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YEAR STRATEGIC PLAN | 2016 – 2020

SMUD 3.0
5-YEAR STRATEGIC PLAN 2016 – 2020

Table of Contents
Introduction and CEO message 5

Our Purpose 7

Our Vision 7

Our Values 7

External and internal context 10

Our business model and 5-year strategy 16

Our North Star priority areas

• Be Safe. Always. 30

• Treasure Our Employees 31

• Value our Customer and Community 32

• Operational Excellence 33

• Financially Fit 34

• Sustainable Future 35

Our collaborative work approach and organizational structure 36

Call to action 38

Strategic Direction 40

Glossary of terms 41
5-YEAR STRATEGIC PLAN

he Strategic Plan ensures that SMUD –


as an organization and each of us
individually – are headed in the
same direction and are focused on
the activities and outcomes that
are important to our customers and
community so we continue to thrive in
a challenging and uncertain future.

4 SMUD 3.0
2016 – 2020

Introduction and CEO message


I’m pleased to share SMUD’s 5-year Strategic Plan, our blueprint game around our core work. That means embracing technology,
for a future-ready SMUD 3.0. The Plan builds on SMUD’s strong innovation and improving our business processes. Flat or declining
foundation of delivering safe, reliable and affordable electricity, revenues through the 5 years of this Plan, mean SMUD will have
excellent customer service, community value, innovation and limited labor and capital resources to achieve our goals. We’ll need
environmental leadership. At its core, the Strategic Plan is focused to prioritize and make trade-offs.
on fulfilling SMUD’s purpose of enhancing the quality of life for
our customers and community while ensuring SMUD’s long-term A balanced approach
financial vitality and viability.
The 5-year Strategic Plan strikes a balance between the strategies,
The Plan is the culmination of several months of hard work. I’m projects, programs and other initiatives aimed at ensuring SMUD’s
especially thankful to the executive team for the many frank success in a changing industry with the resources available to
conversations we had about SMUD’s strategic direction and setting deliver them. The Plan explains several overarching strategies to
priorities for the 5 years of the Plan, knowing we’ll need to make deliver our transformation to SMUD 3.0, including:
tough decisions about where to commit our limited labor and
• Getting the basics right: keeping the lights on safely, reliably,
financial resources. The directors and 3 employee focus groups
economically and in an environmentally responsible way.
provided invaluable input to help us refine the Plan.
• Improving internal processes and lowering costs to deliver
The Plan recognizes that SMUD will operate under a different high-quality services.
business model by 2020. It takes into account our current state, as
well as the drivers transforming our industry, such as increasingly • Building and maintaining a safety-committed, highly skilled and
sophisticated customer expectations, greater dependency on engaged workforce.
technology, third parties entering our market, big data and
• Enhancing the connection to our customers and community.
analytics and the need to transition to a low-carbon future.
• Investments in technology to lay the foundation for the new
Regardless of the changes to our industry and business, we
utility business model.
must continue to get the basics right. Safety, great reliability and
excellent customer service are all minimum expectations of our • Advancing SMUD’s position as an innovative and environmentally
customers. To be successful in the future, we must step up our progressive thought leader.

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5-YEAR STRATEGIC PLAN

The Strategic Plan is aligned with, and creates line of sight between:
• The Strategic Directions adopted by our Board of Directors.
See a list of Strategic Directions on page 40.
• SMUD 3.0, our vision for a future-ready SMUD.
• The North Star, which identifies 6 strategically important areas.
• Our business units’ 5-year and 3-year plans.
• The annual budget and enterprise metrics.
• Our work group goals.

The primary purpose of the Plan is to ensure that SMUD—as an


organization and each of us individually—is headed in the same
direction and focused on the activities and outcomes that are
important to our customers and community and will ensure we
continue to thrive in a challenging and uncertain future.

We’ve laid out an ambitious path forward and aggressive targets


to measure our success between now and 2020. It won’t be easy to
achieve, but SMUD is an amazing place with fantastic employees
and I’m confident working together collaboratively, we’ll achieve
the goals set out in the Plan and SMUD’s future success. We’re in
this together, and together we can and will do great things for our
customers and community. Join me as we power forward. Together.

