Now that we have a planning method, let’s use it! Referring back to the last post, the first step in planning utility transformation is to figure out where you are right now by performing a baseline survey. We need to do this well, because as we noted in the analogy, you need to know exactly where you are before you start a trip, otherwise getting onto the main road can be a lot harder. (I certainly have driven around in circles trying to get onto an Interstate from the city streets.)
The establishment of the existing conditions baseline survey needs to go far beyond a physical inventory of assets and liabilities, cash and cash equivalents. Any well run utility has the physical assets and liabilities well documented already. And the survey is much more than understanding the regulatory environment of the company, however complex that might be.
The intangible items are the most difficult to catalog as well as the most difficult to change. I have often said that climate change presents no insurmountable technological problems, but does present very complicated cultural challenges. Compiling the intangible assets is actually more important, and certainly harder, than listing the physical ones.
The key realization is that utility transformation is more about cultural change than physical change. Just as the technological solutions to climate change are not the biggest problem, similarly so for the technological changes necessary for utility transformation. For a successful transformation, the transformed culture must emanate out from the utility to encompass regulators, customers, legislators and shareholders.
For example, sufficient investment in the poles and wires infrastructure in the US has been deferred for decades. One effect of this deferral has been to decrease the pool of knowledgeable and skilled employees who want to go into this field and develop the skills to implement rapid deployment of classic poles and wires technology. Regulators have similarly become adept at working to minimize and defer infrastructure investments. Even in a world where transmission and distribution systems are less central than they have been, they will certainly be needed. A different understanding of investment in poles and wires, and how that investment is returned, is needed, even if the technology of the poles and wires remains little changed. (Though it will likely change as well.)
Beyond employee knowledge and skills, Intangible holdings include the following:
- Customer relationships, classes, distribution
- Customer expectations (of reliability, of service, of product selection)
- Relationships, with regulators, government officials, fuel sources, vendors
- Brand (possibly the single most important, and currently underutilized asset of most utilities)
- Geographic presence
- Natural and renewable resources internal to any defined service area
- Existing non-utility-focused energy and pollution regulatory framework in every jurisdiction where the utility does business
- Strength and vision of the Board of Directors and Management
- If publicly held, profile of the major shareholders
- This list continues. Add your top items in the Comments.
This is a lot to understand. Gathering, compiling, sorting, and relating this information will provide new insights into the company, highlight unknown strengths and expose hidden weaknesses. And prepare you to start the journey well.
An ancient utility joke, which will fade away during the utility transformation, is that to understand a utility you need to understand two things.
- Utilities don’t know what anything costs (due to being in a historically regulated environment, they basically had a framework of documenting approved expenditures, not proving costs)
- Utilities don’t know what anyone wants (who actually wants electricity? People want lights, cold beer, and their cell phone charged. Utilities sell electricity, which no one really wants.)
Part of this baseline survey will start to uncover what things cost or are worth (in dollar and human terms), and what people want, further informing the development of roadmap. This preparation allows you to start the journey imparting a strong feeling of control and purpose to your fellow voyagers / stakeholders. You have also begun to learn the route of the journey, as you learn what culture change (in addition to physical change) is needed, and what education and experience will foster that in the desired direction.
Time to head out on our journey of utility transformation pretty soon, but there are a few more important steps before we’re ready. Next up is the question of what it means to follow, lead, or travel in a pack.