Investors are always looking for companies showing a solid financial performance. With a product that’s considered a necessity and a firm governance structure, utilities have typically provided a safe return on investment. That said, today’s utility company faces many competitive threats—some of which challenge the conventional utility model. That’s where public safety can offer a competitive advantage.
The shifting energy landscape—exemplified by more affordable solar solutions for customers—continues to test the traditional utility financial model. On the expense-side of the equation, utilities must contend with significant operating costs. They must also justify (to regulators and other stakeholders) capital expenditures for necessary system upgrades.
In this challenging environment, public safety programs provide a competitive edge that’s crucial to a utility company’s overall financial well-being. They’re an investment that can offer a measurable return. That’s because public safety impacts financial, operational, regulatory, and reputational risks (and their outcomes).
Public Safety Mitigates Risk at Various Levels
- Performance gaps
- Operational inefficiencies
- Workforce turnover
- Organizational knowledge assets
- Reduced license to operate
- Risk earning authorized rate of return
- Required resources for hearings
- Negative media attention
- Special interest group attacks
- Employee disengagement
- Customer dissatisfaction
- Public confidence and trust
- Key stakeholder relationships
At the top level, senior leadership knows that public perception about the utility’s commitment to safety is critically important—this is true whether or not a utility is responsible for a safety-related incident. The mere suggestion that a utility may be liable or negligent is enough to damage investor confidence. Rather than reactively managing an incident through public relations, public safety programs that are strategically integrated into the operation work proactively to build customer confidence and loyalty.
Consider the case of federal pipeline safety regulations “Public Awareness Programs for Pipeline Operators” (aka RP 1162). Until a few years ago, utilities were not yet in a position to consider the impacts on customer opinion and satisfaction, or the rate case impacts of a sustained public safety awareness initiative. They were focused instead on understanding the law’s requirements and developing the resources sufficient to respond to these new requirements.
In the last couple of years, however, leading utilities with gas assets have recognized that public safety awareness programs positively enhance their public perceptions, which influences regulators as they review a utility’s request for rate relief. What’s more, many have realized that a well-designed, integrated, and dedicated public safety program provides operational benefits. According to one former utility executive, such public safety programs “promote increased productivity and also enhance a company’s bottom line. When resources are used more efficiently, company operations run more smoothly with enhanced profitability.”
As with employee safety, public safety must be embedded into the utility company culture—this company commitment to a culture of public safety directly enhances the brand. Utility companies must live it and it must permeate the organization at all business levels (See Enterprise Risk Management: Breaking the Mold in the Utility Industry). We know through our research, that meaningful engagement with the public translates into a positive perception and improved customer satisfaction. We also know that this converts into benefits on the regulatory side: utilities with higher levels of customer satisfaction experience more expedient rate cases as well as rate increases closer to their requests (versus those with lower customer satisfaction scores).
Public utility commissions consider both accident rates and public perception when making decisions about rate requests. A poor safety record combined with low customer satisfaction scores may be cause for a commission to grant a less favorable rate increase. Clearly the return on public safety investment can be significant. In addition to improved regulatory outcomes, the benefits include saved lives, mitigated risk, enhanced reliability, and fewer lawsuits.
All of these benefits are borne out in a company’s financial statements. So it’s no surprise to anyone that public safety is getting more attention from investors. A recent study conducted by investment analysts emphasizes this point, concluding, “Investors are increasingly using safety measures to screen out underperforming stocks and are showing much stronger returns for doing so.” As the marketplace heats up, utility companies need to look toward strategically integrated public safety programs to gain a competitive advantage, boost their bottom line, and satisfy all of their stakeholders.