very minimal adjustments on theirs, yeah, I’ll buy $10 million year one.” You put I don’t know, seven, 10 utilities together for that, you get a 70 million to 100 million dollar type of advanced market commitment. Sure, maybe it’s non-binding.
Fine. But, like, it sends a signal to the VCs out there, it sends a signal to any of the investor community out there, and they’re like, “Oh, well, you already have seven to 10 customers already lined up after the kingmaker does whatever they need to do to product develop into this space with their subject matter experts, with their data, and now there’s seven to 10 utilities waiting to just buy this once it gets done.” Like, there’s a lot of value there. There’s a value for the startup, and there’s a value for the VC community that gets that direction.
If we’re gonna be the kingmaker or the first mover in some of these technologies, then we want some of that value too, whether it’s, like, really low cost and a procurement agreement for the next five years. Maybe we’ll do a warrant. Maybe, you know, there’s other things that we can think about from a joint IP. There has to be something in it for us to be the kingmaker.
But if we can figure out how to create, you know, these type of coalitions of utilities together to say, “Hey, listen, we’ll let Duke, or we’ll let, you know, some of these other East Coast utilities be the kingmaker on maybe some technologies on transmission because they went first on data centers. We’ll do drones and wildfire-related technologies and computer vision, and this other utility over here will do, be the kingmaker on something else,” we could probably create really strong signals to the market that enables even faster product development happening on some of these type of technology companies, which would be really cool.
David Roberts: Well, quickly, we’re running out of time, and there’s a couple of key questions left I wanted to ask, and this gets at one of them, which is one of the things that we’ve not really talked about yet is funding. It’s just money. You know, utilities need to spend on this stuff. And as you know, Volts listeners know, the way utilities spend and make money is rather peculiar. A lot of this, I think R&D stuff gets put in the operations and management budget.
Then you need a rate case to make the money back. There are some utilities that are innovating in ways of putting stable pots of money aside to devote to these faster cycle innovation cycles. Quinn, how, how much is just the way utility budgets are structured in the way here, and what are some ways they can just spend better?
Quinn Nakayama: Yeah. I would say that a lot of this is talk to some of my peers and those, and they’re using the little tin can, and they’re going out everywhere trying to get small dollars from everywhere, and that’s the best they can do, and that really stifles innovation within their organization. I would say that California has been unique, right? We have something called EPIC, which is the Electric Program Investment Charge. It appears on your bill as a public purpose program, but if you were to dive underneath that, it has really enabled utilities in California to invest in R&D.
That has been a commission-led effort to say, to your point, commission utilities aren’t investing in R&D and innovation, so we’re just gonna force them to do so by forcing them to gather money, allocating it only for this related purpose under these type of priorities that the commission dictates. You go do the innovation and you de-risk these technologies.
And so since 2011, we’ve had four cycles of this. We’re about to go into our fifth cycle, and that has been the real catalyst for California utilities to innovate. Like, the biggest thing for us is we have to demonstrate its value. So if I can demonstrate that there is a per kilowatt hour cent reduction on customers’ bills as we think about the savings that are attributed to, you know, hey, if I get $50 million, can I turn it into $150, $200 million worth of savings? Like, that’s a pretty good, you know, worthwhile investment.
And so as long as you’re able to prove that and you’re not just working on things to work on things and doing research projects to write white papers, as long as it’s applied innovation that’s gonna move the needle, especially in areas of affordability these days-
David Roberts: Yeah.
Quinn Nakayama: which is like PG&E’s real sole view, right? How do we get our rates more affordable? And as long as you can show that type of payoff, then these type of R&D efforts that a commission can stand up and give to their utilities as a mechanism enables them to achieve some of the objectives that they might have as a regulator in their system.
David Roberts: California is somewhat unique in that, though. Hanna, do you find that a barrier when you’re working with utilities, just the pots of money that they have to draw from and the way money is allocated? Are you able to find funding for what you need?
Hanna Grene: Two pieces on this. The first is that a lot of the utility ratemaking mechanism is about CapEx versus OpEx, and I do think we are in-
David Roberts: Yes
Hanna Grene: it’s really important, certainly not just because of AI, but because of how we started this conversation with GETs and digital grid infrastructure, we actually need to reframe a lot of this investment in terms of digital infrastructure. Infrastructure is no longer the best spend of a capital dollar may not be a pole or a wire or a sensor.
David Roberts: Yes.
Hanna Grene: It may be the digital infrastructure that enables that greater affordability and that greater customer outcome. And so I do think that there’s much more maturity in the market of that understanding now than there was five years ago. I’ve seen that evolution, but that’s really, really important for us to just recognize that software broadly is a massive component to how we’re going to optimize this grid and how we’re going to accelerate capital delivery and deliver it affordably, and we all need to get our heads adjusted to the idea of spending more on digital and about it being digital infrastructure.
