Public Power Strategy Challenge

Nebraska is a public power state.  There are no investor owned utilities in the state and it has a long tradition of public ownership and control of its energy resources.  The issues driving the electric power industry today are also bearing down on the Cornhusker State in ways that challenge both its traditions and future. My purpose here is to shine light on the big dog in Nebraska public power and some of the strategy challenges and opportunities it faces.

The Nebraska Public Power District (NPPD) is beginning an update of its Strategic Plan.  The decisions it makes have consequences far beyond NPPD and its customers—those choices shape Nebraska’s energy and economic future.  Those decisions also have implications for Nebraska business beyond its borders making them more or less competitive in the regional, North American and global markets they serve.   The way NPPD responds to the challenges and uncertainties it faces across a wide range of key strategic questions will either enhance or restrict Nebraska’s opportunity so this is a timely and essential action for the District.

No pressure, right?

NPPD’s Board of Directors and CEO know it must prepare to face the challenges ahead from changing industry structure, our uncertain economy, and new regulations on greenhouse gas emissions, nuclear power operations and renewable energy resources.  The strategic plan process is designed to inform and educate them and the NPPD stakeholders involved so they can make better choices.

Build upon Nebraska’s Strengths

My purpose here is not to turn Cornhuskers into frightened deer in the headlights, but to get them to see the genuinely good opportunities they also have in the midst of all this change and uncertainty to position Nebraska for strategic competitive advantage.

What are those strengths?

  • Stable, Reliable, Low Cost Power Generation Portfolio.  The NPPD portfolio of 3,157 MW of power generation has a solid base of low cost coal fired generation and efficient nuclear power that together make up almost 85% of its energy supply.  It has plenty of room for the portfolio to grow share from renewable energy and natural gas to meet mid merit or peaking needs and it gets about 9% from power purchases including low cost WAPA power.
  • Strong Backbone Transmission Network.  NPPD is blessed with more than 5,000 miles of transmission and the capability for access to the wider SPP grid.
  • NPPD is Nebraska’s largest Electric Utility covering 91 of the 93 counties giving it influence and responsibility for meeting the long term energy needs of the state.
  • Strategic Geography of Place. Nebraska is strategically positioned at the seams of the WECC and Eastern Interconnect with access through SPP to ERCOT.  This strategic importance of geography is likely to be more important in the future as National interest Electric Transmission Corridors, Smart Grid, access to key wind and other renewable resources become critical to the clean energy economy emerging.  Exploiting its geography to strategic advantage should be a key consideration in the NPPD strategic plan.
  • Public Power Tradition. Nebraska is an ideal laboratory for emerging technology, product strategies and business model options given its consumer-ownership traditions. Harnessing its ‘can do spirit’ along with the public power tradition of consumer ownership gives NPPD unique opportunities to ‘partner’ with customers and expand services offerings to support demand side programs and services on the customer side of the meter that would increase customer satisfaction and reduce District risk.

Leveraging these strengths, there are at least as many opportunities as threats ahead

From its secure low cost portfolio position, NPPD can explore the potential to leverage emerging technologies such as power electronics and synchrophaser technologies in transmission and grid operations, distributed energy resources including renewables, distribution automation, uses for natural gas from unconventional sources transiting the state, smart meters, meter data management, home area networks and constant energy management solutions reshaping both the utility-side of the meter and the options for customers.  In the froth of change is opportunity in both NPPD’s traditional lines of business and in the emerging needs of its stakeholders for NPPD to do something new to secure Nebraska’s energy future.

The greater risk is that NPPD will play it ‘too safe’ rather than think boldly and act strategically to go beyond its current commodity energy-focused services on the wholesale and retail lines of business to consider other value added energy management services on both sides of the meter that help Nebraska customers compete more efficiently, project their products and services in the wider regional and global markets more effectively, and take actions that protect and enhance Nebraska’s strategic advantages for the smart-grid enabled future.

The real strategy challenge for NPPD is to work collaboratively to define an energy future that lives into the full potential of its customers.  NPPD is the keystone of Nebraska’s proud public power tradition and an important new market participant in the wider SPP regional power market so a lot is riding on the strategic vision and plan of action it adopts.  Its public purpose is to serve the present and future needs of those customers and the State prudently, affordably, and reliably.

Face the Competitive Threats Ahead

That Nebraska does not have investor owned utilities does not insulate it from competition in wholesale power generation, in merchant transmission, in fuels, in access to renewable energy resources.  The seductive and yet threatening power of new technologies we often lump together as ‘smart grid’ is that it enables vastly more efficient power operations and distribution automation.  This is good if you are doing it—but can be life threatening if a competitor is doing it to you!

What are some of the competitive threats ahead?

