GridX's Scott Engstrom explains how utilities are using sophisticated rate design to manage unprecedented load growth and enable the clean energy transition.
Fifteen years ago, Scott Engstrom thought utilities were boring, bureaucratic organizations where people went for job security. But after co-founding GridX in 2010 during the smart meter era, he discovered an industry full of dedicated people tackling complex challenges.
GridX went the next five years without a paying customer. Then, in 2015, California mandated time-of-use rates, and the start-up found its footing. Today, Scott helps utilities nationwide design and implement sophisticated rates for a variety of programs, from electric vehicle charging to demand response programs and virtual power plants. Because as load growth from AI data centers and industrial customers strains the grid, sophisticated rate design has become more critical than ever.
This week on With Great Power, Scott outlines how rate design helps utilities manage unprecedented load growth from data centers and why "growth pays for growth" protects existing customers from new infrastructure costs.
Credits: Hosted by Brad Langley. Produced by Erin Hardick and Mary Catherine O’Connor. Edited by Anne Bailey. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor. The GridX production team includes Jenni Barber, Samantha McCabe, and Brad Langley.
Brad Langley: Hey, it’s Brad.
Even before the conflict in the Middle East led to surging gas prices, energy had already been all over the news cycle — from communities protesting rising electricity rates, to wind and solar rollbacks from the Trump administration.
It seems like everything is about energy lately. In fact, according to Google Trends, news searches with the keyword "utilities" skyrocketed this past winter.
So today, we’re returning to an episode from last season, when I sat down with GridX co-founder Scott Engstrom.
Much of our conversation focuses on how rate design and programs are evolving — and how GridX is empowering utilities to better connect with consumers.
Enjoy the show. We’ll be back with a fresh episode on May 26th.
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Brad Langley: 15 years ago, Scott Engstrom had an underwhelming impression of the utility industry.
Scott Engstrom: My perception was similar to the general perception of what utilities and the people who work there were like, which was these are maybe not your most motivated crew, like a semi-government job. So you go there for job security and maybe not the most adventurous or smart or energetic or hard charging.
Brad Langley: But despite his perception, he still wanted to get in on some of the new action really shaking up things in the power sector.
Scott Engstrom: It started in the mid to late nineties. There was a time when the U.S. utility industry was going through deregulation. Almost all 50 states were considering some of this idea of deregulating their utility and allowing for competition for the supply of energy. And it was a really interesting time because this industry that hadn't changed for 90 or a hundred years was now looking at a wholesale financial business model change.
Brad Langley: Over the next decade, as Scott dove into the world of utility investing and stock trading, he learned his original perception of the industry was way off.
Scott Engstrom: These people worked really hard, and they really cared both about the company – they're very loyal to the companies they worked with – and actually really cared about customers and treating customers well. And so for the most part, all of those stereotypes that I was led to believe turned out to be wrong.
Brad Langley: By the late 2000s, a new wave of disruption was taking over the power sector. Smart meters had hit the scene and that gave Scott, who is now deeply entrenched and inspired by this industry, an idea.
Scott Engstrom: We really built a set of software that was meant to support what it meant to install smart meters at a utility. And what changes that meant for lots of things in the organization, but particularly for us, was around the fact that smart meters were going to enable a new set of or new type of rates and programs that utilities could offer their customers. And we were going to conquer the world with our new software.
Brad Langley: Unfortunately, Scott and his fellow co-founder Jian Zhang were a little bit ahead of their time. And their new company called GridX – yes, the same GridX where I currently work – went five years before finding a paying utility customer.
Scott Engstrom: So we spent those five years really going to all those utilities that did invest in smart meters and showing them what we could do with our product, which was essentially a really agile, complex rate engine that could support all the new rates of the future. And they all sort of gave us very nice pats on the shoulders and said, ‘Well, we're really proud of you. Good job. Someday we're going to need this software, but it's just not today.’
Brad Langley: But that all changed on July 3rd, 2015 when the California Public Utilities Commission (CPUC) issued a monumental decision for Scott and his scrappy startup.
Scott Engstrom: The California Public Utility Commission had an open docket focused on what they called regulatory rate reform and, in particular, time of use rates and even more specifically about making time of use rates as the default rate for residential customers in California. We had been investing in our software to support that. And so once the commission gavel went down and the order came out and they actually approved this, we were obviously really excited at GridX, not just because of what it might mean for our business, but because we really believed that these rates and new programs will have real impacts for climate change and the clean energy transition.
Brad Langley: And ever since then, as rate design has continued to evolve over the past decade, Scott and his team have been working with utilities to deliver different kinds of rates to customers and educate those customers on how the rates actually work.
