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Beyond The Downturn

Today’s challenges are transforming the industry.

Fortnightly Magazine - March 2009

all divisions can yield tens of millions of dollars in cost reductions. A typical in-depth cost review uncovers potential savings opportunities of between 15 percent and 20 percent across the board.

Successful companies innovate and expand. With their traditional regulated generation and distribution businesses under assault, electric utilities will need to innovate within their core business and scout opportunities to diversify into new ventures and technologies. But companies first must face the question of where to begin.

Operating as regulated monopolies for the better part of a century, risk-averse power companies don’t have a great track record in innovation and entrepreneurship. But they can apply lessons from other industries that have faced existential challenges. Among companies that had to redefine their businesses in the face of disruptive turbulence in their industries, many found promising opportunities to a more sustainable new path by applying their accumulated competitive strengths in new and untried ways.

Research shows that nine out of every 10 companies that successfully renewed themselves found the solution in mining their hidden assets—assets they already possessed but had failed to tap for maximum growth potential. Those assets typically come in one of three forms.

• First, they may be locked up as an undervalued business platform. For utilities, the most obvious of these, of course, are their decades-old, one-way energy distribution grids and the large geographically dispersed field crews deployed to maintain it.

• A second hidden asset may lurk in untapped customer insights—an area where utilities have unparalleled resources they can mine. With 20/20 insight into virtually every detail of their customers’ electricity consumption patterns, utilities can profile customers by segment based on past use, anticipate evolving needs, and develop products and services that help meet those needs.

• The third hidden asset that companies use as a springboard for business redefinition are underutilized capabilities—skills acquired over time that can be applied to new ends. Utilities are replete with these unique abilities. Prominent among these is their unparalleled experience dealing with regulatory commissions, relationships they and their potential joint venture partners can draw upon as they push against the traditional boundaries of the industry.

Smart Business

Some industry executives are beginning to tap elements of all three hidden assets by embracing smart-grid technologies to upgrade their transmission and distribution infrastructures. Using advanced sensors and communications systems, smart grids expand a utility operator’s business platform by enabling the company to draw efficiently upon renewable solar, wind, or geothermal energy sourced from far-flung suppliers to supplement electricity generated by conventional central-power stations running on fossil fuels. Smart-grid infrastructure also allows utilities to better use their customer insights to help consumers reduce energy use during periods of peak demand. And the advanced communications and information technologies used in smart grids allows utilities to build on their underdeveloped capabilities for load balancing across their transmission and distribution networks. They will be able to toggle in real time between electricity produced through photovoltaic solar arrays, small wind turbines, and micro-hydro sources to capture cost savings and develop more robust safeguards against catastrophic cascading power-grid failures.