What Are the Orthodoxies Killing Grid Modernization?

The three main orthodoxies killing grid modernization are rate-of-return thinking that rewards capital spending over outcomes, the assumption that reliability requires redundancy rather than flexibility, and the belief that customer choice is incompatible with grid stability. These deeply embedded assumptions—reinforced by century-old regulatory frameworks—prevent utilities from implementing the innovation that America’s energy infrastructure desperately needs.

Table of Contents

• What Are the Orthodoxies Killing Grid Modernization?
• Why Does Rate-of-Return Regulation Prevent Energy Innovation?
• Is Redundancy or Flexibility Better for Grid Reliability?
• Does Customer Choice Threaten Grid Stability?
• Why Can’t Utilities Innovate Like Private Companies?
• How Do You Break Orthodoxies in a Regulated Industry?
• About the Author

The Energy Industry’s Orthodoxy Problem

The energy industry doesn’t have a technology problem. It doesn’t have a funding problem. It has an orthodoxy problem.

After spending two decades leading business transformations at Fortune 500 companies—generating over $2 billion in shareholder value by challenging “unchangeable” assumptions—I’ve learned to recognize a pattern. Industries convince themselves that certain rules are immutable laws of physics when they’re actually just comfortable habits that made sense decades ago but have long since outlived their usefulness.

Manufacturing had these orthodoxies. Retail had them. Healthcare has them. And the energy industry? It’s drowning in them.

“Industries convince themselves that certain rules are immutable laws of physics when they’re actually just comfortable habits that made sense decades ago.”

The difference is that in most industries, private companies can challenge orthodoxies, fail fast, pivot, and ultimately transform their markets. In energy, a century-old regulatory framework actively prevents the kind of orthodoxy-breaking that grid modernization desperately requires.

Why Does Rate-of-Return Regulation Prevent Energy Innovation?

Rate-of-return regulation prevents energy innovation because it creates a perverse incentive structure where utilities earn guaranteed returns on capital investments rather than on outcomes. This means utilities are financially rewarded for building infrastructure—transmission lines, substations, generation capacity—regardless of whether that infrastructure represents the most efficient solution to reliability or customer needs.

Under traditional rate-of-return regulation, a utility earns a guaranteed return on capital investments. Build a new transmission line? You earn a return. Construct a new substation? You earn a return. The more you spend, the more you make.

What you don’t earn a return on is efficiency. Demand-side solutions that reduce the need for infrastructure? Those shrink your rate base. Innovative approaches that solve reliability problems without major capital deployment? Those hurt your bottom line.

I’ve seen this same dysfunction in manufacturing. Companies convince themselves that “all revenue is good revenue,” maintaining unprofitable product lines and chasing market share at the expense of profitability. They spread resources across dozens of initiatives instead of concentrating on the vital few that actually drive results.

“The more you spend, the more you make. What you don’t earn a return on is efficiency.”

The solution in manufacturing is what I call the 80/20 Matrix of Profitability—a rigorous analysis of which customer-product combinations actually create value versus which ones destroy it. When I applied this methodology to a struggling manufacturing division, we discovered that approximately 65% of everything we sold made very little money. Our top 100 customer-product combinations generated roughly 140% of our profits—meaning everything else combined actually destroyed value.

The same math applies to grid infrastructure. A small percentage of transmission and distribution investments drive the vast majority of reliability gains. But current regulatory incentives encourage utilities to spread capital across too many projects rather than concentrating resources on the investments that matter most.

When we applied 80/20 thinking to our manufacturing portfolio, we reduced SKU count by 60%. Revenue dropped by only 8%. Profit tripled.

What would happen if utilities applied that same ruthless prioritization to infrastructure investment? We’ll never know—because the regulatory structure rewards capital deployment, not capital efficiency.

Is Redundancy or Flexibility Better for Grid Reliability?

Flexibility is better than redundancy for modern grid reliability because today’s energy system must respond to dynamic conditions—variable renewable generation, bidirectional power flows, electric vehicle charging swings, and unpredictable weather patterns—that static backup systems cannot address. While redundancy made sense for centralized one-way power delivery, flexibility-based approaches using demand response, storage, and distributed resources can provide faster, more precise reliability at lower cost.

The assumption that reliability requires redundancy has driven decades of infrastructure investment. And it made sense when the grid was a one-way system delivering power from large centralized generators to passive consumers. In that world, redundancy was reliability.

But that world no longer exists.

Today’s grid must integrate variable renewable generation, respond to bidirectional power flows from distributed resources, accommodate electric vehicle charging that can swing demand by megawatts in minutes, and adapt to weather patterns that climate change has made increasingly unpredictable.

