How BCG Helped an Electric Utility Slash Costs

A rural, publicly owned, vertically integrated power utility was facing a seismic shift: the loss of government subsidies. To prepare itself to weather this new environment, the company sought to make a step-change reduction in costs and boost its operating efficiency. Working with BCG, the utility determined that a critical part of the solution lay in redesigning the company’s operating model.

Choosing the right model, one that stood to serve the utility best under a variety of possible business and operating environments in the years ahead, entailed extensive benchmarking against other utilities, cost allocation analysis, and scenario planning. Ultimately, the team made the decision to pursue a model that would reduce the role of the corporate center and empower the utility’s regional operations.

After choosing the new model, the team worked on a series of enabling and complementary measures. Among these was the design of a suitable organizational structure, which meant cutting corporate functions in half and the overall headcount by 60%. The model also entailed reviewing the organization’s IT spending and, in parallel, weighing the merits of a core IT system replacement, with a particular focus on the potential impact on the utility’s asset-management and customer-service operating models. Finally, the team mapped out a transformation plan—identifying all milestones and key initiatives—and established a project management office.

A Four-Step Approach

The transformation ultimately proceeded in four phases. In the first, the shift of power from the center to the regions began in earnest, with headquarters support simplified and streamlined and a move toward a regional model launched. The team made sure that nonessential spending was limited and potential new efficiencies in IT identified. In the second phase, the utility began outsourcing engineering and project delivery and simplifying the asset management system and data management practices. This phase also included the standardization of work practices, including those of technicians working in the field.

In the third phase, the team focused on the implementation of major initiatives. This included the rollout of automated meters at businesses and in residential customers’ homes. And in the fourth and final phase, the utility experienced a wave of productivity savings in the regions. In the end, the efforts delivered on the utility’s objectives, and it was far better equipped to thrive in its new operating environment.

Power & Utilities