This is With Great Power, a show about the people building the future grid, today. I'm Brad Langley. Some people say utilities are slow to change, that they don't innovate fast enough. And while it might not always seem like the most cutting edge industry, there are lots of really smart people working really hard to make the grid cleaner, more reliable, and customer centric. This week I'm talking to Scott Engstrom, co-founder and chief customer officer at GridX.
Scott Engstrom: We believe that end customers have to know more about the cost of energy and that how they use energy impacts utility's ability to change the energy they supply to their customers. And so our mission is to help our clients like utilities and their customers understand the exact value of their clean energy choices.
Brad Langley: Today, Scott works with utilities all across the country to implement rates for various programs from electric vehicle charging to the more classic time of use rates mandated by the CPUC now over 20 years ago. And as the economy has grown to be more reliant on electricity, so has the complexity of rate and program design. So I asked Scott about how some of these new electricity users are impacting rates. But first I asked him how he actually ended up securing his first paying customer after CPUC's 2015 mandate.
So it obviously had an impact on the California IOUs like PG&E, Southern California Edison, SDG&E. How did you start to approach utilities like that knowing that PG&E is a customer of ours? What was that process to approach PG&E and start helping them comply with this new requirement?
Scott Engstrom: Utilities in general have been always a little bit shy about working with startups and new companies. They always feel better when you have another customer. So even in this case where there were requirements from the public utility commission to do rate education and outreach and marketing about how these rates would affect customers and their bills and how they might be able to do better on those rates, there was obviously still some, maybe not obviously, but there still was some reticence about working with a startup like ours. We had been engaged with those utilities. This didn't come completely out of the blue. We had been planting seeds with the utilities that these were capabilities we had. Of course, they wanted to wait to see the final order and to see what the commission was going to require them to do. And once that happened it became clear that the utilities were going to have to send regular bill inserts or letters to customers – I think it was on a quarterly basis or it might've been twice a year – letting them know what time of use rates meant for them.
That's no trivial exercise. I doubt many people have thought about this, but say both PG&E and Southern California Edison have around five million residential customers to do this kind of analysis. For five million customers, you've got to calculate 12 bills for each of those customers. That represents one year's worth of data on the current rates that the utility offers. And then you have to do that on the alternate rates, the time of use rates that the utilities were considering. So if there were two or three options they were considering that could be 180 or 240 million bills. So this is way beyond a spreadsheet exercise and something we had been investing in to really differentiate ourselves as the solution provider that could help both PG&E and Edison and the other utilities in California.
Brad Langley: So supporting rate education was part of GridX's original product offering, but the company has expanded significantly since then. Spend a minute or two walking us through how GridX's offerings have evolved.
Scott Engstrom: We thought initially GridX was going to be a great solution for billing and for back office, and that was a little hard sell. As a very small company handling millions or billions of dollars of revenue for the utilities, that was a hard pill for them to swallow. But then when this idea of rate comparisons came up, the stakes were not quite as high. If you get a rate comparison wrong, it doesn't affect the utilities financially. It may affect their reputation to a certain extent, but also in analysis, you do have a little bit of room to be not penny level accurate. If you're off by a couple of pennies, you can live with that. But we started thinking that there's a lot of systems out there that manage the meter to cash business process for utilities that probably most of your listeners are familiar with, which is really solved by a system called a customer information system and meter data management systems that help the utility really bill customers and care for them.
And that's a really important business process. But the emergence of things like time of use rates and the problems they were trying to solve, we saw the emergence and the opportunity really to help utilities with a different cycle, which we call the utility product or rate lifecycle. Kind of taking a different approach to utilities and having them think of themselves more like consumer product companies – that they have their rates, and their programs should be thought of more like consumer products. Think companies. Think of their products and services that they sell. And so in the utility industry, we did really want to get the utilities to change their mindset and think about themselves as more of a product company because more products and services were going to be needed to meet the kind of decarbonization and electrification goals that they were trying to achieve. And they were going to have to figure out which products and services their customers responded to.
How do they create the kind of demand flexibility they need and how do they become good? This is a muscle that the utilities didn't typically need to have before the clean energy transition. They just didn't need this. So we really started thinking about what is the utility product lifecycle? And that includes everything from designing new rates and creating the data and testimony that utilities need to bring it to their regulators and validate why those rates or products are needed or how they will impact customers or the utilities’ revenue and provide the utilities with tools to create different structures and ideate on the way programs might be able to work and have them have a real data and analytics based approach to understanding those. And that lifecycle continues then from once the rate's approved to now someone is a traditional product manager. More and more we're seeing with rate design that the rates are meant to potentially change customer's behavior. We have a set of solutions that help those product and program owners be successful at driving enrollment and participation in the rate and ultimately success. And then of course, the last piece of that lifecycle then is operationalizing that rate, making it available to your customers. And that's where we've come back to our roots a little bit. And some of our utilities actually get these operationalized and make them available for billing for customers.
