The Agile Utility – Forces at Work Changing the Industry in North America AGA/EEI Accounting Leadership and Chief Audit Executives Conference June 15, 2015 | kpmg.com
The Agile Utility –Forces at Work Changing the Industry in North AmericaAGA/EEI Accounting Leadership and Chief Audit Executives Conference
June 15, 2015 | kpmg.com
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Today’s agenda
Impact of disruptive technologies
Industry at a tipping point
The race for the customer
Business and regulatory challenges
Becoming the agile utility
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Remember this word?
DISINTERMEDIATIONThe elimination of intermediaries in the supply chain, also referred to as
“cutting out the middlemen”.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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It’s been busy…
■ Borders ■ Kodak ■ Circuit City
■ Digital ■ Blackberry
■ Arista ■ Sam Goody
■ Midland ■ MCI
■ U.S. Postal Service ■ Webvan
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…With some new guests
■ Home Depot ■ Lowe’s
■ Google (Nest) ■ Apple
■ Bloom Energy ■ Solar City
■ Meritage Homes ■ Balfour Beatty
■ Tesla
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Power and utilities industry is approaching a tipping point
Business model
changes
Need for agility
Operating model
alignment
New energy economics
Evolving/New regulatory model
Aging and inadequateinfrastructure
Out of dateregulatory model
Emerging technology
Changing customerexpectations
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Distributed Energy Resources (DER) is here to stay
Increasingly cost effective residential
solar sower
Energy storage technology breakthrough
(Tesla)
Continued expansion of wholesale renewables
(e.g., wind, geothermal)
Increasing plug-in electric vehicle market
penetration (two way flow)
Local microgrid enabling technology availability
Transmission infrastructure cyber-
security implemented
New low cost natural gas supplies drive industrial cogen
The future state will likely be a hybrid of today’s hub and spoke model and the more
distributed future state
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In this scenario, the most successful companies are those that invest in and are well-positioned to market the new technologies the marketplace is adopting.
Technology breakthroughand the powerof the people
Forces of change play out differently across the U.S.
A number of plausible scenarios to envision the future
In this scenario, the most successful companies are those that adopt aggressive efficiency, capital project rationalization, and asset management initiatives designed to streamline operations, conserve capital, and enhance asset productivity.
Flat economyand customer conservation
The utilities that fare best in this scenario are those with strong regulator and community relationships, trusted rate and compliance organizations, established regulatory constructs that incentivize greener energy supply portfolios and grid resiliency investments, strong disruption and service recovery plans, and strong stakeholder management organizations.
The most successful utilities are the ones that work with regulators to establish regulatory constructs that provide enabling infrastructure and market access.
The most successful utilities are the ones that significantly enhance the inclusion of natural gas and natural gas services and products into their business strategies.
Regulators’rule
Microgrids and distributed energy
supply
Gasworld
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How are utilities responding?
Are not actively seeking change, but rather only reactingto regulatory requirements. The state often drives the paceof change
Complacency
Foresee an extended time frame of a hybrid model betweenthe current hub and spoke model and some aspects of the disaggregated model
Measured embrace
Incumbent utility is committed to the disaggregated futurestate and is actively investing in defining that future stateand getting ready
Drive the future
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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The great unbundling has begun
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Forces at work raising and expanding customer expectations
Customer experience in analog settings
Down-stream product expansion
New energy and related choices and services
Technology advancements
A new standard for
customer excellence in utilities
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Key variables in the race for the customer
Customer focuses on pricing and service, which drives retailers to focus on establishing electricity distribution capabilities
Mass adoption of home
connectivity
Distributed resources
Traditional distribution model Customers choose between
Distribution and Retail competitors who offer the most compelling suite of related products
Customer expectations for access to energy services becomes part of a broader offering around full home connectivity and service
Customer focus shifts to full spectrum energy service providers (energy supply, management and maintenance needs)
Customer expectations
Dis
trib
utio
n ev
olut
ion
Cheap and predictable
energy costs
A
C D
B
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Competition to ’Own the Customer’
“Race for the customer”
Traditional energy service
providers
Crowd-sourced service
providers
Down-stream product
providers
Telco and security
providers
Energy retail and services providers
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Emerging business challenges
Technological innovationThe lack of prioritization and incentive to rapidly adopt new technologies to drive efficiencies in the business and better relationships with customers
MobilityThe need to develop and implement enterprise mobility strategies in areas such as customer operations and field work management
Attracting and retaining the new professional workforce (Millennials)The ability to attract, motivate and retain the best and brightest from the new generation entering the workforce.
