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Rate Shock: A Matter of If, or When?

Fortnightly Magazine - January 2006

right plan . It will produce a more coherent and comprehensive story, enable a more creative approach to regulation, and pay dividends through aligned organizational performance management and cultural development throughout the course of a growth plan.

One example of higher returns on a planning investment is We Energies’ “Power the Future” plan. 2 A comprehensive five-year plan led to a variety of groundbreaking initiatives. As a first mover, the utility faced plenty of challenges. However, the power of a comprehensive plan supported steps such as creation of a state-wide transmission company, major network upgrades, a significant commitment to renewables, and new fossil generation financed through an innovative leasing model. The plan also kept the broader organization moving forward—lowering costs and improving reliability and customer service.

2. Collaborate with more constituents, early and often . The factors driving increases make for a complex story—one that requires clarity and consistency to have impact. Effective collaboration starts in the early stages of developing a plan and continues throughout implementation. It involves a broad section of constituents, and engages all employees. Collaboration also can help build understanding and consensus that leads to successful innovation in regulatory approaches and proceedings.

For example, Great Plains Energy hosted an innovative set of issue-driven “seminars”—panel discussions with national experts representing a variety of perspectives. Customers, community leaders, regulators, media, board members, and all employees were invited, and had ample opportunities to ask questions of the panel. On average, each session was attended by more than 250 people. This approach set the tone for a successful regulatory process, resulting in unanimous approval of a $1.3 billion growth plan by the commissions of two states.

3. Don’t swing for the fences . Successful plans have adopted a balanced portfolio instead of the single-fuel strategy typical of prior growth cycles. In this environment, betting on the success of one single-fuel or renewable solution to emerge as the winner is risky. In an era of higher and volatile prices, customers will be less forgiving of the downside of a risky bet, as will regulators. Successful plans will be built on a balanced portfolio of fossil, renewable, distributed, and efficiency technologies that mitigate both cost and risk.

4. Timing is everything . As in any development cycle, there are likely some benefits to starting early. This advantage can manifest itself through lower costs, better access to labor, availability of equipment ( e.g., turbines), and establishing differentiation and industry leadership. Recent examples are utilities that were proactive on environmental retrofits prior to regulatory and legislative certainty.

Although the timing of the upcoming wave of electric price increases unfortunately coincides with substantial increases in other energy costs, electric utilities are well positioned to take control of their destiny. Utilities that move forward with a comprehensive approach will be able to better create and communicate value through a time of rising and volatile energy costs. Only time will tell if these increases will be no big deal or the last straw, but the time to work toward the former is now.

 

Endnotes:

1. Energy Information