Arlen Orchard
CEO and General Manager

6 SMUD 3.0
2016 – 2020

Our Purpose
SMUD is community owned. Our purpose is to enhance the quality
of life for our customers and community through creative energy
solutions.

Our Vision
SMUD’s vision is to be the trusted partner with our customers
and community, providing innovative solutions to ensure energy
affordability and reliability, improve the environment, reduce
our region’s carbon footprint and enhance the vitality of our
community.

Our Values
SMUD has 4 values which distinguish SMUD and describe how we
work every day:

Leadership Ingenuity Community Integrity

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Values It means… We are…

Leadership We are strong and self-assured. Our actions are • Proactive

purposeful and responsible. We use our expertise to • Insightful


make thoughtfully balanced decisions and provide
• Influential
sound guidance.
• Dependable

Ingenuity We are smart, creative, and pioneering. We solve • Passionate

tough challenges with fresh thinking and “can-do” • Forward-looking


resourcefulness. We are always looking ahead.
• Inventive

Community We act in the collective best interests of our • Collaborative

customers and our community. We respect and • Approachable


support those we work with and those we serve.
• Inclusive

• Caring

Integrity We do the right thing. We are honorable and • Safe

dedicated to operating in an ethical and safe • Reliable


manner. We exercise good judgment and are
• Honest
principled in every interaction.

8 SMUD 3.0
2016 – 2020

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5-YEAR STRATEGIC PLAN

External and
Strengths Weaknesses
internal context
Internal and external factors are
driving our business and shaping • Talented, engaged employees • Single, non-diversified product
our business model. We did a
• Strong brand and reputation • Risk of talent or knowledge loss
SWOT (strengths, weaknesses,
opportunities, threats) analysis • Independent Board and • Aging infrastructure
based on where we are today. decision making
• Monopoly mindset
The analysis helped uncover • High customer satisfaction
• Slow to change
opportunities. By understanding
• Low rates
our weakness we can manage • Unfunded liabilities
and minimize threats. Looking • Reliable service (retiree pension and medical costs)
at SMUD (and our competitors)
through the SWOT framework, • Community focus • Risk aversion
we created this Plan and • Environmental leadership • Rates don’t always reflect
the strategies to compete cost of supplying customers
successfully in the future. • Recognized innovator

10 SMUD 3.0
2016 – 2020

Opportunities Threats

• Move to zero injuries • Increasing customer expectations


and choice
• Building customer loyalty
• Flat or declining revenue
• Developing new lines of business
• Loss of our customer relationships
• Delivering targeted products
and services • Increased competition

• Generate revenue from • Legislative and


intellectual property regulatory uncertainty

• Fostering an innovative, • Increased compliance costs


collaborative work environment
• Physical and cyber security
• Optimizing our assets, and
• Loss of operational independence
continuously improving
business operations • Technology investments
(costs and impact)
• Increasing data-driven
decision making • Growth of distributed
energy resources
• Increasing awareness of SMUD
as a great employer • Our industry’s reputation for
obstructing progress and
• Improving community
innovation
economic vitality
• Economic downturn
• Electrification of vehicles
and buildings

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5-YEAR STRATEGIC PLAN

B uilding on a strong foundation:


SMUD has an outstanding team of talented
and engaged employees and an international
reputation as an industry leader in customer
service, innovation and environmental
leadership.