DER and infrastructureThe need to rethink and reprioritize how capital is invested in the business
Cyber threatsThe ability to measure up to the growing threat of Cyber crime and warfare in the business
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Emerging regulatory challenges
CapEx versus OpExRegulatory mechanisms needed to encourage or incent the adoption of new ways of doing business such as SaaS (Cloud Computing) or outsourcing non-core operations
Mobile technology and applicationsRegulators don’t understand the benefits of mobile technology and applications. Utilities need to educate the regulators.
DERNeed for updated regulatory policies to allow for items such as: non-utilities to enter the DER market, needed infrastructure to be built to allow for efficient operations, and both the purchase & sales of needed/excess energy produced by DER
Network integratorNeed to develop a new business model, development plan and business case to create a deeper network integrator capability
Data protectionNeed for regulatory policies which allow for the proper use of customer and operational data for the benefit of customers
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Case study: Powershop – NZ incumbent utility establishes new company to reinvent customer engagement model
Case study overview■ New Zealand utility incumbent recognized the
need to reinvent their approach to customer service. Formed a separate subsidiary to do so.
■ Instead of ’pushing’ power and presenting 12 demand payments, they set out to enable the customer to pull power on demand and interact as they wanted.
■ “From our inception, we had the internal philosophy of bringing ’power to the people’,– our whole idea was to give control to our customer base.” – Ari Sargent CEO
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Case study: Powershop – NZ incumbent utility establishes new company to reinvent customer engagement model (continued)
What they did
■ Targeted the connected and mobile customer segment.
■ Leveraged emerging technologies and social media to be able to stay connected with their customers.
■ The customers can track their usage, buy power as they need it, in multiple product forms, remotely.
■ Fundamentally changed the way their customers view their buying experience.
What results they achieved
■ Increased customer contact from 12 billing instances a year plus ’issue contacts’ to an average of 64 logins a year, excluding issue generated.
■ The innovative approach has led to over 90% satisfaction, limited churn, and high referrals.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Questions to ask
As power and utility executives and leaders assess the changing landscape of the industry, we believe they should be asking the following questions of their organizations:
Are we able to respond to changing customer demands?
How are we monitoring marketplace activity?
How are we monitoring risk and evaluating new risks?
Are we conducting scenario planning on a regular basis?
Can we anticipate and shape what our regulators are planning?
Do we have the right technology to support our business objectives?
Do we have the right talent to get the job done?
Do we have the right strategic partners and alliances?
Are we agile enough to respond to disruptive forces in the industry?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
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Customer excellence requires companies to evaluate their business models and operating models from end to end
Have we established an overall brand and vision around which the organization is aligned?
Has the brand been translated into delivery requirements around which we can differentiate? Have we successfully managed to leverage our brands as a bundled service for our residential customers? Have we segmented customers and developed customer specific delivery strategies?
Have we defined the capabilities needed to win? Do we have the processes, organization, and technology support in place necessary to support these requirements? Are we as efficient in these areas as we need to be?
Do we have the right metrics and ability to measure and report to sustain our ambition?
Ambition
Propositions and brands
Markets
Customer segments
Core business processes
Operational and technology
infrastructure
Organisational structure, governance
and risk controls
People and culture
Measures and incentives
Businessmodel
OperatingmodelIncreased visibility
and control
Management information and key performance indicator dashboards
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 383650
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
John KunasekPartner, National Sector Leader forEnergy, Natural Resources & Chemicals