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The New Breed Of Utility CFO

Strategic transformation demands more than score-keeping skills.

Fortnightly Magazine - August 2008

makes these executives different is their willingness to offer strategic options and capabilities to their business brethren. In the world of diversified energy, CFOs need skills and experiences outside the traditional finance job descriptions of fiscal policemen, cost-center administrators and transaction processors.

So what has happened to change the CFO’s role and value proposition? Certainly external events like the Enron collapse, Sarbanes-Oxley legislation and the establishment of the Public Accounting Oversight Board have renewed finance’s resolve and focus on the basics—namely, getting the books right. But even while board members and business leaders are requiring CFOs to excel at those needs, they also want the CFO’s assistance with other business goals—data integrity and transparency, analytic capabilities, and project prioritization. Trends in the energy and utilities industry—the evolution of the services company, demand for transparency from regulators amidst ongoing regulation evolution, the need for multiple books (FERC, GAAP), and the driving need for more information by the business ( e.g., insightful project and work management reporting)—further validate the need for improved CFO office capabilities that simply can’t be accomplished within the traditional scorekeeper attitude. The finance organization must nail the basics—controls and scorekeeping—yet provide energy companies the improved reporting and analysis capabilities to keep up with these other trends.

Today’s energy environment dictates that the finance office needs to drive significant improvements in corporate-wide efficiency and effectiveness, while simultaneously evolving to that revered and elusive role as a strategic partner to the operational business.

New Finance Toolbox

It’s nearly impossible to know exactly which financing and operational tools leading CFOs have used to earn their seat at the strategy table, but improved transactional excellence, cash-flow management and a reliance on enhanced reporting likely played crucial roles.

In the area of transaction excellence, the CFO office is leading efforts that reduce overall administrative cost structures through labor arbitrage and process improvements (outsourcing or shared services). Moves by TXU and others, for example, generated drastic work process and cost structure changes—saving about $150 million annually in the case of TXU — after Wilder became CEO. Improvements within most diversified utility business service units could realize double digit millions (or more) in annual savings, depending on their current state and how much changes.

Improving cash-flow forecasting and reporting can yield millions in project savings annually through optimized investing decisions. Other more traditional and tactical approaches that build on transactional excellence can improve cash flow from payables and retail billing operations. There often are opportunities to save millions within smaller, yet abundant miscellaneous billing efforts.

Finally, CFOs are automating their companies’ reporting capabilities to focus on transparency, ease of multiple views (such as GAAP, FERC and cash) to drastically improve rate-case preparation and reporting processes. That alone can save millions by improving the rate of recovery in regulatory hearings. Avoiding disallowances and speeding recovery through future rate-case filings may generate appreciable returns depending on a company’s situation. There are documented cases of project savings in the hundreds of millions of dollars.

The Roadmap

Knowing where a company wants to go is the first step in drawing a