In this environment, redundancy isn’t just expensive—it’s the wrong solution. Static backup systems can’t adapt to dynamic conditions. Building more of yesterday’s infrastructure doesn’t solve tomorrow’s problems.

I learned this lesson leading manufacturing turnarounds. I inherited a factory running three shifts with constant overtime—and still missing delivery commitments. The knee-jerk response was to add more capacity. Build another line. Hire more workers. Create redundancy.

But the problem wasn’t capacity. It was flexibility.

“The problem wasn’t capacity. It was flexibility. We eliminated overtime, improved delivery performance, and increased throughput—all without adding capacity.”

We implemented what I call the Karelin Method—named after the Soviet wrestler who dominated his sport through focused intensity rather than brute force. The method combines three elements: working 20% more effectively than competitors, being 20% more efficient through better processes, and focusing 80% of effort on the 20% of activities that drive results.

Applied to manufacturing, this meant strategic flexibility rather than blanket redundancy. We implemented flexible automation that could produce multiple products on the same line. We used lead time engineering to smooth demand rather than building capacity for peak periods. We created systems that could adapt to changing conditions rather than static backup systems that sat idle 99% of the time.

The result? We eliminated overtime, improved delivery performance, and increased throughput—all without adding capacity.

The energy equivalent would be investing in demand response, storage, and distributed resources that can provide reliability through flexibility rather than redundancy. A fleet of smart thermostats that can shed load in seconds. Battery systems that can inject power precisely when and where it’s needed. Electric vehicles that can serve as mobile grid storage.

These solutions can respond faster and more precisely than traditional backup generation. They can provide reliability without building infrastructure that sits idle waiting for rare contingencies.

But utilities can’t simply decide to pursue flexibility over redundancy. Major investments require regulatory approval. Rate recovery depends on demonstrating that capital was “used and useful.” The regulatory framework was designed for a world where reliability meant redundancy—and it actively discourages the flexibility-based approaches that modern grid conditions demand.

Does Customer Choice Threaten Grid Stability?

Customer choice does not inherently threaten grid stability—in fact, properly integrated distributed energy resources can enhance stability by responding faster and more precisely than traditional generation. The orthodoxy that customer-sited solar, batteries, and EVs create chaos stems from outdated assumptions about one-way power flow, not from the technical reality of modern aggregation and control technologies.

This assumption treats customers as problems to be managed rather than assets to be leveraged. It views distributed energy resources as threats to stability rather than potential contributors to it. It creates adversarial relationships where partnerships would be more productive.

I’ve seen this pattern in manufacturing too. Companies used to treat custom orders as a burden—complex, low-volume requests that disrupted efficient production of standard products. The orthodoxy was that customization and efficiency were incompatible.

Until we discovered that custom orders could be our highest-margin business when we engineered the right systems to handle them.

The breakthrough came from smashing the orthodoxy that customers were problems. Instead, we asked: What if customer-specific requirements revealed opportunities we were missing? What if the “chaos” of customization was actually valuable signal about where the market was heading?

“What if customer-sited resources became stability assets rather than stability threats? That question transformed my manufacturing business. It could transform the utility-customer relationship too.”

Applied to energy, the question becomes: What if customer-sited resources became stability assets rather than stability threats?

The technology already exists to make this happen. Aggregated customer resources—rooftop solar, batteries, EVs, smart thermostats—can respond faster than traditional generation to grid conditions. They can provide frequency regulation, voltage support, and capacity precisely where it’s needed without building new transmission infrastructure.

But integrating these resources requires treating customers as partners rather than passive ratepayers. It requires building systems that channel distributed energy productively rather than fighting against it. It requires utilities to see customer choice not as a threat to their business model but as an opportunity to provide more value.

And here’s where the regulatory orthodoxy becomes the binding constraint. Utility business models are built on selling kilowatt-hours. Regulations determine how utilities can interact with customer-sited resources. Rate structures often penalize customers who generate their own power while subsidizing those who remain passive consumers.

The orthodoxy that customer choice threatens stability isn’t just an assumption inside utility boardrooms—it’s encoded into the regulatory frameworks that govern how the industry operates.

Why Can’t Utilities Innovate Like Private Companies?

Utilities can’t innovate like private companies because they operate under regulatory frameworks that require approval for major investments, mandate specific rate structures, and dictate how customer relationships must work. Unlike manufacturers who can challenge orthodoxies, fail fast, and pivot without permission, utilities face years of regulatory review for significant changes—creating a structural barrier to the rapid innovation that grid modernization requires.

Here’s what makes energy different from every other industry I’ve helped transform.

In manufacturing, if you identify an orthodoxy that’s destroying value, you can challenge it. You can experiment. You can fail fast, learn, and pivot. You can implement the Karelin Method and 80/20 thinking without asking anyone’s permission.