12 SMUD 3.0
2016 – 2020

SMUD has an outstanding team of talented and engaged As we transition to a low carbon future, our thermal plants are being
employees and an international reputation as an industry leader increasingly displaced by renewable energy. The value of our thermal
in customer service, innovation and environmental leadership. plants, which were significant, long-term investments, is declining,
For 70 years, we have operated successfully as a traditional utility resulting in stranded assets, which means over time, they will become
monopoly, and our affordable rates and strong financial position underused well ahead of the end of their expected useful life.
are reflective of that success. However, the world has changed,
and what has made us successful in the past will not guarantee
our long-term viability. As an We must also manage financial
organization and an industry, burdens that most of our
we’re facing significant competitors don’t face, including
challenges and we must approximately $2.6 billion in
change and adapt individually long-term debt and $460 million
and as an organization to make of unfunded liabilities associated
SMUD’s future as bright as our with our pension and retiree
past. medical benefits. Collectively,
these liabilities cost us more
than $260 million a year. At the
What’s driving same time, SMUD must invest in
our business? our aging infrastructure and new
technologies to ensure we continue
SMUD’s revenues are flat or declining despite a growth in the
to provide reliable service while also preparing for a future that
number of customers because of energy efficiency programs,
includes many more distributed energy resources and increased
improved building and appliance standards and growing self-
cyber and physical security threats.
generation options (such as solar) for customers. This is great for the
environment and our sustainability goals, but it means we have less
money to invest in our aging infrastructure, technology and the other Competition
foundational items that are necessary for our future success. The
The competitive landscape is shifting. Our competitors range
trend is expected to continue for the 5 years of this Plan and beyond.
from small start-ups with not much more than a great idea, to
Since 2008, residential sales have declined by about 5 kWh per large multi-national corporations. Most are nimble, innovative and
customer (account) per year. In 2008, we had 8.1 MW of rooftop actively seek to develop new products and services that sell to our
solar connected to our system. As of June 2016, the rooftop solar customers and into energy markets. Some examples include:
number is 108 MW.

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5-YEAR STRATEGIC PLAN

• SolarCity, which began with rooftop solar, is adding battery storage


to its customer offerings. It also announced plans to provide
advanced controls for demand response and aggregated grid
services. ata will help us develop products and
• Apple, which has filed an application with the Federal Energy services that are targeted to specific
Regulatory Commission for approval to sell renewable energy groups of customers and their needs,
and ancillary services across much of the United States. improve our business practices and make
• The California Independent System Operator has approval to
decisions about how and when to upgrade
operate a new wholesale demand response market. or replace our aging infrastructure.

Improvements in distributed technologies will make solar, storage,


demand management and micro-grids a cost-effective path for
third parties and utilities to meet customers’ needs.

Big data
The explosion of big data and analytics is reshaping almost every
aspect of our lives, and the utility industry is no exception. Data is
providing deep insights into all aspects of our business, including:

• Customer needs, preferences and energy use.

• Our internal business practices.

• Our infrastructure (age, use, effectiveness, etc.)

Data will help us develop products and services that are targeted
to specific groups of customers and their needs, improve our
business practices and make decisions about how and when
to upgrade or replace our aging infrastructure. Similarly, our
competitors will use their access to big data to target our
customers with programs and services to compete with SMUD.

14 SMUD 3.0
2016 – 2020

Strong foundation
While we face many challenges, SMUD, as a progressive and
forward-thinking utility, is better positioned than many utilities to
succeed in the uncertain energy future. Our independent Board
of Directors is a distinct advantage because our governance
and regulatory structure allows us to respond to threats and
opportunities and change course more rapidly than the investor-
owned utilities, which are subject to a cumbersome regulatory model.

Our already solid reputation and connection to our customers and


community give us a leg up in creating strong customer loyalty. Our
leadership in energy efficiency and renewable energy has given
us the skills to deliver high-quality products. Recognized for our
innovation and environmental leadership, SMUD has an important
voice at the policy table in California and Washington, D.C. which
belies our modest size. And, finally, we have a proven track record
of meeting our customers’ expectations around getting the basics
right – things like low rates and great reliability.

Our transition to SMUD 3.0 is about meeting these challenges and


keeping ahead of the transformation in our industry so we can deal
quickly and effectively with changing customer expectations, third
parties who want to serve our customers, new distributed energy
resources, carbon reduction and compliance. It’s also about ensuring
we have the right culture, workforce, business processes, technology
and financial strategies in place at the right time to take advantage
of new opportunities.