That’s one piece. I think the other piece, and this comes back to where we started the conversation. When you start to sort of go like, “Well, R&D is a nice to have. Innovation is a nice to have. Technology is something that IT does for us over there in IT.” Those are traps.
David Roberts: Mm-hmm.
Hanna Grene: And I think the evolution I really wanna encourage us to think about broadly, all of us in energy, is to think about how technology is more and more and more, and certainly AI unleashes this, it is a tool for how you are going to deliver the future of your business across your people and attracting and retaining and growing talent, across your core strategy and how you deliver it into the market and for your communities, and in how you have, you know, a secure, healthy ecosystem across your hardware, your software, and the infrastructure that you operate.
And so technology must, and innovation therefore, must be embedded in your core strategy. It can’t be a nice to have. It can’t be a bolt-on. And as wonderful as it is that we have these innovation and R&D funds in California, like you can’t wait for that cavalry to show up in your state. It needs to become a muscle and become part of how you deliver against your metrics.
David Roberts: Well, this brings me to my final question. Quinn, maybe this is where you’re going, but this is probably the question that my listeners have been waiting for me to ask this whole hour, which is, if the utility spends a capital dollar on a pole and a wire, they spend a large chunk of money, and they get a guaranteed rate of return on it, they make money that way. Whereas if you come in with some digital solution and you say, “Here’s a super cheap software-based solution that can help you avoid the need for that pole and that wire. Look, you can save money,” a normal business would be like, “Oh, good. I get to save money.”
But a utility business, if they save that money, makes less money. You know, this is something we come back to again and again and again on this pod. The utility wants to spend money. That’s how they make money. And almost everything we’re talking about under the heading of innovation is, one way or another, something that avoids the need to spend a bunch of CapEx on big infrastructure, i.e. something that is going to reduce an investor-owned utility’s profits.
And I just don’t know, it just seems to me like the very basic business model we’re talking about here, the very basic regulatory structure of these utilities is working against innovation almost intrinsically. How do you get around that? I guess is my question. Like, how do you work around that very basic mismatch of incentives?
Quinn Nakayama: I would say there’s a couple of things here. One is that used to be the case, and I would say that, well, if you take a look at a lot of the utilities that had 0 to 2% flat growth in their utility sector, and they weren’t building a lot of infrastructure, and all of them would be like, “Yeah, let’s do more capital. We need to figure out how to get our rate of return.” That may have been the case in a lot of utilities in the past.
Now, all these utilities, including ourselves, are like, “We need to get rid of some of this capital ‘cause we can’t spend it all without really ballooning rates.” Like, if there are ways that we can defer capital spend, if there are ways that we can have alternative ways.
David Roberts: It may be in California, Quinn, but look out at the country. Like, I see utility executives just, like, drunk on this. They’re like, “Heck yeah. Like, you want us to build a lot? We’re gonna build all we can build. We’re super excited to spend CapEx. We’re super to spend more and more.” Like, And I’m not sure that the political blowback has fully reached them yet, or, like, changed their mindset yet.
Quinn Nakayama: I would say there was a swing where all of these data centers happened very quickly that caused all this infrastructure to build, that be built out, that then caused this lag on the generation side. And, you know, more broadly, it was just, it just happened a lot faster than a lot of folks could react to. But if you think that this whole politics on raising rates and the blowout that’s happening on rates side isn’t on the top of executives’ minds across the entire nation, I think that’s just not true.
And I think the reason why is that, listen, you know, utilities actually don’t want legislation coming into their area. I don’t think that they actually, utilities writ large, because you have everybody commenting into areas that maybe people are not as well informed into. And the utility space is very complicated. It’s an engineering nightmare. It’s, you gotta think about protection, you gotta think about a whole bunch of other type of things.
And so I would say that most utilities out there, most utility executives are very concerned about customer affordability. They just need to figure out how exactly do they incorporate all of this AI data center-related large growth that’s happening super fast without coming across as being obstructionist toward that growth, and at the same time figuring out how to do this with less capital. I feel like, you know, that pendulum is vastly swinging the other direction now.
David Roberts: Hmm.
Quinn Nakayama: We have way too much capital everywhere. And wildfire, by the way, is not just a California problem. I don’t know if you’ve seen, but there’s wildfires happening everywhere.
David Roberts: Yes, I noticed.
Quinn Nakayama: So, like, hardening infrastructure for capital, everybody’s gonna be coming out of their ears with capital. Now it’s gonna be about how do you do, how do you meet these objectives that you have on these really big ambitions that the state has on load growth, the state might have on wildfire-related risk or whatever other catastrophes that they’re having with the changed climate that’s already out there, and then trying to do all of that with less money because the rate blowback is just gonna be too big. I think that in order for us to do this effectively, though I think we need to figure out how to take some of these O&M-related expenses-
David Roberts: Operation and management.
