Mark Gerencser and Gary Rahl Booz Allen share their thoughts on President Barack Obama’s 2012 State of the Union Address specifically highlighting energy innovations, infrastructure and the role of Megacommunities theory.

Full transcript:

Ben Lack: What do you think the President did with his State of the Union, can you give us a grade on the comments he made on energy infrastructure?
Mark Gerencser: The eight infrastructure principals we released represented what we hoped President Obama would cover in the State of the Union. The President didn’t touch on all those points, he touched on a few and not necessarily in exactly the same words, but then again recognizing this is a State of the Union address, some of these items that we have proposed might be a little more mechanical than speech worthy. That is somewhat understandable.I would say that there are some things he said that I was pleased he mentioned. I know there are some things he said in energy that Garywas pleased as well. But there were a number of things that weren’t said. Yet, there is one thing that I didn’t expect him to say, which was the creation of that new executive order. It gives me a great deal of hope, depending on its content and execution. If you are to recall from the President’s speech, basically, the intent behind the executive order,was to remove the bureaucratic obstacles that get in the way, the “red tape” as he called it for major construction projects.Cutting through the red tape is the right vector to pursue; it’s the government heading in the right direction. The government has to be an enabler. Fundamentally, the government has to transform itself from an inhibitor of the future generation of infrastructures to kind of an enabler, maybe the promoter, maybe the catalyst, not necessarily the funder.
Gary Rahl: I think there were some things in the President’s State of the Union that were positive. I think there were some sensible long-term views. One of the particular things that I liked about the speech is that it reflected not only questions of energy policy but he also talked about trade policy and the relationship to China and other manufacturing countries around the world. I think that it signals a more holistic view of the problem that would be important moving forward.I was pleasantly surprised by how much of the speech dealt with energy. I think he created some space for positive action moving forward. The details will matter a lot. I think the idea of an “all of the above energy strategy,” for example could mean one of three things; it could signal a willingness to compromise and put lots of things on the table that will be a cause for optimism for both sides and also to the energy arena; or it could just signal an unfocused, un-prioritized view of energy that will make it harder to move towards the national vision; or it could just be sort of a rhetorical flourish that turns up in a state of the union speeches from time to time.Time will tell which it is.
Ben Lack: I would also like to get your thoughts about comments that concern you. What did he say last night that erks you or that you wished could have been better elaborated on or you just don’t share the same view?
Gary Rahl: As I remember, the President mentioned last night an effort by the Department of Defense, particularly the Navy. He referred to it as purchasing clean power for its some large number of homes. Within the Navy, it is a program to purchase a gigawatt of clean power. I think that to me was one of those elements that sort of semantically is good but in the details he left me a little flat. I think semantically it is good; what I mean is I think it points towards the idea of the Department of Defense as an important element in moving towards our energy future, what I would like to refer to it as an “important intermediate market” for lots of innovative technology. I think the Department of Defense is that kind of positive intermediate market because unlike most consumers who really look at energy whether it is liquid fuels or electricity as pure commodity, the Department of Energy sees important mission impact and other objectives that lead them to a willingness to pay more for technologies that produce certain outcomes. But yet those technologies may not be quite market ready – commercial market ready. So, semantically that was a good area to emphasize.I think the particular idea of the Navy or the Department of Defense using its purchasing power left me a little flat because although the Department of Defense is the largest consumer of energy in the government and the government is mainly the largest single consumer in the country, it is still a miniscule fraction of all of the energy consumption that happens annually in the country. So therefore, by itself it doesn’t really offer much leverage to change the market. The importance of it though, is not so much on the purchasing power but purchasing power combined with the ability of the Department of Defense to enhance energy security and to partner with others in the private sector to start on a path towards a new energy future. I think that would be more exciting. The Department of Energy and Department of Agriculture are trying to develop about five hundred million U.S. dollars ($500,000,000.00) of matching funds for the development of an advanced bio-refinery. That may be a better example of the kind of mechanism and role that the Department of Defense can play in driving innovation in energy.
