Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
Strategies for surviving the industry’s transition.
new, more variable sources of generation like those provided by alternative energy providers and micro-grids. They also will need to learn at a faster rate and in a more dynamic fashion to invent new services and take advantage of new capabilities facilitated by the smart grid. As capable as utilities are, however, these won’t be easy changes to assimilate. They’ll require very different behaviors and many new skills. They also will transform internal relationships and dependencies in fundamental ways.
There is much change ahead. To be successful, utilities need to overcome behaviors driven by a lack of integration, low levels of adaptability and organizational cultural tendencies.
The benefits of a smart-grid solution—ignoring for the moment any new revenue sources that might be developed—are derived from a number of functions ( see Figure 1 ). But for these benefits to be realized, utilities will need to do a better job of integrating data and activities across various functions. This requirement will run headlong into operational and organizational conventions that will make integration changes difficult to implement.
Reliability is arguably the primary orientation of utilities today, shaping regulatory relationships, information systems and hardware investments. This, in turn, has led to functional segmentation of operating processes and systems. Further, the geographic-centric nature of most utility operation centers causes a great deal of process inconsistency and custom design.
To get the most out of smart-grid technologies, system operators will need to understand the dynamics involved in conservation-related load-control programs. Likewise, customer information system data will need to be factored into asset planning activities. These illustrate the kinds of functional and system integration that will need to occur, and how widespread and daunting this task might be—for nearly every utility function will be affected.
Further, if customers are to be engaged as full partners, every utility function will need to have a similar view of the customer. Similarly, as plans for services or offerings change, each function will need to be updated and consistency will need to become the rule rather than an exception.
Are utilities up to this challenge of becoming a more customer-focused and -driven enterprise, or will they fall back on functional missions more narrowly defined? And what expectations will regulators express to shape these outcomes? Integration strategies and investment decision making will need to anticipate the answers to these questions to avoid costly mistakes.
Integrating systems and processes in new and different ways will require an unprecedented amount of change for most utilities. Utilities for the most part, however, will need to overcome a number of barriers to achieve the level of adaptation required.
First and perhaps most important, are the attributes of utility staff that will impede adaptation. The median age of most utility staff continues to hover at around 50. Further, the industry as a whole has a generally higher proportion of employees related to one another than does other industries. These two demographic factors serve to reduce adaptability in the best of times and certainly will become a major complication during a period of major transition