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Building the Next Generation Utility

Fundamental changes require bold strategies.

Fortnightly Magazine - January 2009

regulatory framework to drive a change in allowed operating scope beyond traditional services.

The Next-Gen Utility

Utilities face a shifting landscape where demand destruction and revenue loss are very real possibilities. In the face of these challenges three strategic options exist.

Lead the way: Proactively shape a products and services portfolio, enabling greater energy efficiency and load management while influencing the regulatory compact, embracing the carbon challenge, moving toward the smart technologies and understanding the changing nature of the relationship with the customer.

Follow the leaders: Maximize the current regulatory framework while laying the foundation for change by pursuing very limited forays into renewables and smart technologies, focusing on providing adequate service to the customer.

Resist change: Attempt to delay the advent of new regulation, focusing on short-term value optimization with limited to no investment in long-term capabilities or technologies.

The industry faces inevitable changes. While the precise timing and form could differ, the end result is clear. Utilities using a lead-the-way strategy while exercising investment prudence will maximize shareholder value in the medium to long term. This strategy does not require being a first mover with regards to technology deployment, which doesn’t map well to utility core strengths or the regulatory environment. But it does require proactively embracing the changing landscape by: 1) Restructuring the asset portfolio to meet the evolving generation stack including, but not limited to, a clear path for the deployment of renewables and an agility to respond to technological progress; 2) Recasting the T&D network to make it intelligent, two way, and able to foster real time demand management at scale, including customer premise energy network management; 3) Reinventing the customer value proposition and experience to drive demand management at scale, with customer tailored mix of commodity and energy utilization service; and 4) Proactively shaping the legislative and regulatory compacts, including changes in operating scope that move beyond the meter, as well as changes in earning structure beyond decoupling.

Piecemeal efforts will not produce the necessary outcomes. Bold leaders will drive their organizations to adopt a highly integrated, effective, efficient and extended operating model while delivering results along the way to earn regulators’ trust and support. This transformation and degree of turmoil is akin to that experienced within the telecom industry over the last 15 years, which has led to a complete redefinition of the winners and losers.

Crystallizing a dramatically different future vision and shaping and executing a roadmap thereto will define the legacy of this generation of industry leaders. While the challenge ahead is more significant and fraught with more uncertainty than previously faced in the history of the industry, it is surmountable. It all starts with that very first critical decision to lead, follow, or be left behind.