Innovation in the Energy Industry: How A Timeless Company Is Adapting Over Time6 February, 2018 / Articles
The energy industry is in constant flux. As more consumers – and governments alike – prioritize clean energy, the need for companies to innovate grows stronger. For CFO of Baltimore Gas & Electric, Dave Vahos, innovation is a major priority. This month I connected with Dave to learn how he’s supporting BGE with the right financial processes, and with the power of a cross functional team.
This interview has been edited and condensed.
Jeff Thomson: During your 19-year tenure at BGE you helped usher the company into the 21st century by establishing accounting practices to help deregulate the electric generation portion of the company. What practices made this possible?
Dave Vahos: With the deregulation of Maryland’s retail electricity markets in the late 1990’s, BGE’s electric generation assets were transferred to an affiliate of Constellation Energy Group, BGE’s parent company at that time. This transition required significant changes to BGE’s financial reporting practices to ensure assets and costs were properly bifurcated between the two companies. This change was only possible by leveraging a cross functional team encompassing operations, accounting, legal and regulatory.
Thomson: What governmental regulations and challenges are you currently facing?
Vahos: The energy industry continues to see increasing levels of distributed energy resources like solar and wind. Additionally, we see continuing innovation in storage technologies. In tandem, these developments represent competition to BGE. Therefore, it’s a strategic imperative for BGE to innovate and stay relevant to our customers in this changing energy landscape. As a rate-regulated utility, this means operating within the framework authorized by BGE’s regulators and working to establish or modify existing regulatory policies to align to the changes in the energy industry over time. This process can be challenging in and of itself as it is typically time consuming and involves various groups with potentially divergent views.
Thomson: BGE introduced its STRIDE plan in 2013, designed to enhance the modernization of BGE’s natural gas distribution system in order to enhance safety and reliability for customers. How do you balance safety and reliability concerns with controlling costs? Is there a cost-savings component to modernization?
Vahos: As the nation’s first natural gas utility, BGE has significant infrastructure that is approaching the end of its useful life. Consequently, modernizing those assets is an operational necessity. BGE’s STRIDE plan enables the modernization of BGE’s natural gas distribution system by combining an accelerated replacement schedule with a framework which allows for cost recovery as the work is completed. By bundling both the gas main and gas service modernization projects by neighborhood, BGE has been able to control overall replacement costs while delivering increased safety and reliability to customers.
Thomson: Globally there’s been a downturn in oil and gas with growing numbers considering the benefits of alternative and more sustainable resources. What renewable energy sources is BGE focusing on? How does sustainability reporting get leveraged with standard financial reporting, including internal controls?
Vahos: BGE has been evaluating numerous forms of renewable and distributed energy sources including solar, fuel cells, and storage. Management has instituted strong internal controls over all its business processes including those that support sustainability. Exelon, BGE’s parent company, is committed to sustainability and last year was named to the Dow Jones Sustainability Index (DJSI) for a 12th consecutive year.
Thomson: With a number of structural and political issues taking form in the oil and gas industry, how as a company do you staff the right talent and create the right frameworks, systems and processes to stay flexible and innovative in an evolving and uncertain marketplace?
Vahos: Having the right team starts with BGE’s commitment to diversity and inclusion. BGE strives to be reflective of the communities it serves and to be a place where its employees are given the opportunities to grow and achieve their maximum potential. From a recruiting perspective, BGE looks for strong talent that is committed to continuous learning across its field and staff positions. Like many employers, BGE has established minimum criteria prospective employees must meet to be considered for a role. Our Smart Energy Workforce Development program works with area schools to help ensure students are prepared for energy industry careers which helps us build a pipeline for our future workforce. For our existing workforce, BGE has a robust training program designed to make sure employees are prepared to meet the changing requirements of our industry. BGE periodically reviews its hiring criteria and its training program to ensure they remain up to date.
BGE is also committed to innovation and actively encourages its employees to share their ideas for improving the customer experience. As an example, BGE has created an innovation site on its intranet for employees to share their ideas and created an awards program to incentivize innovation. Under the awards program, employees can share in the benefits of successfully implemented ideas.
Thomson: In 2018, how will you continue to foster BGE’s collaborative efforts to put a stop to scams targeting customers of utility service providers? How do you envision the finance team playing a part in not only the financial objectives, but in the main goal of educating customers throughout this initiative?
Vahos: New scams emerge on a regular basis and scammers often use aggressive tactics to take advantage of utility customers. That’s why BGE joined forces with electric and natural gas utility companies across the United States and Canada for a second consecutive year to help guard against scam activity. The collaborating energy companies designated Nov. 15 as “Utilities United Against Scams Day.” That day was supported by a week-long campaign focused on exposing the tricks scammers use to steal money from customers, and how customers can protect themselves. The joint effort included utility member organizations such as Edison Electric Institute and American Gas Association.
I see the finance team’s role as a supportive one in this effort. We understand the financial impact scams have on our customers and are committed to ensuring we support the development of educational videos and other community outreach materials that are needed to help protect our customers from opportunistic scammers.