Mark Gerencser: I thought the greatest disappointment was that there wasn’t the kind of innovative or visionary discussion around infrastructure at all. The way the President and currently the administration are trending, they are speaking about how to fix what we have because it is crumbling. The things that Gary is highlighting here is re-imagining what the infrastructure could be. They are actually trying to improve return on investment in a way that allows us to leap frog in terms of performance for every dollar spent. So, rather than just fixing potholes or addressing the bridges that are structurally deficient, we need to  rethink infrastructure completely because infrastructure is a complex system. It is comprised of many, many elements. For example, think about congestion and how congestion in one city could potentially be resolved by actually interconnecting with another city in a different way maybe with a high speed rail or light rail for example. So, I think it gets back to the point that it’s not about just fixing the existing.The American Society of Civil Engineers looked at our infrastructures and found it to be in a great state of disrepair. They put a price tag of about two trillion dollars which is a lot of money. But we think that is not even the right thing to pursue. Infrastructure is so important to our nation because it represents the foundation of our national security. It’s the enabler for America’s competitiveness in many respects. And certainly, a governor in terms of quality of life for citizens. So it’s important; why just fix what we built and designed last century, why not build something that is dramatically better and that would make us more competitive, more secure and frankly more comfortable. That’s the element that I saw missing.
Ben Lack: Part of the approaches that the two of you are trying to take with the clients and just your overall approach to the industry is planning regionally and taking a holistic look at a long term plan. Elaborate a little bit on what that looks like from your perspective, provide us an example or two to give us some context and then how many can you think the administration is taking this approach or not.
Mark Gerencser: I think we can find examples where it has occurred in some limited areas. But a larger regional approach, driven by stakeholders who got together and decided there is an economic benefit or some other benefit to get together hasn’t occurred on the scale that it needs to.The best way to solve some of these issues is not to think about doing them in micro ways but more in macro ways. That means in the United States thinking about things regionally.One of the studies we did looked at the air congestion at Chicago. It’s one of the most complex and congested areas in terms of air travel today. We actually did an analysis that showed if you really want to address that congestion in an effective way, it wasn’t about building more runways per se or figuring out how to put more aircraft into tighter time spaces. It was about looking at mobility and looking at airports in adjacent cities and putting in mobility options between those. So, the solution was about looking to put in high speed railroad in Milwaukee. The problem is that Milwaukee didn’t talk to Chicago because there is no governance structure or any other mechanism that enables the separate entities to talk and therefore the solutions aren’t even seen. We think the Federal Government enjoys a unique perch on this particular problem where they can look more holistically across the states in the federal areas and allow things to come together in a more regional or collective area where you can realize gains that you wouldn’t normally realize when you restrict yourself to those localities. For instance, think about building a smart grid.  It’s not just about building the physical transmission wires, although that is important, but it is also the physics of the problem, it is also the business models that are interconnected, it’s the humans that are involved, it’s the notion of resilience and security. I mean, there are so many dimensions we never seem to be able to wrestle with all of those.
Ben Lack: Let’s say the administration adapts this way of looking at things or looking at how to implement infrastructure from a regional perspective. I would go out on a limb saying that this political climate is not currently up there, is not currently conditioned enough to make this happen, the question is what do we have to do to society or what is it that you have to do in order to change the culture to enable these types of ideas and strategies to actually be implemented and instead of just being discussed.
Mark Gerencser: That’s a great question.Have you heard the concept of Megacommunities by any chance?
Ben Lack: Yes.
