Why can't utilities innovate?

(upbeat music) - All right, hello greetings and salutations everyone. This is Voltz for August 21st, 2026. Why can't utilities innovate? I'm your host, David Roberts. 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, Nairouk, the Utility Regulators Association recommended that they get that up to 1%, that was 34 years ago and they are still nowhere close. Why is an industry about to spend a quarter of a trillion dollars a year in a politically volatile environment so uninterested in figuring out how to spend more effectively? Is the technology not as ready as all the startups claim? Is the utility business model fundamentally broken? Are regulators to hide bound and risk averse? Are the people and organizational processes inside utilities outdated and overly conservative? Or all of the above? Hash through these questions, have with me today two long time veterans of this space. Quinn Nakayama, a previous volts guest, runs the innovation shop at California Utility PG&E. So he has seen this problem from the inside. With him is Hannah Green, 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. All right then, with no further ado, Quinn Nakayama, Hannah Green, welcome to volts. Thank you so much for coming. Thanks for having us. Cool, so let's start here, Quinn. We'll 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. Thanks for asking. I 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 into completely different regulatory market. It's not that these systems don't work. The applications are fairly basic and 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 technology, 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, can I cut in just for listeners benefit, gets GETs, grid enhancing technologies. I'm trying to explain all our acronyms as we go here. Oh yeah, I'm trying to get good 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 an major need. Five, seven years ago, data centered things were interesting, but not really need most United States utilities across the board had flat in some areas negative load growth. Yeah. 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. 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 much faster than the lot of utilities are able to react to. And so, you know, seeing that type of adoption as fast as, you know, the industry might hope. 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 through out here. Hannah, I wanna talk about your current role, but before we get there previously, you were at a company called PICE, trying to sell these grid controlling software to utilities. And of course, like they desperately need that stuff. And yet, it was frustrating thing many times. And I'm sort of curious about, I wanna kind of 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? Well, I'll give you a slightly different perspective. I don't know that a gigawatt of global projects is failure. Well, I mean, at the scale of the US utilities 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 with this sector is not, I would say, succeeding on this. 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 germ systems and that have been early to market our 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 Durham system because we have a lot of 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. So you'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 that 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 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. 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 at Tesla and every driveway. But let me tell you, with data center, demand with re-industrialization, 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. - Yeah, and I think if we just 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 the 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 an infrastructure company. - Yeah. - And so you put wires up in the air and you dig trenches and you put pipe lining 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? - Yeah. - 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. Those types 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 mineshaft and skillshaft shift. - 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 the 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. - Yeah, and I'd love to hear from Hannah who's seen a lot of other utilities around that 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 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, whatever you might want to call it, to fit our needs. And so, this is where the product development skills that really comes into play, Dave, where you're not just testing something and saying, oh, here's the reason why it doesn't work. Thank you very much. We'll talk to you in four years when you can get it done. A product development mindset would be, hey, listen, we're going to 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 going to get it to 100%. That's a different mindset. - But isn't that what the pilot program is supposed to do? I mean, isn't that what a pilot is? - Yeah, I want to challenge the mindset a little bit because I think 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 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. - Well, we'll try that thing over there. And I think we'll hear more from Quinn about some of this innovation muscle and you do have to create safe spaces to fail in a utility and sandboxing and trying these 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 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 plan 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. - How common is that in utilities, right? Like I think intuitively you'd like to think they would have that. - More common than not, but everybody's foundation needs some work. So 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, 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. - Yeah, I would also say like, you know, the digital spine is one thing, but like your data quality on that digital spine is on other ball of wax. So like utilities writ large may have that digital spine available, but either the data that they have in their system 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. - 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 Hannah'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 micro grid level and still utilities don't seem to be using that information. Like, isn't that information out there? Is it the data out there from all those smart meters? - I would say yes and no. I would say a lot of the smart meters that are out there are your, when I would consider your flip phone type of smart meters, right? And so, you wanted browse the internet on a flip phone good luck without, 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 weed your meter. Some of them might weed voltages, Some of them might send that back, it really just depends on where you're 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 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. So, you know, you can't program and flip phone to run massive apps that enable you to do all the things that you want to do when you're talking about on your podcast to until you get to that related infrastructure. I'm sorry Hannah, I know I cut you off from. No, it's all good. I'm going to come back to this. Hannah, we interrupt you, but how much of that data layer that you're talking about here, you got two more on your list, but the data layer that you're talking about, how much of that in your experience do they have that data to work with? 