As Baby Boomers near retirement age, utilities face the challenge of preparing the next generation of leaders.
Human resources managers at many utilities are sounding alarm bells about an impending shortage of skilled personnel-even amid flat industry growth and high unemployment rates.
The cause is demographics. The oldest Baby Boomers (born between 1946 and 1964) will turn 58 this year. Within a few years, the first of this group of nearly 80 million Americans will begin retiring. And with only 46 million Generation-Xers waiting to take their place, the nation's talent bubble is about to deflate.
"We are looking at 30 percent to 40 percent of our workforce becoming eligible for retirement in the next three to four years," says Kathy Haake, manager of human resources at Salt River Project (SRP) in Phoenix.
SRP is fairly typical; nearly half of the utilities participating in a study published last year by the American Public Power Association (APPA)1 said that 15 percent to 50 percent of their workers would become eligible for retirement by 2006. The shortages will affect a broad range of key positions, from front-line operators to senior executives. But management, administration, and technical positions face the greatest challenges, according to the APPA study (see Figure 1).
The situation is compounded by a shrinking supply of engineering graduates entering the utility industry. According to the IEEE,2 barely more than 500 undergraduate degrees are awarded annually in power engineering, compared with nearly 2,000 per year in the 1980s.2 Given the likely preponderance of Baby Boomers among the current pool of 23,000 registered power engineers, the lack of graduates entering the workforce will exacerbate the problem.
"There's a whole generation of talent out there that doesn't know us," says Mark Griffin, executive director and chief of staff at the Midwest Independent Transmission System Operator (Midwest ISO) in Carmel, Ind. "We will be challenged when people start retiring in a disproportionate way."
With such challenges in mind, many utilities are developing internal leadership-development programs, and stepping up recruitment and outreach.
"Succession planning needs to be addressed on a higher level, as part of an organization's strategy," says Jeff Tarbert, APPA senior vice president. "It won't become a crisis for companies that make sure they are in a good position to deal with it."
The Brain Drain Begins
The Baby-Boom-related brain drain will affect the entire U.S. economy, possibly in dramatic ways. For example, output will suffer. The Employment Policy Foundation projects the labor shortage could reduce the nation's gross domestic product (GDP) by as much as 17 percent. This will result in a lower per-capita income and arguably a lower standard of living. Furthermore, payroll taxes and benefit costs will balloon to finance increasing retirement and healthcare benefits.
Within this bleak macroeconomic landscape, the trends are particularly troubling for certain industry sectors, including utilities.
"We might feel a disproportionate impact because of the technical skills required in our business, and the fact that our workers have had longer tenures in their jobs and may be a little older on average," Tarbert says.
Comparing age statistics among industries can be difficult, but the average employee at the public power utilities participating in the APPA study was 44 years old, compared with the average American worker's 37 years of age. This implies the talent bubble will begin deflating sooner for utilities than for many other companies, and it will hit the industry harder.
The most painful effects for utilities likely will involve the loss of critical knowledge (see Figure 2, p. 53). "It is certainly a concern to us because there is a lot of talent that you can't easily replace," says Arlene M. Abbott, organization development and employee relations manager for Public Utility District No. 1 of Washington's Chelan County. "We are a very progressive public utility, with a lot of innovative projects and developments. We wouldn't be [as innovative] five years from now without the critical intelligence that we have in our organization."
Such issues are already affecting some companies in the wake of mergers and acquisitions. "Companies have consolidated and are losing critical knowledge," says Matthew Sadinsky, co-founder of utility training firm SOS International in Charlotte, N.C. "Many times key knowledge assets go out the window," he says, when companies merge and then integrate their organizations and processes.
Staff reductions, too, have given many companies a taste of what it means to lose knowledge assets-even though most companies try to minimize these losses by cutting the least-critical positions. "Getting rid of staff is easy, but sometimes you cut muscle instead of fat," says Griffin of the Midwest ISO. "That is coming home to roost."
Indeed, the industry's tight payroll might lead to greater difficulties as the talent bubble deflates. "A lot of utilities have been in cost-containment mode, and we haven't grown our workforces," Haake says. "If anything, we've shrunk our workforce." As a result, many utilities have done little to cultivate and recruit new talent.
That is likely to change, however, as the impending talent shortages become impossible to ignore. "Now we can see the age demographic taking hold," Haake says, "and at the same time we are realizing that we need to replenish our talent, and bring in newer processes, technologies and knowledge that maybe we've missed because we haven't been recruiting."