Quinn Nakayama: operation and management-related expenses and figure out how to peanut butter them a little bit more across a broader range of time, which smells like capital, but what I’m just trying to say is that when you have an operations and maintenance-related expense, it hits the ratepayer the next year, right?
David Roberts: Yeah.
Quinn Nakayama: A capital project that’s $300 million that’s spread over 40 years hits the ratepayer much less over a long period of time. That’s why I think even in a utility such as California, we don’t want a lot of O&M expenses on our books just because next year that’s gonna hit your rates. And a capital project can spend a lot more money, but hit the ratepayers very fractionally as ratemaking occurs in all of our areas. So that’s just something to consider. It doesn’t really necessarily have to do with a rate of return.
David Roberts: Hanna, how about you? Are you finding the utility, the basic incentive structures of utilities a barrier at all? Because you are selling solutions that reduce capital spending ultimately. Like, is that a problem for you?
Hanna Grene: It depends. I think depending on the management, the leadership, what part of the world we’re talking about, there are certainly leadership teams that have had the aha moment and said, “If I’m buying software to help me run the grid, it is digital infrastructure, not IT back office.” And so for me, I think I would encourage folks to think more about the evolution of we’re using technology to run a lot more of the core systems of how power and utilities companies deliver power to communities. And so technology is a lot, lot more on the CapEx side of the equation.
David Roberts: Hmm.
Hanna Grene: Technology’s playing a bigger role. Period. And that expands the tent beyond just an internal IT function, much more into a critical system that helps operate at all parts of the value chain. And so I do think when you click into that mindset and you’re like, whether it’s digital controls or AI or sensor that we’re pulling AI on top of, technology is gonna be a bigger and bigger and bigger part of how we optimize, how we operate, and how we do this with the resilience and safety that we need to deliver on as an industry.
And so if you accept that, and challenge you to find somebody who doesn’t see that as the road we’re all going down, we need to start thinking about software and AI as part of that core delivery and as part of that capital side of the equation. I’m an optimist. I think optimism helps you jump out of bed in the morning and go do hard things, and I love this industry, and I am an optimist about it.
And I have a lot more conversations about how we’re gonna use technology to support affordability and to help restore power faster from a storm, how we’re going to prevent the spread of a spark and identify fires before they spread, about how we’re gonna maintain affordability over the long run. I have a lot more conversations about how we use technology for that than I see folks move pennies around.
It’s not to say it doesn’t happen, but we’ve got a lot to do in this industry, and I think the focus is on how we get it done.
David Roberts: All right, Quinn, any final words, any final advice to utility executives out there before we wrap this up on how to innovate faster and better?
Quinn Nakayama: Yeah. I wanted to reiterate what Hanna said earlier around, you have these ambitions that utilities have that will show itself up into the top-level metrics of how they are judging their performance over a multiple spans of years, and you’re gonna have gaps to those targets where, you know, a CEO or chief operating officer or the board of directors may say, “Okay, well, here’s your targets for the next five years.” And when you take a look at your budgets to be able to execute that, they just won’t be large enough to be able to hit some of those metrics, and so you’re gonna have gaps to targets. Great.
That is where innovation and technology lives, and that creates a beautiful conversation with all of the executives within your company. If you have this big gap to target, innovation and technology let us do the projects and the innovation required to be able to bridge that gap. And they’ll be very interested in that because, you know, they are looking at their targets that may be red or they may be amber for the next three years, and they’re scratching their heads and thinking, “Well, how do I do this by process alone?” And the answer is, well, technology is going to be the new process for you, so let us come in and let us do our thing.
Let us use our product development capabilities, let us use, you know, our startup mentality, our VC mentality, our venture process to be able to do this for you, and we can do it very fast. Let’s not do this in 5 to 7 years. Let’s do this in a year, less than a year. Can we come to market and get these really, really important areas for your business to go back to green?
I think that’s where the beautiful internal partnerships can be had in creating a product development mentality and a chief technology type of capability within each one of the utilities. So that’s what I would say.
David Roberts: All right, Hanna, any final words?
Hanna Grene: If you own a process in your company and you aren’t stepping back and saying, “How would I totally rethink this considering the world has moved in three years since the launch of AI?” If you aren’t stepping back, and I mean, for me, this is so fun. It’s really an invitation. Engage with the smart people in your team, get in a room, grab a whiteboard, and think about how you would fundamentally rethink and re-run the part of the business that you operate. Because what we can do today, what is at our fingertips with AI, with the ecosystem of partners, it has changed really, really quickly, and that makes it exciting. So get creative and think about what you could do.
David Roberts: All right, well, we’ll wrap it there. We could talk about this forever. It is a hot topic, I’m sure, and will remain so for many years to come. So thank you two for coming on and sharing your perspectives.
Quinn Nakayama: Thank you. Appreciate it.
Hanna Grene: Thank you.
