Smart Grid Forum

Yesterday I attended a pretty interesting forum at UCLA, titled “Smart Grid Thought Leadership forum”. The program included several speakers form the industry, government / regulatory agencies and academia and has refreshed my view of the field.

There were a few memorable quotes and comments that I remember:

Commissioner Peevey was the keynote speaker and made some interesting remarks. Unfortunately, I missed most of his speech (thank you LA Traffic), but the few bits I heard cought my attention. The most interesting one was about the current rate design, and how it needs to be changed. This is a big deal – the changes, if significant, will not only impact the end customers (obviously) but they will shape the incentives for the industry as a whole, at least in California. Rate design changes can decide whether your solar panel installation is cost-effective or not, and what the savings are of buying a plug-in hybrid or an EV. (note to self: I can probably write a whole post just about this…)

A gentlement from Schneider Electric, who’s name escapes me, had an interesting speech, and really got me thinking. I guess his title of “Smart Grid Evangelist” was appropriate.

  • Smart Grid is like a Frankenstein“. Essentially, a lot of pieces of the grid were build independently. Some were installed decades ago, if not a century ago, and now we’re calling it all one thing. To me, this is not a statement meant to knock on what we have, but just to recognize that we’ve been building the US electric grid for over a century. We can’t just plug in a few smart meters and say it’s transformed (nice unintended pun there). It will take quite a bit of infrastructure investment, technology development, user engagement etc. to get it all working right.
  • “Angry Birds is activated (played) 500 million times a day”, while very few people check their energy usage daily. Obviously, there is something a game has (fun factor?) that doing a small bit to save $$ and environment doesn’t. This really zeroed in on the customer engagement piece for me, an issue commissioner Peevey highlighted as well. Maybe a good business idea would be to make energy saving / management into a game? I’m not sure how to tie Angry Birds into it, but maybe some sort of Sims game could? Make it more competitive and social, and challenge your friends on who can save more? The “social” part brings me to the next point:
  • People want recognition for being “green”. The example this speaker brought up was the Toyota Prius sales vs. Honda Civic hybrid. I didn’t fact-check his statement, but he mentioned that the two vehicles have virtually identical specs and features, yet the Prius outsold the Civic hybrid by 9 to 1!! Even if there are some performance and price differences, this discrepancy is hard to explain – so the explanation he offered is that a Prius makes a clear statement that you are different. You have a car that is obviously a hybrid, and therefore you get the “green” credit for it from your peers, neighbors and fellow drivers. A Civic hybrid has a small sticker on the back, which most people don’t notice. I think this recognition piece could be leveraged by making energy management (i.e. changing your use based on price signals and/or grid conditions) more of a social activity, if not exactly a game. Maybe creating a fundraiser type program, where a portion of your energy savings goes to a school or charity of your choice – and they in turn recognize the top donors.

My overall impression is that while we’ve come a long way, there are numerous technological, business and regulatory challenges ahead – and things are not going to get any simpler soon.

Berj for Judge

A former colleague of mine, Berj Parseghian, is running for Judge, and I figured I should write a note endorsing him. I’m just excited that someone I know as a very intelligent and reasonable person is interested in a public office of such importance.

How often do you hear people complaining about various injustices in our society? We’ve all heard stories of criminals and thieves getting away with it, or even worse, stories of innocent folks behind bars. Well, many of us just complain or lament about it – but a few try and do something to change it.

Thinking about it, actually man folks out there don’t even vote, let alone run for an office! So folks, do your civic duty: register to vote, get informed, and vote in the upcoming elections.

Lottery Tickets – bad investment, just fun, or is there more to it?

As of last Friday, Mega Millions lottery was at almost 300 Million, and it’s currently at 356 Million! This has a lot of folks buying the tickets, hoping for early retirement and dreaming of what a dollar can buy – but is this just a bad investment, good fun or just a voluntary tax payment?

I’m sure many of you have heard the adage saying “lottery is a tax for people with poor math skills” and similar statements. These are based on the fact that the expected return on investment (ROI) for a lottery ticket purchase is at best 50 cents on a dollar, as that is the percent returned in form of player prizes. Per California laws, administrative expenses can be up to 16%, and the rest (“profits”) are given out to educational institutions. Based on these numbers alone, buying lottery tickets is a very poor personal investment choice, especially considering that any winnings are taxed as income – further lowering your expected “ROI”.

A more favorable view is to look at it as an entertainment expense. For example, last Friday a dozen of us pooled $2 each and got a stack of tickets. This probably led to at least 15 minutes of “what if we hit it” fun chatter, and maybe a bit of a thrill checking the tickets once the numbers came out. To me, $8/hour sounds like a fair entertainment expense rate – on par with movie ticket prices these days. (To be exact, it’s $4/hour, as 50% would be our expected “ROI”)

Also, while I’m not in the “please tax me more” crowd, I do feel good that part of that money is going to support public education – this is where most of my charitable contributions go anyway.

All this summed up, I would argue that limited purchase of lottery tickets is actually an excellent investment, as long as it fits your entertainment budget.The last statement is key – if you’re purchasing the tickets with money that otherwise would not be in your entertainment budget, you are indeed throwing away 50 cents on the dollar. However, if your trade-off is with another entertainment expense, you are ahead here – as you actually have a chance of a positive payout. Think of it as choosing to see a movie in your usual local movie theater, or in the special lottery theater, where you have just as much fun, but on average you end up getting half your money back after the show. As long as you value the two “shows” the same, it’s an easy choice to make.

I also emphasize the “limited purchase” part. While each person may give different entertainment value to things they do, I would argue that buying $2, $20 or $200 worth of lottery tickets gives most people essentially the same entertainment value. Sure, higher stakes may get your adrenaline flowing, but I consider checking 200 tickets a bit of a drag.. and I’m not going to dream of being a millionaire 100 times more. Basically, I see diminishing marginal (entertainment value) returns with incremental ticket purchase, which is why I would encourage everyone to think twice before buying more than a few dollars worth of tickets.

What do Balance Transfer Offer terms depend on?

So I am looking through my mail today, and I see two balance transfer offers from a single bank, one offer for each credit card account I have open with them. So far, nothing strange – it’s not unusual to get competing offers with different terms from the same company, maybe something like:

  • 1 year fixed 0% APR, then xx% APR
  • 18 months fixed APR, then yy% APR
Where there are trade-offs between various options.
What I found interesting this time is that the two offers were for identical terms, other than the APR – one offering a rate that was 4.75% higher than the other! Now, assuming that the interest rate a bank charges you is a function of your credit-worthiness (how likely are you to pay them back), bank’s hurdle rate (desired ROI), and maybe even your previous relationship pattern (i.e. previous borrowing and repayments). Well, all three should be identical here, since it’s the same customer, lender as well as the relationship history.

What gives?

Interesting to note is that the card offering higher APR is the one I got back in college, when my income was peanuts, and credit score barely existent. On the other hand, I opened the other account more recently, as a working professional with an excellent credit score. I am speculating here, but it seems that the older credit card account is stuck in the “higher risk / more needy of credit / has less choices” customer bucket, while the other is in the “low risk / less needy / more choices” bucket. I am just speculating here, but it sounds like a reasonable explanation..

Another possibility is that it’s some sort of “Predictably Irrational” reasoning in play – where they are throwing in the obviously inferior offer to make the second one look more attractive.

Any thoughts?