Utilities are finally going back to their roots — and it's about time. In years past, Wall Street and managing consultants were more than willing to help us find our way to meet a brave new deregulated world. This so called “help” — when followed — helped sink more than one utility. Remember the disastrous results when Montana Power decided to remake itself into a high-flying long-haul telecom company? Most utilities that dipped their toes in unregulated water found the water way too hot.

The year 2004 brings about a major shift in our industry, with many utilities spinning off previous investments in foreign utilities, real estate, energy services, contracting, manufacturing and even real estate. Why? After the burst of the telecom and Internet bubbles, investors have renewed interest in the steady returns electric and gas utilities provide. Even utilities that managed to run well-performing subsidiaries are finding it advantageous to spin off their properties and invest cash into their regulated businesses.

Wisconsin Energy Corp. (now operating under the trade name, We Energies) might be my favorite example. We Energies already had a strong work culture. The company's previous CEO, Richard Abdoo, made sure the utility was a good company to work for and do business with. Attention to business details resulted in a high-reliability distribution network. In fact, PA Associates recently named We Energies as the most reliable utility in the Midwest based on frequency of interruptions for the second year in a row.

I checked in with Wisconsin Energy's CEO Gale Klappa to discuss its huge capital improvement program called “Power the Future.” This initiative requires a major increase in capital investment in both power delivery and generation. Klappa told me the “Power the Future” initiative has gained excellent support from the state.

“We've received approval for two new gas-fired plants and now two new coal-fired plants,” states Klappa, “and we are waiting on final permits for the coal fired units.” Key to the success of this initiative is a utility commission that recognizes the need for reliable power to meet present needs and future load growth. Both the mayor of Milwaukee and governor of Wisconsin are promoting targeted growth and are supporting We Energies' efforts to upgrade infrastructure. The state utility commission also recognizes the need for investment, having recently reported the state will need 7000 additional MW of capacity between now and 2015 to meet projected load growth. To fund the program, the utility is selling two out-of-state power plants, real estate holdings, a leasing services company and a manufacturing facility.

On the generation side, the state utility commission gave the go-ahead for We Energies to create a separate subsidiary, “We Power,” to finance and build facilities. We Energies will then sign a long-term lease with We Power for the energy. The capital markets have shown confidence in this plan, enabling We Power to obtain financing at favorable rates.

What About Power Delivery?

Having once worked for a utility that robbed Peter (transmission and distribution maintenance) to pay Paul (build nuclear), I realize how hard it is for a utility to maintain focus on power delivery while in generation buildup mode. We Energies intends not to make that mistake, having committed to spend US$2.7 billion in distribution over the next 10 years.

What About the Customers?

Klappa also is passionate about staying connected to those who pay the bills by listening and responding to customer needs and concerns. Klappa says, “Operational excellence is very important, but a focus on customers is just as important. Employees from all areas of the company routinely make ‘We Care’ calls to customers who have had dealings with the company within the past week. We Energies employees let the customers know their concerns are heard and their opinions count. In the last 40 weeks, We Energies made 77,000 ‘We Care’ calls. This level of commitment is starting to make a tremendous impact — not only with customers, but also with We Energies employees. Klappa continues, “Our customers know we care. At the same time, our employees have become much more aware of why we do what we do.”

Devil in the Details

We Energies wants to get the most out of the money its spends in distribution and is looking closely at how it might approach its construction and O&M budgets. “We need to better understand and anticipate our customers' needs,” says Charley Cole, senior vice president with We Energies. “One of the ways we are doing that is through an initiative called Distribution Vision 2010. DV 2010 is geared toward providing premium power to sophisticated business customers. The first system, to be installed this October, will use separate feeds to provide high-reliability service to customers in a dedicated business park. This initiative enables us to deliver a new level of service based on the needs of our customers. Whether through the DV 2010 initiative or through our involvement in the ‘We Care’ program, having a sharp customer focus will have a tremendous positive impact.”

Financial Discipline

We Energies knows that, politically, rates can be allowed to go up only so fast. Fuel increases are driving prices up, so financial discipline is becoming critically important. Cole says, “For the past eight years, we've been investing in the distribution system. Now, we are carefully organizing our spending so we don't give back our gains.”

With the grid in good condition, We Energies is focusing on efficient operations. Cole recognizes the utility has to do a better of job of deploying resources efficiently if they are to meet customer and shareholder expectations.

Jim Newton, director of electrical system construction and maintenance, says the goal is to meet financial and reliability targets. We Energies is continuing to rebuild and expand the system where necessary to meet the region's load growth, which has remained steady at 2%.

The utility has also worked hard to reduce Customer Average Interruption Duration Index (CAIDI) numbers from 130 minutes to 90 minutes. “We look at outage numbers every day. As the reliability of the system goes up and the customer satisfaction statistics improve, employees are getting excited about being a part of one of the best-performing utilities in the industry,” says Newton,

Utilities globally are rethinking their business strategy, looking again at the advantages of regulated growth. We Energies is at the forefront of this movement and is all about investing the resources necessary to meet the need and delivering electricity reliably at a reasonable price.

“Reclaiming the Distribution Business Unit,” October 4-6, 2004, Orlando, Florida

Charley Cole, senior vice president with We Energies will speak at T&D World's upcoming executive conference, “Reclaiming the Distribution Business Unit,” October 4-6, 2004, Orlando, Florida. Cole will provide further detail on how his utility is “Tightening the Belt Without Cutting Off Circulation” by leveraging technology to maintain a high-reliability distribution network and keep the workforce engaged.

Jim Newton, director of electrical system construction and maintenance with We Energies, will challenge us to “Rethink What Makes up a Reliable Distribution Network” by sharing how the We Energies' staff responded to an executive challenge to deliver “world-class” levels of reliability.

For more details on this event, see pages 70-73.