We must define our future and embrace the new business model
embodied in SMUD 3.0. The Strategic Plan is the road map to our
transformation and SMUD’s success.

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Our business model and 5-year strategy

Today’s business model Our new business model

• Safe, predictable monopoly • Competitive retail environment (others will offer our
customers products and services)

• Focus on gross revenue • Focus on net revenue

• Customer satisfaction focus • Customer loyalty focus

• Single undifferentiated product — electricity • Array of competitive and tailored products and services

• One-size-fits-all customer products with siloed • Customer segmentation with integrated, targeted
marketing and delivery products and marketing

• Manage and optimize SMUD resources on the • Manage an increasing number of distributed energy
utility side of the meter (outside of the home resources. Two-way road (energy and services flow
or business). A one-way road (SMUD delivers between and among customers and SMUD)
energy to customers)
• Integrate and optimize SMUD’s, our customers’ and
third-parties’ energy-related assets

• Getting the basics right in the time-tested way • Getting the basics right through technology,
innovation and business processes

• Constrained labor and financial resources

16 SMUD 3.0
2016 – 2020

Today’s business model


SMUD has reliably and successfully renewables, energy efficiency and
served our customers and community power-purchase agreements along
for 70 years. Historically, our with our existing hydro-electric
business model has been defined generation. With the creation of
e’re moving from a world where by a monopoly environment where the California Independent System
the monopoly utility holds we faced little or no competition Operator and the growth of organized
control to one where control and controlled all of the elements markets, we created a balancing
is shared between the utility, of service, from energy supply authority to insulate our customers
to the distribution system to the from higher costs while learning to
customers and third parties.
customer relationship. We sold a operate profitably in new markets.
single product, electricity, and our
But the changes we face today are
customers had no choice but to take
fundamentally different from those of
the product we sold at the price and
the past. Today’s changes represent
on the terms we set. We priced our
a dramatic shift from a monopoly
product by adding up all of our costs
paradigm to a competitive one
to operate the business and serve our
where customers have more choices
captive customers – the classic utility
around their energy supply and
cost-of-service model. We focused on
energy-related services. We’re
customer service based on separate
moving from a world where the
transactions rather than holistically
monopoly utility holds control to one
understanding our customers’ needs
where control is shared between the
and what they value.
utility, customers and third parties.
That isn’t to say things haven’t Simply providing good customer
changed during our 70 years. To service won’t be enough in a future
the contrary. We’ve faced change where customers have choice.
and adapted. For example, with the Ignoring or fighting this paradigm
closure of the Rancho Seco Nuclear shift means we ignore the voice
Power Plant, we reimagined our of our customers and bet against
energy supply portfolio to focus technology innovation – not a
on local natural gas generation, strategy for long-term success.

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5-YEAR STRATEGIC PLAN

Our new business model


The new business model reflects the more dynamic and
uncertain future that requires us to be customer-centric,
nimble, innovative and financially prudent. The Plan is the
blueprint for this transformation.

Several key drivers are at the foundation of our


new business model:

• SMUD will remain a vertically integrated electric utility.

• Our retail business will be competitive (customers will


have more choices such as solar, energy storage and
in-home devices).
• SMUD faces labor resource and financial constraints.

• Customers will demand more options and control for


their energy supply and related services.
• The proliferation of customer information (data) and
analytics will allow utilities and third parties to precisely
target individual customers with specific products,
services and/or technologies.
• The cost of distributed energy resources and control
technologies will continue to decline and performance
will continue to improve.
• New technology will drive change and create
opportunities for utilities, customers and third parties.
• Opportunities for behind-the-meter services (inside
homes and businesses) will increase.
• Most future utility-scale electricity generation will be
from renewable resources.

18 SMUD 3.0
2016 – 2020

• Public policy will continue to move toward a low-carbon future.

• The cost and complexity of meeting reliability, cyber and physical


security and environmental compliance obligations will increase.
• The California Independent System Operator will expand beyond
California, and new regional markets will continue to develop.