In energy, utilities can’t simply decide to reward outcomes over capital deployment—rate structures are set by public utility commissions. They can’t rapidly experiment with flexibility-based reliability approaches when every major investment requires years of regulatory approval and prudency reviews. They can’t reimagine customer relationships when regulations dictate how those relationships must work.

“The entities with the most knowledge about grid operations lack the freedom to innovate, while the entities with the freedom to innovate lack access to the regulated infrastructure.”

This creates a fundamental problem: the entities with the most knowledge about grid operations lack the freedom to innovate, while the entities with the freedom to innovate lack access to the regulated infrastructure.

The three orthodoxies I’ve described aren’t really inside the utilities. They’re embedded in a regulatory structure designed for a completely different era—when electricity flowed one direction from large central plants to passive consumers, when the biggest reliability threat was a generator tripping offline, when customer “choice” meant selecting a rate schedule.

That regulatory framework made sense in 1920. It made sense in 1970. It arguably still made sense in 2000.

It makes no sense in 2025.

Today’s grid faces challenges that century-old regulations never anticipated: variable renewable generation that can swing output by gigawatts based on cloud cover, extreme weather events that stress infrastructure in unprecedented ways, customers who want to generate, store, and manage their own energy, and electrification trends that will reshape demand patterns fundamentally.

The regulatory frameworks designed to ensure reliable, affordable electricity from centralized generation have become barriers to the innovation needed to ensure reliable, affordable electricity in a decentralized, dynamic system.

How Do You Break Orthodoxies in a Regulated Industry?

Breaking orthodoxies in a regulated industry requires extending the challenge beyond company boardrooms to regulatory commissions, legislative chambers, and policy debates. Unlike competitive markets where individual companies can innovate independently, regulated industries must build coalitions that question whether century-old frameworks still serve their intended purposes—and advocate for structural changes that enable rather than prevent innovation.

Every successful business transformation I’ve led started with someone asking an uncomfortable question: “What if everything we believe about this industry is wrong?

In manufacturing, that question led to breaking orthodoxies about pricing, product portfolios, and customer relationships—transformations that turned struggling businesses into market leaders.

In energy, that question must extend beyond utility boardrooms to regulatory commissions, legislative chambers, and policy debates. The orthodoxies killing grid modernization aren’t just operational assumptions—they’re regulatory structures that prevent the operational innovation the grid desperately needs.

The choice facing energy leaders isn’t whether these orthodoxies will be broken. Technology disruption, climate imperatives, and customer expectations will eventually force change. The question is whether we break them proactively, from a position of strength, or wait until crisis forces painful reactive transformation.

“The grid modernization America needs isn’t waiting on better technology. It isn’t waiting on more funding. It’s waiting on leaders willing to challenge the assumption that frameworks designed for a bygone era can govern a fundamentally different future.”

I’ve seen both paths in manufacturing. Companies that challenged orthodoxies early—before their markets forced them to—maintained control of their destiny. They transformed from positions of strength, with options and resources. Companies that waited found themselves making desperate changes with fewer options, less time, and diminished resources.

The grid modernization America needs isn’t waiting on better technology. It isn’t waiting on more funding. It’s waiting on leaders—in utilities, in regulatory commissions, in state legislatures—willing to challenge the assumption that frameworks designed for a bygone era can govern a fundamentally different future.

The energy industry has all the talent and resources it needs. What it needs now is the courage to ask: What if everything we believe about how this industry must work is wrong?

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About the Author

Todd Hagopian has transformed businesses at Berkshire Hathaway, Illinois Tool Works, and Whirlpool Corporation, selling over $3 billion of products to Walmart, Costco, Lowe’s, Home Depot, Kroger, and many more. Hagopian doubled his own manufacturing business acquisition value in just 3 years before selling, while generating $2B in shareholder value across his corporate roles.

As Founder of the Stagnation Intelligence Agency, he is the authority on Stagnation Syndrome and corporate transformation. He has written more than 1,000 pages of books, white papers, implementation guides, and masterclasses on Corporate Stagnation Transformation, earning recognition from Manufacturing Insights Magazine and Manufacturing Marvels.

Featured over 30 times on Forbes.com along with articles and segments on Fox Business, OAN, Washington Post, NPR, and many other outlets, his transformative strategies reach over 100,000 social media followers and generate 15,000,000+ annual impressions.

His upcoming book, “The Unfair Advantage: Weaponizing the Hypomanic Toolbox” (January 2026), reveals the HOT System methodology that has driven billions in value creation across Fortune 500 transformations.

For speaking engagements on business transformation, orthodoxy-breaking, and the HOT System, visit toddhagopian.com.