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. Yeah, it's all a blur, it's all a blur. 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. We, as an industry, have more data than nearly any other peer industry, I think healthcare might hit higher than us. 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 this is really the gift that AI is going to be able to give us and the 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? 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 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. Yeah, do you have that digital spine, is your data usable? Do you have a clear point of view on what you're migrating and modernizing and have you integrated AI into that vision, that's the step one, the step two piece to get through these quickly, the step two pieces 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 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 and 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 because that's what I live and work with, have you skilled people up and 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? 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? 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 to the org chart, you know what I mean? How much of this 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. 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. And there's a big difference between the people who report to me in the people that I and my team partner with on projects. And I think I said it a big tech company, it's not a utility, but I think you're going to see that more and more and more and more in already in some companies and 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 going to see this shift, but Quinn, are you already seeing it today? Yeah, I would say structure is just a small piece of the overall issue for innovating quickly. There's a couple 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 never going to work. The strategy is usually the top level strategy of the company or the utility that you're talking with. So the right KPIs at the very top that you can then attach your innovation to and say, we're going to make a difference on the following KPIs and move it from this to this. And that is the what are KPIs Quinn key performance indicators. So like whether it's your reliability key performance indicator, whether you're a 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 is a question regarding whether you go centralized versus decentralized and what's the best way to do that? 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. Hannah 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 process for innovation and product development. Venture companies use it all the time, startups use it all the time. But you know, utility does it have an innovation process? You mean process, just like iterating, assessing, et cetera, just a process for development. You have the IDA incubate, accelerate, and scale. There's different words depending on how it looks and salt and you talk to, right? They all brand it a bit differently. But like, you know, you want to take all these ideas. You might have hundreds of them and would it down to ten? Your no rate should be at least 90% of greater of every single idea that comes across your desk because you don't have the capacity to do all this related stuff. Then you have the incubate process where you really want to get down to what is this going to achieve for my business? Do I have an operating model? Do I have the business plan? Do I have the go-to-market strategy? These are all terms that 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 going to make it. The accelerate function is like, okay, I'm going to take by quarter what am I trying to achieve? And if it doesn't hit those particular success metrics, we're going to fail it. And we're just going to move on to the next thing. Too many times 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 going to 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 going to 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 got to have the process too. You can't just deal with this on structure alone. And I think kind of 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 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 want to buy that is not worth your time to innovate? It is not worth it. your time to rethink, you just want to go buy it. Do you know what you want to build? That is probably a pretty thin list, 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 want to be in charge of the care and feeding out long term? And what do you want to own 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 securely over time. And so what do you want to build? And then what do you want to buy and build with? And I think this is the fastest changing part of the industry. And Quint touched on it earlier too. What do you want to 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 going to 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 blue brands. 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, hucking you at $10,000 contract, but they understand intimately your strategy and they're part of your success team. And that's a muscle. Let me surface what might be a slight disagreement. Maybe between the two of you are just flush it out a little because Quint, one of the things you're 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 Hannah's business model, at this point, I mean, I don't know if she agree with this characterization, but it kind of 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, your, your, your bereft is there a tension there? Both of you. Let me reframe a little bit first because I want to 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 going to run your core systems. A subset of them are going to 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 going to do innovation and create the future together work. And those aren't mutually exclusive. You could have the same logos in the same buckets, but you're going to 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. 