Brad Langley: What other trends are you seeing now that makes this revolutionary idea of a rate and program lifecycle so necessary?
Scott Engstrom: Yeah, for a long time when we met with customers, we would show them a graph of the duck curve here in California and talk about how that certainly has happened in California, may happen in their state as well, at least directionally. And then on top of that, we were seeing, we continue to see lots of investment in renewable energy, which is much more intermittent replacing fossil fuel coal plants. And so we were painting a picture about how those two trends were going to create mismatches in supply and demand and the way that they could solve for that was through rates and programs that created price signals for things like battery storage and electric vehicle charging and things like that to help manage those times of day when you had excess supply or excess demand. And I think that's really true, but certainly have to recognize the politics of the day.
And the current administration is I think providing some headwinds to the decarbonization movement. What we do see not as a replacement, but in addition to that is this large load growth being a real force for utilities, having to again look at rate design and think about rate design for a few reasons. One of them is the demands from customers are exceeding the supply and the capacity that the utilities have. So they're scrambling. We work with a lot of our utilities, we work closely with the key account managers who manage the largest customers and are dealing with the large load growth as well. And they are looking across their system to find capacity for this load growth. It's not all AI data centers. Those are the really big chunky ones, but there's a lot of other large industrial customers that are just growing their businesses and need more power from their utilities. And so we talk to them about the ability to use demand side resources, which is calling on your customers to respond to price signals and rates and programs and use less energy at times where the economics make sense for them through the rate and program. And so we are seeing a real need from the large load growth to reconsider rate structures and innovative new programs to support that. Not to mention the tariffs for the large data centers themselves.
Brad Langley: When a utility gets a request for a massive data center, or in some cases maybe two or three, what are the key rate design considerations they should be thinking through?
Scott Engstrom: In the case of large data centers, the amount of infrastructure investment required to support those can be really high. And the way utility rates work is that oftentimes that investment is spread across all customers. So in this case, it's more of almost tariff design than rate design in the way that we talk about it colloquially. And those tariffs are really important to get the risks and rewards between the customer classes at a utility. I think there's been a common phrase that I've heard a lot at conferences: growth pays for growth, which means if I'm a large new customer and the utility is going to have to buy a new substation and build new transmission for me and a lot of investment in infrastructure just to hook up my data center, and that's going to cost whatever, 10 million, a hundred million dollars, that customer's on the hook for that amount.
And then we've seen the other structure where the utilities have more of a take or pay type of arrangement. So the big worry is they're a customer crying wolf. They say, I need you to set up all this infrastructure for me because I'm going to set up a data center. So if the utility goes and spends that money and gets it all set up, but the data center never comes, who's on the hook for paying for that? And so we've seen in the tariff design and the dockets that we've seen around the country that the customer again is on the hook for a minimum payment on an annual basis or something that really covers that cost of infrastructure to set up. And then if they actually use the energy associated with that, great, but they certainly can't harm other customers. And I think that's a consistent theme we see is how do we create these tariffs and rate structures in a way that the system can benefit from bringing in the new load and the new customers, but the customers who otherwise shouldn't be subject to any punishment for a customer that never shows up are protected in that rate structure.
Brad Langley: I gather you take this as a real concern. This has to be a focus of utilities and the large data center operators to ensure that customers that aren't using that energy aren't disadvantaged. And are utilities recognizing this and do they see that as a real concern?
Scott Engstrom: Definitely. I think that we want the U.S. to be a leader in AI, so we want to create an attractive business environment for the data centers to get set up. We want them to do it quickly. There's a real challenge with supply chain and just getting the infrastructure in place to get the generation, the supply of energy in place to support them, even if you could agree on what the tariff structure is just getting all the facilities in place. And so there's this sort of, I think, interest in what's best for the country and how we want to grow that industry and support it. And it's really exciting to be in an industry like utilities, which is one of those often taken for granted industries to now see it in the center of something so important and in the public eye. And so that's really exciting.
I think for our industry it's both a real great opportunity as well as potentially really big risk if this turns out as some are worried about that the demand will never materialize or it's being way overstated and we put in a lot of infrastructure and cost to support this demand and it never shows up. So I think those are really important factors that the industry is grappling with. And I'm really excited about where this goes. Of course, I would love the U.S. to remain at the forefront and for our utilities to grow and prosper by supporting the AI growth.
Brad Langley: Spend a little time talking about demand flexibility more generally. Demand flex is becoming critical with supply chain constraints limiting new generation. How can rates and programs help flatten load shapes and manage peak demand more effectively?