Mark Gerencser: Okay. So you know, all about Megacommunities – there is a lot on the web to research. We think that Megacommunity notion provides a key part of the answer because you are exactly right, the political environment kind of makes it a barrier for the stakeholders that are important to collaborate and align together. Even if we had the political environment solved, you still have the problems of other stakeholders, you have folks who finance the infrastructure potentially, folks who own the element, folks who build it, folks who use it – all these stakeholders have to come together.We think that Megacommunities thinking provides a mechanism to actually achieve that. We have been studying this for years, and we are going to run what we call a simulation. We have done war games for the military. We are actually going to run a war game to test some of these regional and national vision and ideas. We are going to do that in the spring or summer of this year. We are going to bring those stakeholders and test out some of these concepts to show that there is an overlapping vital interest and that they think in a way that moves their mindset from kind of purely self-interest to one of shared-interest and optimization so that we can get people aligned and operating in this way.Our research on Megacommunities showed that they often come about because of a natural disaster that has occurred. A natural disaster motivates a set of stakeholders to achieve a common objective. The question is: can you do that without having a natural disaster? We think you can. It’s just a matter of having those stakeholders realize that there is an overlapping vital interest and by acting together they might even avert a disaster whether man-made or natural. We think there is a great promise in the Megacommunity theory of getting the players together. We are going to test that this spring or summer by actually running a simulation or war game for infrastructure national vision to see if we can get those stakeholders aligned.
Ben Lack: That is pretty exciting. I hope that you guys will keep us in touch about how that goes because we would love our audience to know about it, that is definitely something that’s very much on the forefront.
Mark Gerencser: Sure! We can also send you a piece; there is a piece that Gary and I collaborated on, called “Reimagining Infrastructure” with an American Interest magazine. I recently spoke at a Morgan Stanley webinar with 250 infrastructure investors. They have several billion dollars they want to invest in infrastructure. Initially, they want to invest it but there is not much deal flow because of these barriers. There is money there that is not federal money that can be used. We could send you a piece about how to apply Megacommunities to this construct. As a matter of fact, we are still formulating the players in the game. If we have some press there and if you are interested we could invite you.
Ben Lack: That would be great! I would appreciate that.
Mark Gerencser: Picking these problems up, the way we like to say it is an example I would like to use, when you bring the stakeholders together the way you look at the problem really changes and evolves. That is one of the powers of Megacommunities. The example used is the traffic example with infrastructure. If you put a cone in the box, you seal the box and I draw a hole on the top and Gary looks at it at the top, he sees a point, I draw a hole on the side and I see a triangle and when we draw a hole for you, Ben, at the bottom and when you look it up you see a circle. The first thing we do is argue, because we know what we see. We argue what is in the box. The interesting thing is we can never reach a resolution because none of us are wrong. We are just being incomplete, we are right with what we see because we don’t see the whole thing and by bringing that larger view that Megacommunity view together, we understand ultimately we can figure out that what is in the box is a cone and we are all seeing different sides of it. Now we know how to address problems differently. That is kind of power we think we can unleash with this.
Ben Lack: This is going to be my last question and it is really directed towards the both of you at a personal level and that is, why are you doing what you are doing and why is the issue that your working on a daily basis interest you?
Gary Rahl: I enjoy working in the energy field and with the clients we have. First, because it is a very important issue; it is important at all levels. It is important to national competitiveness. It is an issue that has real impact on people’s lives today and into the future and with all the environmental considerations. It has global implications today and in the future. The approach that we take which is frequently around this Megacommunity concept is spectacularly rewarding – too much of what we see in the political realm and candidly even in the business world, where somebody has to win and somebody has to lose. When in reality a lot of issues, particularly around energy, are complex and multi-layered. They involve lots of variables and everybody often has the ability to get a positive outcome. So we focus on optimizing and not on winning or losing and that is a lot more rewarding.I would also say, it is an interesting complex field with technical, social, and business implications. It is an interesting place to be today.
Mark Gerencser: Infrastructure is very interesting to me because it has security implications, quality of life, and competitiveness issues for us as a nation. Megacommunities interest me because historically I have done a lot of war gaming over my career. I have seen some brilliant things happen during war games. I ran one of the first bio-terrorism war games after 9/11 to get the United States ready for bio-terrorism in the event it should happen. It was creative and innovative. I did port security and it was creative and innovative. The problem is after the games were over, everybody went back to their day jobs and the innovation ceased. What I find is that Megcommunities offer the promise to have that innovation and those connections and cooperation continue and sustain. And to me that is really rewarding.

 

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