Enterprise Risk Management Strategy - The Lite Program for Your Utility
Establishing an enterprise risk management program is easier than you think
Just because your utility or electric coop is small or mid-sized does not mean you cannot have a formal enterprise risk management (ERM) “lite” program. An ERM program merely formalizes things you do as a regular part of business and places a robust protocol around mitigating risk and documenting the approach.
Mitigating risk in an electric utility involves strategies such as maintaining infrastructure, investing in cybersecurity, diversifying energy sources, managing inflationary pressures, and having contingency plans for disruptions. Regular maintenance and monitoring can prevent equipment failures, while cybersecurity measures protect against cyber threats. Diversification reduces reliance on a single energy source, and contingency plans ensure preparedness for emergencies or natural disasters.
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A more detailed list of some specific strategies includes:
1. Regular Maintenance and Upgrades: Implementing a rigorous schedule for equipment maintenance, inspections, and upgrades helps identify and address potential issues before they escalate into larger problems.
2. Power supply resource security: Using a combination of power supply contracts, limited wholesale market exposure, and self-generating resources is a strong hedge against price or supply disruptions.
3. Cybersecurity: Greater investment in cybersecurity is needed to provide security for power supply, customers, and employees against the growing online threats.
4. Emergency Response Planning: Developing detailed emergency response plans and mutual aid agreements for various scenarios, including natural disasters, equipment failures, and cyberattacks, ensures swift and effective actions in times of crisis.
5. Supply Chain Management: Supplier contracts, keeping base levels of inventory on hand for storms and replacement is critical. An example of this is the current transformer shortage and long lead times for substation transformer replacement.
6. Public Communication and Education: Keeping customers and the public informed about potential risks, safety measures, and expected response during emergencies helps maintain trust and ensures compliance with safety protocols.
7. Regulatory Environment: Staying up-to-date with industry trends, legislation, regulations and compliance requirements helps ensure strategy and risk mitigation are in alignment.
Formalize the risk management things you do already
Remember, the specific strategy should be tailored to the unique circumstances of the utility or electric cooperative and the types of risks it faces. ERM programs do not always need an outside consultant to be formalized, but a consultant can help facilitate the interaction of your organization’s various operational and financial departments. The goal is to make sure all voices are heard and the overall plan addresses each area’s concerns.
About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.