Smart Business Online | Aug 26 2020|
When he stepped into the role of president and CEO in April 2019, Steven Malnight had an opportunity to re-envision Duquesne Light Co.’s strategic future.
The transmission and distribution electric utility owns and operates the grid in its service territory of Allegheny and Beaver counties, a business model that is facing some non pandemic-related challenges. Its infrastructure is aging, but more than that, it’s facing the changing nature of how customers interact with their electricity provider, brought on by advancements in technologies. It means Duquesne Light has to better understand its customers and their wants and needs, and adapt.
Easy to say, but as a critical public energy provider, one bound in its operation by regulations, speed to market takes a back seat to safety and reliability. Innovation, the pace of which is accelerating like no time before in the sector, has put Malnight in the challenging position of adapting to meet the needs of discerning and disparate customers eager to deploy new means of powering their homes and businesses.
“If I think about our strategy, I break it down into a couple key areas,” Malnight says. “The marketplace around us is changing dramatically and quickly, particularly for how customers want to use and engage with energy.”
Traditionally — as in, for more than 100 years — customers consumed energy only from an electric utility. But today, they can generate their own electricity through solar panels on their rooftops. And storage in their homes can enhance the reliability of their home system. They can plug an electric vehicle into their house to charge, and businesses can build their own micro grid through which they generate and store electricity.
“Those changes are all happening around us,” Malnight says. “And we, as a company, have to respond to that change. We have to understand where our customers are going to be going in the future, make sure we really understand their needs and their wants, and position the company to successfully deliver that.”
To position the company to deliver to a changing customer base, Malnight says Duquesne Light needs to deepen its customer engagement. That, in part, will be accomplished by keeping a careful eye on what customers are doing in order to better understand what they want.
“We have to build ahead of their need, but not so far ahead that we have systems sitting there unused,” Malnight says. “Our goal is really to start by getting to know our customers better, getting to know what they need and want, and then building ahead of their needs.”
Better understanding customers starts with seeing what choices they are making today. Duquesne Light knows, for example, when customers switch to solar because they need to work with the company to make sure they can interconnect those systems safely to the grid. That way, it learns who is choosing to go solar, how many are doing so and what’s driving that choice by observing behaviors. That also involves partnering with companies that are developing new technologies, “because they are looking to sell those technologies to our customers,” Malnight says. “What do they see? And what are they understanding about the evolving needs of customers?”
Another aspect of Duquesne Light’s research involves talking to customers about the different choices they’re making to learn what’s motivating decisions. And that’s important because businesses, including Duquesne Light, are recognizing that customers today exist in micro segments.
“We, in the utility industry, have historically looked at residential customers as being, by and large, all the same, and that was true for a long time,” Malnight says. “People had a house, they had lights, they had air conditioning. They were all pretty much the same.”
But today, he says, residential customers are vastly different in terms of which ones want to adopt things like solar or electric vehicles.
“It’s taking the time to understand your customers at that segmented level, diving deeper to understand what the data can tell us about how customers use energy or what choices they make,” he says. “What can it inform us about their choices for the future?”
Instituting infrastructure changes, even to meet the changing demands of a customer base, is a bit more complicated for a utility company. Duquesne Light delivers a critical public service that the community depends on in order to function, which means it has to operate with extremely high reliability.
“We can’t take risks with the reliable delivery of our service,” Malnight says. “So, when it comes to things like planning for our assets, planning for the grid, planning for capacity and what we need the grid to do, we look 10 years and even beyond to think about what is going to be needed.”
Making changes to critical infrastructure is complicated by the pace of technological development. It’s a challenge to decide which technology to place in the grid, because making the decision takes time, installation takes time, and if enough time passes, new technologies could rival those recently installed. It means that the old timelines, back when there were fewer major innovations to consider, no longer apply.
“In our industry, it used to be pretty easy to plan 10 years in the future because 10 years in the future was going to look a lot like 10 years ago in the past,” Malnight says. “The industry wasn’t changing a lot. The way customers use energy wasn’t changing a lot. The technology might have been getting better — like we have better transformers, or we have better conduit or cable — but it wasn’t fundamentally changing.”
He says that is no longer the case.
“So, it really calls on all utilities to step up our game in planning for the future and recognizing that the future has a lot more uncertainty,” he says. “Uncertainty isn’t bad; you just have to plan differently for uncertain futures.”
To be prepared for different outcomes, Malnight says Duquesne Light does more scenario planning, during which team members think about different states of the future, then imagine what the company would need to look like in those futures to continue to provide the necessary services. It then sets milestones along the way of each possible outcome to signal which pathway the company is on.
“And that’s exactly what we do,” Malnight says. “We focus a lot on different potentials for the future and then think about how we will know we’re marching down that path.”
Complicating matters for Malnight is the pandemic. Working through the crisis has meant balancing the need to address short-term challenges with long-term strategic goals, and not letting one undermine the other.
Malnight says in the immediate weeks following the beginning of the pandemic, Duquesne Light didn’t spend much time on anything beyond what it needed to do immediately to keep services going and keep employees safe. Once those issues were handled, it was time to shift gears.
“As a CEO, you quickly have to say, OK, let’s start thinking about the balance of the year,” Malnight says. “Let’s start thinking about next year. What do we have to do to position ourselves for success?”
Thinking about how to run the business for the rest of the year involved, in part, modeling out worst-case and best-case scenarios.
“Once you understand the possibilities, what actions do we have to take?” Malnight says. “We did start to cut back on a lot of our discretionary spending. We started to be much more deliberative about new hiring because we know we’re going to face cost pressures as our customers are struggling.”
They also looked at what the company needed from the regulatory agency, and how it would inform its regulators so they could make the right choices.
“Those are the things you pivot to as you get solid on the current situation, and you have to go there,” he syas. “Otherwise, next month’s going to be here before you know it, and if you haven’t thought about it, it’s going to become your crisis. So, we really deliberately started to spend time on the balance of the year and 2021, and now our focus is really on the next five years.”
Malnight had been sitting in Duquesne Light’s top spot for less than a year before a 100-year event showed up and totally disrupted the market. In that moment, he says he looked back across his career at the many challenges and difficulties he’s faced that changed his perspective on what he has to do to lead during a crisis.
“I felt at that time like all of those past experiences I had gone through prepared me to be in this seat at this moment to help this company through this kind of a challenge,” he says.
He remembers asking a CEO he once worked for, who was leading a company through a challenging time, how he approached the challenge.
“And he said, at the end of the day, you have to have confidence in the team around you, that when you don’t know what the solution is, the team around you is going to develop the right solution,” Malnight says. “And you have to have enough confidence in yourself to know that you will know it when you see it. Put a great team together, and you can be pretty confident, even in the midst of a crisis, that you’ll find your way through.”