The Baker Tilly Energy and Utilities team works with nearly 300 utilities nationwide. While we are not making scientific predictions, our interactions with our clients and the utility industry give us insights into utility trends for 2014. This is what we see (in no particular order):
1. Increased ability and desire to increase utility rates
During the financial crisis of 2008 – 2011, regulatory and political pressures delayed some increases in utility rates that would have been foregone conclusions before the crisis. Utilities are now more aggressively returning to the table for rate increases that they have stalled while waiting for the crisis to ease. They are shoring up their balance sheets and obtaining debt at historically low interest rates for long-term project financing before interest rates increase in the future.
2. Succession planning concerns and training of new utility employees
The utility workforce is aging and boomers are looking at their retirement options. Outside crew work is hard on the body and can speed the retirement process. Downsizing due to rate concerns and mergers is also a business reality. Some utilities have a robust succession planning process, others realize this is an area to address. Attracting new talent and offering competitive compensation and benefits is a challenge utilities are confronting.
3. Knowledge capital and workforce training
Doing more with less puts additional job duties on utility staff. Determining optimal organizational structures that cover positions with optimal efficiency and without employee burnout are areas that utilities are addressing with organizational reviews and employee training and cross-training.
4. Meeting the compliance and regulatory reporting environment
The recent explosion of new compliance reporting requirements—Dodd-Frank, NERC, grant reporting, compliance reporting for regulatory requirements, etc.—has put a strain on utilities’ staff and utility reporting systems and controls. These issues are causing utilities to analyze their systems’ reporting abilities, use of internal audit staff, SOX requirements, and outsourcing/insourcing of reporting. Utilities are also assessing risk and examining their internal controls to ensure that they meet these requirements.
5. Evaluating outsourcing options
With the incongruity of rate pressures, staffing reductions, reliability, and increased reporting requirements, utilities are taking a hard look at outsourcing or supplementing areas such as maintenance, customer service, internal audit, and plant operations.
6. Funding analysis and rate recovery concerns for retirement and other post employment benefit costs
Accounting requirements for recording retirement and other post-employment benefits costs have become more detailed. Historical discount rates used to calculate these liabilities have decreased due to investment returns, increasing the cost of these liabilities. Utilities need to analyze their reporting and long-term rate recovery options.
7. Balanced scorecard and metrics reporting
The utility industry lives on metrics. Whether reliability, operational costs per unit/mile/customer, or financial ratios, the information is there. How to extract the data from utility systems is paramount. More than ever, utilities are looking at implementing or upgrading scorecard metrics reporting.
8. Evaluation of renewable energy alternatives and meeting mandatory renewable portfolio standards
With increased renewable portfolio standards nearing, utilities are evaluating their options, especially with the lead times needed for some projects.
9. Expanded use of technology
Utilities are evaluating the costs and business changes involved in replacing legacy systems with robust enterprise resource planning (ERP) systems or best of breed systems. Software and platform options are many. The expanded use of new tablet applications in the field and office are leading to greater efficiencies but also require new interfaces.
10. Increasing and tightening regulations on coal power plants
Coal provides over 40 percent of the electricity generated in the United States. It is relatively cheap (although facing increased competition from natural gas), reliable, and in abundant supply. Public perception, however, is that coal power excessively harms the environment and recent regulations are designed to lead to its demise as a fuel source. Many coal plants are still in utility rate base and utilities are evaluating their return on investment, early unit retirements, or the costs of conversion to alternative fuels, such as natural gas.
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.