Stemming the Tide
Preventing the most serious effects of the brain drain requires utilities to examine the age characteristics of their personnel and to implement appropriate plans for filling the gaps that will appear as retirements accelerate. Such steps might include the following (adapted from the APPA study):
- Track pertinent workforce statistics, including average age, age distribution, and years of service;
- Make retirement projections and identify talent shortfalls;
- Plan the utility's future workforce, considering the utility's changing organizational, market and technical needs;
- Educate personnel, directors, regulators and political leaders about the issue;
- Capture undocumented knowledge and facilitate its transfer from older employees to their successors;
- Recruit, develop, and retain younger workers;
- Consider rehiring selected retirees;
- Slow the departure of older workers due to retirement; and
- Create and maintain a supportive workplace culture that promotes mutual respect among workers of all descriptions.
Leadership development is one of the primary tools that utilities are using to prepare for the coming talent shortages. PUD No. 1 of Chelan County serves as an example. "Our general manager, Charles Hoskin, has said that we will either pay now or pay later," Abbott says. "So we are investing in our leaders now in a number of ways."
One way is the utility's two-track leadership development program. A 200-hour program for employees in the PUD's bargaining units (foremen, mechanics, linemen, etc.) focuses on expanding technical and leadership skills. The second track is for salaried employees. In this track, a series of classes, mentoring, and cross-training experiences helps develop leaders with a wide breadth of skills.
SRP provides another example. The utility has begun the third year of its program to develop leaders across its engineering and construction division. "I think of it as pools of leadership talent with a variety of experiences," Haake says. "Rather than resident knowledge being with one person, we are building pools of knowledge."
The SRP program includes six modules focusing on critical competencies for the organization. Each module takes an entire year to complete and includes a half-day instructor-led course, taught by managers in the organization; a mentoring program to provide feedback and support; e-learning classes; and a final presentation to managers focusing on the topic of the module undertaken.
To identify candidates for the program, SRP conducts talent assessments throughout the organization. The next step is to create development plans for each, including rotational assignments, participation in task forces, and other experiences.
"Most effective leaders in an organization have had a variety of experiences and have been exposed to a variety of different leadership styles," Haake says. "Our overall strategy is to build a pool of resources that has the flexibility we need to be successful in a changing market."
Haake adds that the exercise of leadership planning allows a company to examine its organizational structure and determine whether alternative structures might be more effective or efficient. "If 50 people retire, you don't always need to replace those 50 specific jobs," she says. "You can look at the business and the design of the work to find opportunities to improve." Other organizations are finding similar benefits to workforce planning efforts.
"We are modernizing some of our positions," says Rick Johnson, supervisor of employee training and development services at Imperial Irrigation District in Imperial, Calif. "We have a new power manager, for example, who is reorganizing his department to make it more customer-service oriented. He is bringing in new technology and creating some new positions in economics and development."
Imperial Irrigation District has created a 16-week leadership academy for potential and new supervisors. The academy focuses on leadership theory, problem solving and team-building, and the company also provides highly flexible opportunities for additional training and education.
Recruitment, of course, is another important tool for workforce planning. Utilities have long been involved in campus outreach and similar efforts, but these activities are becoming more sophisticated as utilities compete for scarce skilled candidates. Utilities are becoming more actively involved with colleges and universities, developing curricula, and participating in career fairs. Additionally, many utilities have established special programs and Internet resources to attract and guide students.3
"Other industries are more vocal and visible in explaining where they are headed," says Griffin of the Midwest ISO. Students have traditionally perceived the energy and utility industry as being conservative and static, which has made other industries seem more attractive by comparison, according to Johnson. Many graduates have pursued other fields that are perceived as more dynamic and high-tech, such as telecommunications and networking.
"We as an industry need to change how we are perceived," he says. "A lot of new infrastructure needs to be put into place, and that can attract many types of people."
Indeed, the Midwest ISO plans to increase its staff by one third in 2004, adding 120 positions-mostly in control-room, technical development and delivery, system monitoring, and security positions.
"We've got a reliability mandate that will take a lot of staff to implement," Griffin says. "On a technical level, we are doing things that very few people have been involved with. It's a great time for new personnel to come into this business."
Indeed, the industry as a whole is beginning a transition into a new era. The value of experience, skills, and knowledge during this transition is difficult to overstate, and thus the risks of failure are high.
"In the past, we just promoted people and said, 'Go forth and supervise,'" Haake says. "These kinds of programs do a whole lot better job of [making] successful leaders, and preserving those things that have enabled us to be successful. You can't do that badly or you will pay a price."
- The Aging and Retiring Work Force: New Challenges for Public Power, American Public Power Association, Washington, D.C.: http://www.appanet.org/members/meetings/conference/workforce.pdf.
- Heydt, G.T., and Vittal, V. "Feeding Our Profession," IEEE Power & Energy, Vol. I, No. 1, Jan.-Feb. 2003.
- See Imperial Irrigation District's student-intern brochure http://www.iid.com/aboutiid/Student-intern.pdf; AEP's college-recruiting Web resource http://www.aep.com/careers/default.htm; and Entergy's college career opportunities Web site http://www.entergy.com/corp/careers/college.asp.
Articles found on this page are available to subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.