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So Just How Does a Utility Make Money?
By John Ferrare, Enerdynamics CEO
Earlier this year one of our utility clients came to me with an interesting challenge. Years after it had been filed, a rate case decision was coming and would result in substantial rate increases for gas and electric service. Fearing that ratepayers would see this as “the greedy utility” taking advantage of customers, the utility wanted its employees to fully understand and be able to explain to friends, family, neighbors, etc., that the hefty increase in rates did not mean the utility was laughing all the way to the bank.
Having worked at a utility (Pacific Gas and Electric Co.) for more than a decade, this project uniquely appealed to me. In my experience there and with other utility clients I’ve learned that utility employees rarely understand how their company makes money. And, more importantly, they don’t get how different the money-making process is from that of a competitive company.
With a competitive enterprise, the formula is fairly simple: Take in more than you spend and you are profitable! For a utility, however, the formula is a bit different. In many cases pricing is not competitive but rather decided by a regulatory body.
Also up to the regulators are the services that a utility can offer, whether or not a utility can spend money and, if so, how the money can be spent. Additionally, the regulator can disallow expenses it finds unreasonable, and what’s politically acceptable one year may be totally unacceptable a few years later. Thus, it makes for a rather complicated paradigm!
This was one of the most challenging classes Enerdynamics has developed. The client wanted a half-day class that would be presented twice in one day, thus allowing 60 people to participate each day. This meant a lot of information had to be presented in just four hours. Also, we had to ensure that the topics (including concepts like rate base, depreciation, and rate of return) were presented in a way that is accurate enough for the experts yet simple enough for the novices.
Though challenging to develop, the class has received a great response from its attendees and the client, who plans to continue the course offering in 2014. As one who teaches this class, it’s rewarding for me to hear attendees explaining concepts like “rate base” with clarity and confidence after just a few short hours of focused learning.
For me, developing this class demonstrated the true value of creating training that specifically addresses an organization's need. Often companies try get by with off-the-shelf solutions to save time and/or money. But in doing so, employees may walk away with an imperfect understanding of the content. By working with the client to develop something that directly and specifically addressed the employee need, the result was a product with value that far exceeded the development cost.
While this class was customized for this particular utility/client, most of the course content is applicable to any gas and/or electric utility. Customization is available for this and any class offered by Enerdynamics. If your company has a challenge that could be addressed via a customized training session, Enerdynamics has the experience and resources to make it a reality. Contact me via email at firstname.lastname@example.org or by phone at 866.765.5432 ext. 700.