Scott Engstrom: Certainly what we've seen really consistently at a probably smaller scale are the time of use rates at utilities we've worked with, really in some cases create pretty sensational results. One of the best results we have is one of our customers in Southern California calculated that during one of the heat storms here in California in 2022 on one of the peak days, customers responding to that price signal in the time of use rates to reduce load by 75 megawatts, which at the time was equivalent to about their third largest demand response program. And you probably know, Brad, demand response programs can be pretty clunky, expensive to administer. Time of use rates can be a much more simple, elegant solution to that. So in any case, I think that demand flexibility, as I mentioned before, that as our industry has changed, as more and more customers have put distributed energy resources behind the meter, it just creates a lot more variability on the system.
I think sometimes this gets framed as an inconvenience to customers, and I might put it opposite. I might say that this gives an opportunity for customers to manage their bills. There are a lot of customers who have flexibility in the way they use energy, and if the utility was to offer me an incentive to use less electricity at a time when I didn't need to, if I was a business or a residential customer with an electric vehicle, I'd be happy to take advantage of that opportunity and reduce my utility bill. So it's often positioned as an imposition on customers, but actually demand flexibility and programs and rates that are structured in the right way can deliver a lot of benefits both to the customer and to the utility and the grid. So one other example that we hear a lot of these days that certainly the FERC and others have been a lot of papers released about what VPPs or virtual power plants can do to demand or the peak periods help create demand flexibility.
And that's definitely true. We see those companies that are out there that are aggregating loads through things like thermostats and electric vehicles and batteries and other resources have a real potential to do that. And we're really excited about that. And in fact, in particular at GridX, I think we're doing a couple things to really accelerate how VPPs can be successful. One is you have to get those devices out there, so you have to have customers with the thermostats, with solar on their roof, with batteries in their houses. And certainly there are early adopters who are very interested and know well the benefits of these, but for a lot of customers, they're just sort of curious, interested. And we have invested heavily in helping them understand the economics of these behind the meter resources so that utilities with incentives and rebates and really have a great value for their customers just in owning them on their own, not to mention participating in a virtual power plant program.
So that's a product we call GridX Explorer, and we think it's really important to help customers as they look at more and more of these options and they become more and more economical. And then of course, you have to have the right tariff, the right rate, essentially for customers to be on who then are willing to give over control of those devices to a third party who in that control can be flexible. So helping the utilities design the right rate that create the incentives for customers to recognize the savings they're expecting and the economics they're expecting from acquiring those behind the meter resources.
Brad Langley: Scott, we've worked together now for about three and a half years, very happily for me at least. I know you're a fan of the show. So this question should be on your radar here. What superpower do you bring into the energy transition?
Scott Engstrom: Well, if I say humility, I think that's too much of a contradiction, right? I like to think of myself as humble and not taking myself too seriously, but I think the superpower that I really truly like to think I have, I hope I have, is the ability to see both the big picture and in detail, particularly at least when it comes to the issues that GridX is focused on. I think my background we talked about in finance and thinking about things at a very high level across lots of utilities, across lots of states, helps me see the big picture in that role. I was talking to CEOs and CFOs, so having a perspective into what's important to the C-Suite helps me think about how GridX should be helpful for those big pictures and solve big strategic problems for utilities. But then having been at a small company for so long where you had to do everything, including working with the customers on implementation, it helped me really understand the details of how do you make this all happen? What has to happen at the detail level, at the individual customer level with the systems, with the integration? So being able to bridge that high level strategic thinking with low level understanding of details, I think provides me with some superpower.
Brad Langley: Agreed. Well, Scott, thank you so much for coming on the show. I loved our conversation.
Scott Engstrom: Thanks, Brad. Thanks for having me on With Great Power, my favorite podcast of all.
Brad Langley: Scott Engstrom is the co-founder and chief customer officer at GridX. With Great Power is produced by GridX in partnership with Latitude Studios. Delivering on the clean energy future is complex. GridX exists to simplify the journey. GridX is the enterprise rate platform that modern utilities rely on to usher in our clean energy future. We design and implement emerging rate structures and we increase consumer investment in clean energy all while managing the complex billing needs of a distributed grid. Erin Hardick is our producer. Anne Bailey is our senior editor. Stephen Lacey is our executive editor, Sean Marquand composed the original theme song and mixed the show. The GridX production team includes Jenni Barber, Samantha McCabe, and me, Brad Langley. If this show is providing value for you and we really hope it is, we'd love it if you could help us spread the word. You can rate or review us at Apple and Spotify, or you can share a link with a friend, colleague, or the energy nerd in your life. As always, thanks so much for listening. I'm Brad Langley.