Davies Consulting

Strategies for Complex Organizations

Davies Consulting: Utility Regulatory Model Must Evolve to Effectively Address Risks

FOR RELEASE:  February 20, 2015

FOR MORE INFORMATION, CONTACT:  Julie Clendenin, (301) 652-4535, jclendenin@daviescon.com

Chevy Chase, MD, 2/20/2015 – Speaking on Wednesday to an audience of probability management experts representing major North American industries, Davies Consulting LLC partner Pat Delaney said that utilities, regulators, and intervenors share responsibility for reducing risks related to energy delivery.

Delaney noted that for more than 150 years, regulated utilities have continuously adapted to pendulating rules in a progression typically aligned with significant societal events.

Californians are experiencing this today in the aftermath of the 2010 San Bruno event.  Independent investigations found that the utility, regulators, and consumer advocates each had some accountability for the San Bruno incident, as the regulatory rate making process has been focused on least cost alternatives with limited consideration of risk. California utilities always have managed risks in day-to-day operational decision making, Delaney said, and he believes that they are “moving in the right direction by integrating operational risks with enterprise risk management processes, enabling a more meaningful dialogue with regulators and other external parties.”

There are challenges, however. Delaney said, “It may sound trite, but it’s not just what you know; it’s what you don’t know that can break this system. Dealing with that uncertainty is where probability management tools come in.”

Regulators can create a rate case process that accounts for uncertainty by encouraging utilities, regulators, and consumer advocates to acknowledge their common mission, establish a common language for discussing risk, and agree upon a common risk tolerance level within the context of day-to-day uncertainties.

As the leader of Davies Consulting’s Risk & Asset Management line of business, Delaney works with utility clients to integrate risk management with asset management and investment decision making processes in their organizations.

“The California example is worthy of note,” Delaney said, “and we see utilities across the country working to improve decision making by integrating risk analysis into their processes. Transparency and consistency in this area will enable utilities to thrive despite uncertainties, and the regulatory process ought to create a space for this kind of innovation to happen.”

Delaney was speaking at the two-day Annual Probability Management Conference in San Diego. Copies of his slides are available from Julie Clendenin, jclendenin@daviescon.com, and a white paper on the topic is forthcoming.

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About Davies Consulting (www.daviescon.com) With core business expertise in utility asset management, emergency management, and regulatory support, we take a practical approach to strategic issues, developing dynamic solutions that integrate operational objectives, regulatory requirements, financial goals, and diverse stakeholder expectations.  Davies Consulting helps utilities balance risk, cost, and performance to enhance organizational effectiveness, offering best practice expertise, analytical support, and business process advice that ensures high levels of performance enterprise-wide.

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