Risk Management the Smart Way

Use automation to manage regulatory and financial risk.

by Larry Kuhl

It’s one of those things that keep utility execs awake at night.

Regulatory requirements and the risks and challenges associated with reporting and compliance are growing concerns for utility managers the world over. More aggressive reliability standards are becoming the norm and forward-looking utilities now view responsive and efficient compliance as a vital competitive tool in the global energy marketplace.

Utilities worldwide deal with these compliance issues.
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In the U.S., the Federal Energy Regulatory Commission has the authority to certify an electric reliability organization to develop and enforce mandatory reliability requirements, with oversight for certain environmental matters. As a result, utility companies must comply with standards dictated by the North American Energy Reliability Corporation (NERC) in addition to various state and local public service commission mandates. They also must meet the financial mandates of Sarbanes Oxley, increasingly stringent environmental health rules and other governmental requirements. Failure to comply results in substantial fines, not to mention serious image problems with the investment community and the public at large.

In this era of growing financial and competitive pressures, many U.S. utilities are filing rate cases, often for the first time in years. Rate case efforts are complicated and highly public and critically important to utilities seeking to increase revenue, obtain funding to support higher operating costs and asset or technology projects, and deliver value to demanding shareholders.

Further complicating the challenge, few utilities have the processes or the automated systems needed to manage these pressing regulatory compliance demands. Companies that do have formal systems typically rely on manual or semi-automated solutions, often developed piecemeal by in-house staffers. Home-grown solutions rarely deliver the performance needed in today’s critical regulatory environment and often lead to higher overall compliance costs. Utilities have long needed better tools to manage the regulatory compliance process.

Next-generation compliance

Utilities can now leverage a new generation of automated compliance systems designed specifically to enhance collaboration, accelerate reporting and reduce the cost, complexity—and risk—of regulatory compliance. This powerful new class of software and web-based solutions fully automates the entire workflow needed to respond to energy industry compliance requirements. Utilities can use these systems to improve operational efficiencies, make their workforce more productive, and achieve mission-critical reliability, environmental and rate case reporting objectives.

In the April 2007 IDC report, “2007 Critical Business Initiatives Driving IT: Your Industry Opportunity Guide” (Doc #206552), the authors write, “IT investments take all forms to support compliance: archiving tools, storage, server technologies, reporting, and an SOA architecture to make the captured data more meaningful and usable across the business.”

To meet NERC and regional compliance standards, utilities can adopt software that automates previously manual processes to manage compliance, responsibility, accountability and audit-readiness. Software often comes pre-loaded with all NERC and applicable regional standards, requirements and measures.

The best NERC compliance systems incorporate a range of automated collaboration, tracking and quality assurance features, from role assignments and security protections to logs, monitoring, alerts and monthly tracking. Each step of a required NERC quarterly report can be automated so that no steps are missed and the report is submitted accurately and on time. Administrators can assign roles using the software, which also monitors progress and requires responses based on responsibility areas.

“Utilities have really been searching for a way to track and manage NERC and other compliance programs,” said Andre Chon, principal and director with AUS Consultants. “This approach provides a comprehensive system to manage workflows and every step of the regulatory procedural process—simply a smarter way to reduce regulatory risk.”

Some utilities struggle to meet complex regulatory requirements across a diverse power generation mix. Utilities can also now leverage a powerful new class of Internet-based environmental compliance solutions that comprehensively cover the management of waste and water quality, spills and emissions, permits, inspections and monitoring for EPCRA, ISO 14001, the Clean Air Act and other programs. Utilities may also lack integrated environmental data with organization’s day-to-day management systems. Using this web-based software, utility professionals can easily report on a corporate portal that is accessible to all who need it.

“It’s now possible for utilities to manage air, waste and water emissions data, as well as health and safety information, using a single software platform in order to optimize compliance performance across plants and business units,” said Robert Johnson, CEO and president of ESS, a leading provider of environmental, health and safety and crisis management software for governance, risk and compliance.

A Baltimore Gas and Electric rate case

Constellation Energy, the nation’s largest competitive supplier of electricity to large commercial and industrial customers, recently put this new generation of reporting technology to work on a crucial rate case challenge.

As energy executives know, a complex rate case submission often entails thousands of requests for information, each of which must be answered quickly, completely and accurately. When Constellations’ subsidiary Baltimore Gas and Electric (BGE) planned a rate case effort in 2005, the first in more than five years, managers saw the need for a new and more capable case management solution.

“It’s more than a question of revenues,” said Dennis Hartline, pricing and regulatory services, BGE-Constellation Energy. “If we don’t make our projected earnings per share, we disappoint stockholders, and the value of our stock goes down. That in turn raises the cost of borrowing. If we try to cut operating expenses to compensate, that can affect the reliability of our system.”

To meet those objectives, Constellation Energy deployed an automated rate case management system developed jointly by AUS Consultants and Flexnova. CaseWorks is built on and integrates seamlessly with the Microsoft-based information technology environment already in place at BGE-Constellation. CaseWorks automates and streamlines the procedural steps in rate cases and other utility regulatory procedures. The documents and data are easy to share and search in managed, virtual workspaces. The system also automatically coordinates regulatory activities with legislative bodies, legal counsel and other external groups, just the kind of advanced tools needed in today’s increasingly regulated and accountable energy industry.

BGE has certainly seen the benefits of a more responsive data management capability. The company quickly trained its key employees on the new system, then began using the solution for a gas rate case that was due in less than a month. In previous rate case submissions, the utility had filed just 50 percent of answers within the required 10-day response period. Using this next-generation system, Constellation filed 90 percent of its answers on time, and utility managers said those answers were more complete and accurate than in the past.

Constellation Energy now uses this technology to capture and preserve crucial rate case data, and using robust storage and search engine capabilities, can access that knowledge base for future rate case submissions. Company officials said the solution was easy to deploy and maintain. This approach improved the productivity of administrative employees, allowing them to generate faster and more precise answers, while reducing the time these key personnel spent on those efforts by 40 percent.

To meet the challenge of energy supply and demand, utilities need integrated business processes, innovation and solid business relationships. There are four core principles to more effectively manage risk:

  1. Simplify and automate technology adoption to help employees be more productive
  2. Embed risk management best practices in everyday activities and across structured and unstructured business information
  3. Enhance risk analytics and computing and unlock data for everyone
  4. Define long-term sustainable risk management and compliance blueprints

By using today’s automated compliance and case management tools, energy leaders can save time and money, reduce compliance risks ” and maybe sleep a little better at night.


Larry Kuhl is global utilities business development and alliance manager at Microsoft. For more than 29 years he has been working with utilities to identify, develop and implement the best business solutions to solve the critical issues utilities face.

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