  • The risk from falling behind in new technologies like renewable energy, natural-gas fired combined cycle plants that can be load following, power electronics, distribution and grid automation, enterprise software, business intelligence, and customer relationship management capabilities to do more, faster, better, cheaper for customers.
  • The risk of new entrants offering smart grid-enabled solutions. To succeed smart grid technologies require scale, interoperability and broad access to customers.  For traditional utilities accustomed to defined service territories smart grid can turn the industry market place on its head.  These new entrants are likely to be big global players like GE, ABB, Siemens, SAP, Oracle, Johnson Controls, Honeywell or others combining communications, security, and other information services with energy.
  • The competitive risk from third party aggregators offering optimization services. Energy efficiency, demand response, emissions reduction are the seductive attractions that are being offered by aggregators who are taking advantage of the convergence of information technology and operations technology to help large scale energy users and buyers reduce cost, manage their carbon foot print and assure consistent, constant energy management across their facilities.  The new entrant competitors include fast growing start-ups like EnerNOC, Comverge and C-Power scaling their business signing up big wholesale and retail users and buyers of energy stepping in between a utility and its biggest customers.
  • The risk of a falling sword of new laws and regulations. Whether Congress will enact new energy and environmental legislation that regulates carbon emissions, taxes carbon use, sets a national renewable portfolio standard or changes the tax laws in ways that diminish the value of NPPD’s existing power supply portfolio or raise the costs of marginal additions is unknown.  The strategic Plan should anticipate these risks and examine hedging strategies to mitigate them if enacted.  The more power over the energy markets that moves to Washington from the states the more vulnerable NPPD and its public power traditions become to changes beyond your control.  Since these are issues faced by all the TEA owners and all the large public power council members, NPPD is not alone in these challenges and has natural allies in framing options and workarounds.  The Strategic Plan then needs to address NPPD’s outreach to its natural allies and keep the District actively involved in Congress, in APPA, in SPP and other venues where its strategic interests are affected.

NPPD must learn to compete in a market of bigger, faster, richer and more nimble technology giants

Those competitors are not likely going to be other utilities.  The convergence of forces like smart grid evolution, renewable energy, new technology and software services is forcing a rapid consolidation in the cleantech market segment focused on energy bringing with it new competitors.  They want to dominate and serve large parts of the energy value chain offering solutions and services that meet customer needs in a way that makes for long lasting business relationships with steady revenue streams.

In this brave new world of competitive energy technology it will be much better for NPPD to keep a customer than to replace one lost.  But doing so may require NPPD to rethink its services offerings going beyond the wholesale or retail sale of commodity energy with a business model that enables it to offer customers more services in energy management, in energy risk mitigation and avoiding price volatility in the real-time energy market future. It may require partners in communications, security, home area networks and the devices, gadgets and dashboards and software to sue them on the customer side of the meter.

Stay Focused on Customers

While NPPD may deploy many tactics to address the issues it faces, the key to long term success is staying true to your values, articulating a vision of Nebraska’s energy future that is consonant with the values of your customers—and making sure those customers truly believe NPPD is on their side!

If that means NPPD must change some of the ways it does business to match the changing needs of customers, the organization must have the willingness, self-confidence and nimbleness to do so.

So what?

The challenges and opportunities on the horizon for the electric power industry or its public power segment will not be decided tomorrow or next month or next year.  Any strategic plan is a process roadmap, a renewed vision and the values that lead it forward.

Developing a strategic plan is the easy part—-living into it is what is hard.  Strategic planning is a continuous process of change that adapts as it advances so the strategic plan that results is also a living process not a report you write and put on the shelf.  To implement its strategic plan NPPD must ‘infect its workforce’ with the strategic vision and values to carry it out into the future.  That workforce of people will age and retire, take new jobs and move away.  New skills and new people will be needed over time to hand off the expertise and lessons of a generation of professionals to the next.  This too needs to be part of any strategic plan.  It starts with a commitment by the Board and management to the plan they adopt but it uses the discernment process of getting there to involve, educate and infect that next generation of NPPD future leaders with the vision, values and insight to deliver on the promises you make to customers for the future.  It creates an open and transparent process of collaboration between the Board, management and staff and the stakeholders to build trust and confidence in the direction NPPD is going for their future.  And it also opens the door and enables Nebraska to grow, prosper and protect its economic vitality.

If the NPPD Strategic Plan can do these things well it will live its public purpose in a way that everyone involved will say—‘look what we built together’.

Gary L Hunt

About 

Gary Hunt is a global business executive with 20+ years experience as a “C’ level trusted adviser on corporate strategy, M&A, and recurring revenue business model strategies.

His focus is information technology and energy vertical “sweet spots” where IT and OT converge to offer scalable growth opportunities to leverage data and analytics into advanced predictive analytics solutions using recurring revenue business models.

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