Compliance is not enough for power, utility companies

Ernst & Young LLP

Even in an age of uncertainty and volatility, opportunities abound for value creation among power and utility companies that are willing to reach beyond compliance to a decision-making process informed by risk assessment, according to a new report by Ernst & Young LLP’s power and utilities advisory services practice. 

The report, “Turning Risk into Results: America’s Power & Utilities Snapshot,” asserts that compliance is insufficient in a post-San Bruno, post-Fukushima age of management. Utilities must move instead to a risk culture with a more sophisticated assessment and articulation of risk. Ernst & Young LLP recommends risk-informed decisions coordinated with regulatory recovery, as well as mitigation activities supported by modeling analytics.

“Utilities need to continue to excel at the basics: keeping the lights on and delivering the gas or electricity safely and efficiently,” said Matt Chambers, principal of Ernst & Young LLP’s power and utilities advisory services practice and one of the authors of the report. “To achieve competitive advantage, utilities will have to strive for more. It will require a fundamental shift in corporate culture — one that moves beyond compliance and towards initiatives that are risk-informed, innovative and customer-focused to accelerate business performance.”

At the same time, American utilities are caught in a cost reduction bind. Cost challenges include aging infrastructure, environmental compliance and smart grid technology, but energy-efficient programs and a sluggish economy mean limited prospects for meaningful growth in energy usage. “Combined with curtailed or denied requested rate increases, utilities have to take an enterprise approach to cost reductions.”

Click here for report

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