National Post ArticleCANADA LAGS
Today's executives face enormous market challenges
by michelle McQuiGGE
If Canada is to become a leading competitor in the utilities sector, industry insiders say fundamental restructuring must take place in the next few years. Energy executives face considerable challenges from today's markets and an imbalance of supply and demand for their commodities, but some consultants believe the industry's problems run deeper than that.
Bill Morris, president of Ac-centure Business Services for Utilities, says the structure of Canada's utilities industry is responsible for a lack of innovation in the field and could even be the cause of a severe talent shortage down the road.
"Canada could really be a world leader in the whole utilities marketplace, but we're stuck with a provincial regulatory model and provincial political priorities that are really holding back further investment in the industry," Mr. Morris said. "There is so much fundamental cost built in by having provincial-based utilities that it's hard to make investments across borders. That makes innovation very difficult"
Mr. Morris fears that lack of progress in the industry, combined with an ageing work force, will leave today's energy executives scrambling to fill highly technical positions in the coming years. And this is far from the only concern facing senior managers. Utilities companies need to increase their customer service focus, Mr. Morris said, if they hope to succeed.
"The way utilities customers were handled in the past was one size fits all. There's a very high correlation between the customer satisfaction level and their financial performance."
For Mr. Morris, customer satisfaction entails both up-to-date technology and a wider array of products to choose from. Leading utilities providers are not only using cutting-edge technology to increase service efficiency, but offer alternatives to the usual commodities of electricity and natural gas.
He believes water is Canada's "forgotten utility" and the country's best chance to increase its visibility in international markets.
"It's the next big thing," he said. "Canada has huge water supply and has the opportunity to manage that well and export that into the [United States]."
He also emphasizes the increasing demand for green power, or the use of environmentally friendly sources.
Executives in Alberta, he believes, are at an advantage in this way, since the province's deregulated model is more conducive to the development of such projects.
Rob Palter, principal with McKinsey and Company, agrees creativity is a critical skill for today's energy executives, but emphasizes that new solutions must be found in existing markets as well as emerging ones. He explains that Canada's natural gas and electricity industries function very differently, but that both are experiencing severe supply and demand disparities.
Natural gas companies, for instance, are faced with a decreasing supply of their product and must examine alternatives such as liquefied natural gas imported from other countries. Mr. Palter says that while this solution is economically viable, there are very few stations equipped to process this product in North America.
The picture is similar for electricity companies, which are confronted by environmental and governmental obstacles to building much-needed plants. Mr. Palter believes some basic questions lie at the core of executive strategies for both fields.
"If I'm an executive, I have questions about where supply is going to come from, I have questions about pricing and I have questions about how my customers are going to behave as a result," he said. "I think executives in this space spend a lot of time thinking about infrastructure [pipelines, etc]. Those are all the right things to think about."
While utilities executives havt a number of complex issues tc sort through on a daily basis they are well compensated fo their efforts. A recent Statistic Canada survey shows that management salaries in the energy sector rose by 4.7% last year.
Tom Adams, executive director of Energy Probe, confirms that multi-million-dollar salaries are reasonably common for exeutives in both private and public utilities, but says that other forms of compensation are not high. "Typically, utility executive compensation is somewhat lover than you might find in business of similar size, but the volatility of the industry is substantially lower [profitability, earninings etc,. That justifies a lower conpensation because people have longer life expectancy."
Financial Post