Managing utility risks through ERM

Common industry risks

Leadership nearing retirement, load shifts from traditional generation to renewable energy sources and financial staff turnover. These are just a few of the top concerns for utilities that may be invading your sleep – and with good reason:

• 75 percent of utility leadership is close to 60 years old as are 45 percent of department heads — the next generation of leaders have not been identified.
• 10 percent of the utility’s load has been replaced by customer solar generation which is increasing by two percent per year
• Employee turnover in core finance functions ( i.e. accounts payable, payroll, customer service) is moving at a clip of 20 percent annually as employees leave for better paying jobs

Although there are no magic solutions, there’s a proven methodology known as enterprise risk management (ERM) your utility can infuse into its business practices to evaluate risks and develop mitigation plans.

Enterprise risk management approach

A continuous process, ERM identifies, mitigates and monitors potential future events that create uncertainty, in a manner that reduces potential loss and increases potential gain. ERM helps a utility proactively prioritize limited resources, make decisions, protect assets and take advantage of new opportunities to increase the organization’s overall value.

The simple approach to ERM should consist of these steps:

• Discuss potential financial and operational risks with management, department heads, line workers and board members
• Use this discussion to make a current state assessment of the magnitude and likelihood key risks will occur and the utility’s readiness to address those risks
• Introduce risk management tools to this group to develop a more robust approach to developing mitigation plans to address key risks and enhancing risk monitoring processes and reporting tools
• Develop ongoing employee roles and a formal process to regularly report key risks and mitigation plans to management and oversight bodies
• Incorporate risk assessment into ongoing business process and strategy