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. Yeah. And so it's definitely not a replacement of. It's high five and let's go faster together. Yeah. I don't think Kenna 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 use our 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 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 percent. And I think and and are saying the same things here. Here's what I would tell you though is that this whole build by partner thing just has to be careful in the fact that like I can hear my CIO and CIOs across the entire country out there. So like if you start to have a thousand applications that you're working with on all these related startups, you have data flying everywhere. Yeah. Have all these APIs that you need to maintain and like the cost structure just becomes instrumentable. And so we have the way do I want to work with a startup or even a small technology company versus do I want to build this with the partners that I already have the big partners like Schneider SAP Oracle you know and build it do 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 a strategy for a lot of these startups. So some of this is us playing like a matchmaker related and Microsoft does this really well. I'm 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 Jevrenova or work with them through Schneider or work with them through SAP Oracle you might have a better chance of success and so that's the balance. Well in addition to the sprawl and the budget sprawl presumably there's security questions too I mean everybody it was 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 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 etc etc. David I want to punctuate this because it's even more we've always talked about attack surface area and endpoint 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 going to 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 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 you've got to 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 now to come back to 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 people in C-suite and you're 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 and this carries 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 like we don't back call 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 yeah I would say like I'm not trying to say I'm not going to 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 not 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. 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. Yeah. So 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 needed 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. Totally. And I think for me, one of the mindsets that I am 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 going to see some more shift on that process front 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. Well, Hannah, 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 going to get there as fast as we need to get. So I'm always 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? Hey there, everybody. Don't worry. I'm not going to tell you about a new mattress or push a credit card on you. This isn't an ad. There are no ads on volts. It is supported entirely by listeners like you. If you'll indulge me for a second, I'd like to ask for your support. I started volts because we're all surrounded by depressing news about climate change and misinformation about clean energy. And it's never been more important to share the stories of the real people on the ground doing the real work of transition and all the ingenuity, encourage, and public spirit they are bringing to it. People are hungry to hear these stories, to learn from and find inspiration in them. I've heard from people who changed majors or careers after hearing episodes of volts. People using it in classrooms and community groups, even state legislators who have passed bills inspired by specific episodes. Sharing these stories matters. It makes a difference. If you have found value in it and want to help me continue doing it, I hope you will join the community of paid subscribers at volts.wtf. It's about the cost of a cup of coffee a month. If you don't like subscriptions, you can make a one-time contribution, leave a review on Apple or Spotify or just tell a friend about volts. I am grateful for any and all support. If you're already a paid subscriber, thank you. And now, back to the show. What is taking up those five to seven years? 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 turn it on 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 because the market is moving really fast, the capabilities are moving very fast. Future that I'm seeing is every company is going to use multiple AI models. You need that strong data foundation, but you're going to use different AI models to do different things. You continue to need those strong systems at the base, but you're going to 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 need are to cash, like supply chain ordering, like interconnection, like planning, you are going to 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 going to 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 preexisting culture around it as a software development capability. So I struggle not to use Agile, but the activity will require more agility. And this interesting and extremely important intersection is going to 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. 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 leariness about AI, you know, some of it informs some of it not. But like, it's true. 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. Well, and that's an important point to make. This is always a good point to remind everybody that our industry has 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 into core infrastructure. So that's the important part. How do we as an industry stay up to breast 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 methodology and a higher standard for anything that's about core infrastructure and corporations. 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. Yeah. And I think this is a really important, like understands false positive, 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. And I think, you know, you want somebody accountable at the end of it, especially on infrastructure. That's right. And something goes wrong. You want a human accountable. Yeah. And there's like, for example, if you start to do AI informed asset health because you have all these sensors out there and they're telling you, you know, how the polls doing or how the wires are doing. And if you have a whole bunch of false positives, your maintenance program is going to be under water. 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 going to be really important. Now, one day, you may find yourself in a position where that type of dynamic doesn't require a human in a loop because the technology isn't 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 your right day is that higher you go, the more consequences they are, the more careful you need to be. And that may lead to what may be considered slowness from the utilities perspective on adopting some of these technologies. And this is an area I spent some time recently with Eppery, which of course plays a big role in disseminating innovation out across our industry globally and helping us innovate together. This is the utility trade group. Yes. I think of them as a lab for the industry. Let's have 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, but they announce 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. 