The best plan is to be prepared for change
In an unpredictable industry, Deloitte partner Jane Allen says it's best to take a long view
Jane Allen, who leads Deloitte’s utilities practice, believes that the tumultuous cycle of change for the industry isn’t over yet. “Being in the utilities business means living with uncertainty," she says. "As a result, being prepared for the impact of various potential scenarios — like dramatic price fluctuations or markets opening up — is absolutely necessary." The alternative, she points out, is "finding yourself without the plans or resources to adjust to a whole new reality.”
Jane speaks from experience. As a Deloitte partner, she provides strategy and operations assistance to companies that generate, transmit, and distribute electricity — as well as natural gas and water utilities. In addition to her eight years with Deloitte, Jane has spent over 20 years working in the utilities industry. She’s been a policy advisor for the Ontario Ministry of Energy, Assistant Dean at the University of Toronto’s business school, and an independent utilities consultant. Over two decades of close involvement with utilities organizations gives Jane an acute awareness of the impact of dealing with transformation.
Transformation in search of a balanced business model
During the past decade in particular, the efforts of government to find the best business model for public energy companies has required tremendous investments of time, money and resources. “Determining the appropriate structure for electricity markets has taken a great deal of experimentation. Electricity companies have had to prepare for the prospect of open markets, and then make additional investments to respond to re-regulation," Jane explains. "It’s likely that in the future, as governments seek to balance economic and environmental priorities and to test consumer price sensitivity, they will continue to evaluate alternatives. As a result, the future is largely unknown for the utilities sector.”
The bottom line: Uninterrupted service delivery at a fair price
In the water and wastewater sector, the current rethinking of business models was precipitated by some unforeseen and unforgettable tragedies. The focus now is on developing improved systems for source water protection, accountability for the cost and soundness of water and wastewater treatment, and on renewing infrastructure across the country. “Despite very different motivating factors, a major issue for electricity, gas and water utilities is managerial flexibility, and performance optimization," says Jane. "These companies need the skills and tools to respond to changing circumstances in a timely and cost-effective manner. They must demonstrate that they can manage uninterrupted service delivery at a fair price, regardless of what circumstances might arise. For utilities, that’s the bottom line.”
Knowledge, skills and objectivity
Jane and her Deloitte colleagues provide their utilities clients with the objectivity, expertise and tools to facilitate change and improve performance. “We’ve worked with hundreds of companies in the industry," says Jane, "and that experience means we can bring insights and an unbiased perspective to help utilities manage change while enhancing their financial and operational results.” Because the Deloitte utilities team can draw on the skills of colleagues across a wide range of areas — from audit through tax, risk management, corporate finance and IT consulting — they develop fully-rounded solutions that address the needs of their clients’ business from “stem to stern.”
Jane assisted one of her electricity clients whose real costs had been exposed after creating separate generation, transmission and distribution business units in preparation for the opening of the electricity market to competition. “The company had restructured organizationally to become more commercial, but the supporting operational processes and technology involved hadn’t been addressed," she recalls. "Costs weren’t being allocated properly, so the goal of the restructuring — to improve efficiency and become more commercial — was not being fully realized.”
A governance model that improves competitiveness
The solution provided by Deloitte was a governance model that properly assigned costs to each of the business units, allowing the utility to zero in on problems. The solution also provided new performance measures to expand the company’s focus. Jane explains: “We helped them identify initiatives and targets to meet the needs of all their stakeholders while keeping a closer eye on financial results.” As a result, the organization was better positioned to compete as a commercial enterprise and qualify for lending opportunities.
When speaking to utilities executives, Jane emphasizes the upside of corporate flexibility. “When companies make irrevocable decisions to deal with current conditions — like selling a part of the business — they often discover that limiting their options has left them in a worse position," she observes. "My recommendation to clients is that they take a broad, long view. In this industry, no one can predict the future, so the best plan is to have a robust core strategy, with equally well-developed contingent strategies to trigger in the event of changes to the marketplace.”
Is your utilities organization excellent at managing change?
Do you have action plans developed for alternative market scenarios?
Does your business strategy deliver value to all stakeholders?
Are your information and technical systems capable of a quick response to change?