June 15, 2006

Gencos embrace benchmarking as strategic tool

Brad Whitlock, Navigant Consulting Inc., and Lew Rubin, Portal Solutions

The utilities that have chosen to remain in the generation game are making a renewed commitment to becoming fitter competitors. From their executive suites on down, in response to the imperatives of Wall Street and the investor community, one genco after another is embracing continuous improvement and generation excellence. The tactics being used to support those strategies are reducing costs, maximizing unit availability, and managing resources on a life-cycle basis.

 

For gencos, the increasingly common goal—handed down from the board and the CEO—is to be among the “best in the business,” usually defined as ranking within the top 10% to 25% of comparable companies in key performance measures. Any good executive will tell you that you can only manage what you can measure, so industry benchmarking data are absolutely vital to assessing performance.

Lean, mean machine

Benchmarking requires comparing yourself to your peers and looking at how high the cost and performance bars have been set by the best in your class. Modern benchmarking practices and information sources now make both possible. As Paul Kramer, director of operations support at Allegheny Energy, explains, “We are committed to benchmarking our power station costs and performance as a means of fostering an environment that focuses on continuous improvement. Benchmarking has become an integral part of ensuring that Allegheny Energy Supply repositions itself as an industry leader in power generation.”

Gone are the days when benchmarking cost a fortune and took a year or more to complete. New genco benchmarking services—such as the Generation Knowledge Service (GKS) database—are extremely cost-effective and dynamic. They make it easy to set performance goals and to update those goals every budget cycle, as progress is made, or when market conditions change.

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