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. I want to double down on that like they're one of the things that you'll hear is the sales cycle and the 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 the utility it's like a three-year sales cycle and then I get one utility and then I get you know I have to go to another utility in the sales cycle is three to five years and it's just super slow. I think you know organizations like every could be really helpful in doing you know I love the concept of advanced market commitments like there could be a gym maker 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 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 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 right and so let's say PG&E is going to 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 every 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 to they'll put up let's say ten million dollars 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 ten million dollars your one you puts I don't know seven ten utilities together for that you get a seventy million to a hundred 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 ten 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 ten 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 there's a value for the VC community that gets that direction if we're going to be the kingmaker or the first mover and some of these technologies then we want some of that value to whether it's like really low cost and a procurement agreement for the next five years maybe we'll do a war and maybe you know there's other things that we can think about from the 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. Well quickly we're running out of time and there's a couple of key questions left I wanted to ask in this gets at one of them which is one of the things that we've not really talked about yet is funding 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 yeah I would say that a lot of this is talked to some of my peers and there's and they're 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 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 going to force them to do so by forcing them to gather money allocated yet 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 sent 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 $152 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 going to move the needle especially in areas of affordability these days 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. California is somewhat unique in that though Hannah 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? Two pieces on this the first is that a lot of the utility rate making mechanism is about CAPEX versus OPEX and I do think we are in yes it's really important certainly not just because of AI but because of how we started this conversation with guests 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 poll or a wire or a sensor yes 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 go 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 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 and IT those are traps and I think the evolution I really want to 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're 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 show up in your state, it needs to become a muscle and become part of how you deliver against your metrics. 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 you to ask this whole hour, which is if the utility spins 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 the spot. 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 and invest your own utilities, 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? I would say there's a couple of things here. One is that used to be the case. And I would say that if you take a look at a lot of the utilities that had zero to two percent 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 data retard that may have been the case and 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 because 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, 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 going to 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. I would say there was a swing where all of these data centers happen very quickly that cause all this infrastructure to build that we built out that then caused this lag on the generation side and more broadly, 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 rate side isn't on the top of executive's 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 got to think about protection, you got to 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. 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. Yes. It's like hardening infrastructure for capital, everybody's going to be coming out of their years with capital. Now it's going to 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 low 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 going to 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 and M related expenses, operation management, 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 rate payer the next year, right? Yeah. A capital project that's $300 million that's spread over 40 years hits the rate payer 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 and M expenses on our books just because next year, that's going to hit your rates and a capital project can spend a lot more money. But hit the rate payer is 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. Hannah, 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? 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 cap excite of the equation. Technology is 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 going to 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 us in 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 going to 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 going to maintain affordability over the long run. I have a lot more conversations about how we use technology for that than I've seen 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. All right, Queen, any final words, any final advice to utility executives out there before we wrap this up on how to innovate faster and better? Yeah. I wanted to reiterate what Hannah 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 going to have gaps to those targets where 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 going to 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. You know, 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 read 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 mentors. our VC mentality or venture process to be able to do this for you and we can do it very fast. Let's not do this in five to seven 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 be 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. All right, Hannah, any final words? 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. Engaged the smart people in your team, getting a room, grab a whiteboard and think about how you would fundamentally rethink and rerun 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. All right. Well, we'll wrap it there. We can talk about this forever. It is a hot topic. I'm sure and we'll remain so for many years to come. So thank you too for coming on and sharing your perspectives. Thank you. Appreciate it. Thank you. Thanks everybody. You've been listening to Voltz, founded and hosted by me, David Roberts, produced by Nate Peevy and supported entirely through the generosity of listeners like you. If you enjoyed this conversation, please consider telling a friend about Voltz. That's how this show grows and survives through Word of Mouth. See you next time. [BLANK_AUDIO]