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Cost reductions, customer satisfaction and vision are key to achieving Operational Excellence for the Next Generation Utility

This article first appeared in Utility Dive.

Utilities across the U.S. are faced with the need to reduce costs to provide rate stability, while improving reliability and enhancing the overall customer experience. This is a daunting challenge complicated by aging infrastructure, aggressive regulatory intervention and oversight, plus the ever-changing impact of technology.

In order to manage these challenges, the term Operational Excellence has surfaced as a way to simultaneously achieve multiple objectives. The following three techniques can position utilities for successful improvement:

  1. Cost reduction - shifting spend from O&M to capital, ensuring incremental employee additions are focused on capital, gaining regulatory agreement on capital allocation focused accounting
  2. Focus on the customer - improving (or at least maintaining) customer satisfaction levels, providing the appropriate outreach channels for proactive customer interactions, identifying “sweet spots” that drive customer satisfaction (reliability, rates, communications)
  3. Establishing a clear internal vision - clearly outline how employee work contributes to cost reduction and customer focus, develop performance metrics that are regularly monitored and published publicly.

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From a cost perspective, utility rates are driven by O&M expenses and not capital, and thus, when improving the electric system infrastructure, it would seem to be more prudent to spend capital rather than O&M.

Ultimately, it is often better to replace assets instead of keeping them running. This is particularly true if an asset has reached the end of its cost effective life, as opposed to its technically possible life. In many parts of the country, utilities continue to spend money operating and maintaining aged assets, rather than upgrading these aged assets with modern replacements.

This will require a shift in the utility mindset from run-to-fail to risk informed, performance-based spending decisions. In turn, this will require more sophisticated diagnostic and analytic tools to assess asset condition, operational risk, and performance in order to make smarter decisions on replace versus repair.

In addition to spending philosophy decisions, there is the need to manage human resource allocation as one of the issues. Utilities see that focusing their full-time internal work force on O&M costs enable them to better manage their variable work force (contractors) on capital work to avoid the cost of maintaining unproductive workers during slow construction times and reducing administrative costs. 

The second segment to Operational Excellence deals with managing ever changing customer expectations for communications and their impact on customer satisfaction. Over the past years, in connection with PA Consulting Group’s 17-year-old Reliability One Awards program – which recognizes North American utilities in categories such as reliability, storm response, technology and innovation and customer engagement – winners have demonstrated how companies have been leveraging technology to improve the customer experience through customized personal communication avenues and self-serve options.

For example, utilities have learned that customers do not expect perfect reliability, but they do expect accuracy with regard to service restoration times, and they prefer to be contacted through their preferred channel such as email, land line calls, mobile phone calls, text or tablet.

Customers are also seeking instant communication. As a result, utilities now monitor social media real-time, respond to customers quickly, and track every inbound communication for analysis and future refinement of outbound messaging.

Customers also want to know about changes to their monthly bill. Many utilities now send out emails about pending rate increases, explaining why they are needed, and the impact on the monthly bill. Customers also receive proactive “pushes” – typically via text and email - about energy efficiency programs, appliance replacement offers, demand side management, and how they are responding to industry issues. And with every one, customers can choose to opt-in or opt-out of all their communications topics and options.

All this helps to improve the customer experience, which drives customer satisfaction, which in turn drives performance based rates. In the end, it’s all about the intricate balance between customer satisfaction and the amount of capital spend to achieve desired system performance and financial targets.

The last piece of the Operational Excellence challenge deals with ensuring that every employee understands their contribution to company improvement and customer satisfaction. This requires a uniform set of performance metrics so that employees see how their work contributes to the total effort.

For example, if SAIDI (System Average Interruption Duration Index) is a core performance metric, then measurements start with feeder SAIDI (which could also be analyzed by an individual employee), aggregated by substation, then region, then corporate. This provides local operations people with the information necessary to effect outage frequency reduction plans.

Performance metrics are only as good as the reporting system that supports them. It is essential to keep employees informed of their progress towards performance goals so that corrective action can be taken if necessary. Metrics reporting should be regular, visual, and available to everyone. Today’s technology platforms offer a multitude of on line business intelligence options so that everyone can see where improvement is needed. The results of performance measurement should rarely be a surprise.

Metric ownership is another key aspect of performance management. Every metric needs an owner to ensure data collection timeliness and accuracy, usable performance reporting, and most of all, the creation of action plans when metrics wander outside acceptable boundaries.

Scott Sidney is an energy and utility expert at PA Consulting Group

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