Experience tells me utilities excel at responding to disasters—particularly secondary events like storms and hurricanes. Their tactical business continuity planning is often best-in-class and it needs to be, given they’re at the forefront of essential customer services (crisis or no crisis). But when you change the nature of the emergency, holes emerge in the preparedness. And many utilities are finding that their emergency plans don’t translate easily to a pandemic scenario.
Why? Because as tactical needs have increased over recent years (with increasing frequency of e.g. wildfires), holistic risk mitigation has begun to fall away. And in that context, it’s no surprise that while they respond well to industry-specific incidents, many utilities lack a full risk mitigation approach that can flex to any situation. When the unexpected hits, they need to know (and fast): what does this situation mean for our customer service and billing (and the working capital risks that go with that)? How can we keep our operations online? Where do our workforce and other risks really lie? And even more fundamentally: if demand drops overnight, what does that do to our financial viability as a business? (Tellingly, some utilities have already withdrawn their credit facilities and issued, just in the U.S., about $20+ billion in March, 4x the normal rate, according to S&P Global Market Intelligence).
But as they move forward, utilities have a unique opportunity to reboot their risk approaches—and position themselves to outmaneuver future uncertainty, in whatever form. And digital will come into its own as a key lever to minimize risk.
Here are some practical reflections on how utilities can re-cast their risk approaches as they re-emerge.
(Re)build the risk capability from the ground up
Utilities need to move from tactical to strategic on risk mitigation. How? In the first instance, it’s about rebuilding scenario planning and risk mitigation as a valued capability, in an integrated way across functions. It starts with 1) assessing your current risk capabilities; 2) modeling possible scenarios—including their potential effect on supply, demand and cash; 3) translating those scenarios into risk mitigation plans that close key gaps.
But equally important is where the risk function resides, to maximize its effectiveness. That could be under the CFO, or in operations, or elsewhere. There is no single right answer, but it pays to think through how you’ll operationalize the capability you’re building. Example: how does the function interact with the rest of the organization? What is the reporting cadence and to whom, in what format, for what purpose? Regulation may dictate (for instance, California utilities have risk sitting with the CFO) but nevertheless the structural set-up has a lot to do with success in risk mitigation and is easily overlooked.
Write the playbook—and make it specific
To spring into action when circumstances demand, you have to write the playbook in advance. That means defining processes in depth, and the details for how the plans will come to life. Example: how would you move people off-site in future in a health crisis? Would you stagger different teams in a control center? And/or rotate crews every 14 days? Co-locating operations and call centers sounds great until your goal is to space out people but keep business running.
And processes have to be broad and catch-all post COVID. Energy demand is likely to be lowered for some time (with reduced consumer demand for ~24 months according to some estimates), coupled with lower economic activity, which in itself reduces demand. So how do you plan for that? In the same breath, customers’ ability to pay may be hindered for years in some cases. So what’s the process to cope with that variable? Never before has the playbook needed to be so thorough, and so flexible for a “choose your own ending” scenario.
Harness muscle memory and accelerate digital
The pandemic has forced many utilities into “ok for now” digital solutions. Think about the virtual contact center, stood up in days in many instances, based on cloud technology and using a remote agent workforce. Under duress, utilities have reimagined what’s possible and challenged their own long-held views about what can be remotely sited. And guess what? Many CFOS and COOs are seeing that remote work has been effective.
This momentum is powerful and—if harnessed—can accelerate utilities’ recovery and future resilience. It’s a rare chance to use the muscle memory of recent months to push digital to the next level and implement what’s been working. And help rethink what operations truly need to be co-located and what ecosystem will maximize outcomes.
Similarly, AI and automation should be front and center for COOs, not only to cut costs but also reduce operating risks through cutting reliance on workers. As an example, deflecting some call types to bots can preserve human agents’ capabilities for more vulnerable customers or priority call types, while allowing for fewer agents in the event of absenteeism. And beyond the current crisis, new ways of working, flexible office and real estate configurations, and collaboration tools will be top-of-mind for proactive utilities. They have to be.
It’s time for utilities to accelerate their move to holistic risk management—and pivot to digital as a way to fast-track progress. Contact me to find out more about how.