STRATEGIC PLANNING IN THE NEW ENVIRONMENT: WHAT CO-OPS ARE FOCUSED ON.

• Author: Boudreaux, Greg

Introduction

Electric cooperatives today face an extraordinary array of issues. Boards and managers must address the potential impacts of wholesale and retail competition, the emergence of new distribution technologies and distributed generation, the growth of customer demands for services such as on-line billing and premium power, and whether they wish to offer diversified services. At the same time that they address these new issues, they must also continue to provide competitively priced electric service and maintain the loyalty and support of consumers. The number and complexity of the issues is almost overwhelming. How can boards and managers deal with this complexity so that they can make effective decisions?

This article attempts to help answer this question. It identifies and organizes the issues that appear to be of greatest concern to many cooperatives. This analysis is not based on a formal survey. Rather, it grows Out of facilitating strategic planning projects with several cooperatives, and from discussions with cooperative leaders about the issues with which they are most concerned.

After summarizing the major strategic issues, this article will describe the experience of one electric cooperative that recently updated its strategic plan. This case study is intended to show how the issues came to be addressed at a real cooperative. A key thesis of the article is that strategic planning must itself be planned. This cooperative developed its plan by beginning with a shared understanding of what it wanted to achieve from the planning process.

A second thesis is that although cooperatives must deal with a diverse set of complex issues, most issues tie together. The strategic goals of many cooperatives are mutually interactive--they all involve competition, organizational capabilities, technology, cost competitiveness, and the need to satisfy member-consumers.

A final thesis is that the strategic plan should relate to the expectations that the board has regarding the manager's performance. When boards focus on strategic planning, manager appraisal is easier. In this sense, strategic planning is the most basic way that the board does its job.

Today's Strategic Issues

There is no single list of current strategic issues. But because of changes in the industry, technology, and the legal and regulatory climate, there is a common core of issues that many cooperatives are addressing. In some states, cooperatives must address the question of "opting-in" to retail competition. Cooperatives everywhere must address issues associated with distribution technology and the need to ensure that they continue to meet consumer needs cost-effectively. What are these current issues? I suggest the following:

1. If we face an opt-in decision, what should we decide?

2. If given the choice, should we compete in energy sales?

3. How do we meet consumer expectations for enhanced services for e-commerce and premium power?

4. How do we stay on top of fast changing, distribution technologies?

5. How do we continue to provide competitively priced distribution service?

6. Do we face threats to power supply?

7. Should we diversify into non-core businesses?

8. How do ensure that our employees continue to have the skills and motivation necessary in the changing utility environment?

9. How do we ensure that our members continue to support us as we adjust to a changing industry?

   Each of these issues can be further unbundled. Listed below are some of the key questions associated with each:

1. The co-op's stance with regard to retail competition

   Boards and managers must determine what features they want in any restructuring legislation. If retail competition has already been mandated in the state, and if the board can choose to opt into competition, it must decide if the system will do so. In addressing this, systems are asking:

   * Do our consumers want retail choice?

   * Are we prepared to explain our decision to consumers, and do we know how they will respond?

   * Are we prepared for the logistics and expense required to implement retail choice?

   * What is the impact on other cooperatives if we opt in and others don't (or vice versa)?

   * Are there threats to metering or billing?

   * Are there timing factors whereby choice can be offered at a later date, or phased-in or pilot-tested to gain organizational expertise and consumer acceptance?

2. Competing in energy sales

   Assuming that retail competition has been mandated, the board must determine if the cooperative will engage only in energy delivery or compete in energy sales. Factors to consider include:

   * Will we sell electricity, or should that be the role of the G&T or its affiliate?

   * Will we sell electricity to customers outside of our distribution service territory, and if so, where? Where, literally, are we prepared to compete?

   * Do we have the resources to do this? Will we need a sales staff? A marketing database? Will we face new regulatory requirements, such as licensing and PUC regulation?

   * Does our power supply situation (e.g., G&T contract) allow us to do this? If so, does that put us into the traditional territory of friend or foe, and what will the response be?

   * Do we have a marketing strategy.

   * Do we have the staff to handle transmission scheduling, dispatch, settlement and ancillary services?

   * Do we have an agreed-upon G&T-wide strategy, or do we need to help create such a strategy?

3. Meeting enhanced consumer expectations for e-commerce and premium power

   Consumers increasingly expect to do business over the Internet and to have access to billing and other data on the cooperative's computer. Additionally, the spread of microprocessors increases the need for higher levels of quality and reliability.

   * How many of residential, commercial and industrial consumers expect to conduct Internet business transactions, such as receiving consolidated bills, paying by credit card, or signing up for new services online?

   * How many consumers expect or will soon expect the higher levels of service associated with a digital economy?

   * How can we organize ourselves to achieve these capabilities cost-effectively?

4. Staying abreast of fast-changing technologies

   At the same time that consumers expect higher levels of service, we are witnessing unprecedented advances in telecommunications technology, including distribution automation, mapping, automated meter reading, and other innovations. These are the in-house technologies that allow cooperatives to respond to the changing consumer expectations. In dealing with this, cooperatives are asking:

   * Have we monitored the workplace technology solutions (GIS, AMR, remote dispatch) that will deliver improved service to consumers? Are we making reasonable investments in these systems?

   * How will the availability (or lack) of broadband access impact utility operations?

   * What are the likely impacts of distributed generation on our system?

5. Ensuring that we provide competitively priced distribution service

   Many issues mentioned in this article (e.g., interactive web sites; distribution automation) can be expensive. To take one example, as the standard for reliability increases, so will the cost. In addressing this, cooperative leaders are asking:

   * Are we taking advantage of opportunities to improve economies of scale through such activities as joint purchasing, including through national or regional efforts that apply "B2B" Internet technology to supply chain management?

   * Are there other activities that we should undertake on a joint basis? How can we take advantage of the strengths of the co-op network to deliver any of our services to consumers?

   * Can we improve service and reduce costs by identifying and implementing industry "best practices"?

6. Threats to power supply

   With the price spikes in the wholesale market during the summers of 1999 and 2000, and with the current crisis in California, cooperative leaders know that power supply cannot be taken for granted. Risk must now be...