The vision adopted by our Board — a future where SMUD will


be the trusted partner for our customers and community and will
provide innovative solutions to them — defines our future business
model. The vision also recognizes that the future requires us to
achieve and balance multiple long-term objectives, including
energy affordability and reliability, an improved environment, a
reduced regional carbon footprint and a vital community.

We know we’ll operate in an increasingly competitive retail


environment which introduces risk and uncertainty for future
revenues. Without careful scrutiny of costs and looking at new
revenue opportunities, the classic cost-of-service approach creates
the opportunity for a competitor to undercut our pricing by helping
customers avoid the cost of programs and services they don’t use or
value. As we move to offer customers different products and services
or bundles of products and services, we’ll look at the value the
offering(s) creates to determine whether it supports differentiated
pricing and the opportunity to create new net revenues. With
revenues expected to be flat or declining for the life of the Strategic
Plan, developing new revenue streams become important as a way
to help fund our operations and future investments.

We’ve begun the transition to the new business model and are
making good progress in many areas such as using data to better
understand the needs of specific groups of customers.

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Our core work – getting the basics right Getting all of these basics right in a cost-effective, efficient manner
is the price of entry for SMUD to succeed in a competitive energy
As our business model evolves, our core work and getting the industry. Simply put, delivering on our core work is the foundation
basics right become even more important to our future success. of the promise we make to our customers and central to building
That means: customer trust and loyalty.
• Working toward zero injuries.
• Delivering reliable, safe and economical energy.
Operational excellence
• Providing excellent customer service. Increasing our customers’ rates to pay for the significant
• Having the right people with the right skills doing the right technology, infrastructure and other investments required over
work at the right time in the right place. the life of this Plan must be a last resort if we want to maintain low
rates, which are one of our competitive advantages. That’s where
• Protecting our customer information, SMUD data and
operational excellence — a central tenet of our new business
facilities against cyber or physical attacks.
model — comes in. Operational excellence is about rethinking how
• Ensuring the availability of our systems.
we work to lower costs and increase efficiency while maintaining
• Smoothing out investments in our aging infrastructure or improving the quality of what we do. It’s about excelling at
while managing risk. getting the basics right for SMUD and our customers. Operational
excellence is also about stopping things that no longer make
sense, provide little value or don’t align with our North Star
objectives. Embracing and delivering operational excellence

“O perational excellence is about will free up budget dollars to fund the investments we need to
make, and each of us has a role to play in improving operational
rethinking how we work to lower efficiency. Operational excellence means we can’t continue to do
cost and increase efficiency while our core work in the same old way. There are better ways to do
maintaining or improving the everything, and each of us needs to find better ways to do our day-
quality of what we do. It’s about to-day work.
excelling at getting the basics right Data analytics, technology and innovative thinking are the keys
for SMUD and our customers. to lowering our costs while improving the quality of what we do.
Regardless of your business unit, work group or job, there are
opportunities to do it better and more cost effectively. Supply
Chain and Fleet Optimization and strategic workforce development

20 SMUD 3.0
2016 – 2020

are company wide initiatives, and examples of making operational


excellence the way we do business throughout SMUD.

Data governance is important foundational work. We’ve completed


the first step – establishing a common approach to storing,
creating and using clearly-defined, reliable and accessible data.
Establishing “go-to” data stewards in each business unit was
an important step toward helping ensure data consistency and
integrity across SMUD.

We also adopted and will enforce a new company-wide project


management structure to ensure we’re:
• Clearly and consistently defining projects and establishing
project goals that link to our North Star objectives.
• Appropriately resourcing projects before work begins
through early stakeholder input.
• Following up to make sure that projects deliver what they
promised and that the benefits are sustainable over time.

We’ll also develop and roll out a company-wide approach to


making continuous improvement part of our day-to-day work. The
goal is to make sure operational excellence is part our core work
and what we all do every day.

Our relationship with customers


Our new business model calls for SMUD to serve as the
customer-focused energy solutions provider to our customers
and community. It recognizes that SMUD will remain in the retail
business and we’ll sell energy products and services - and continue
to own the customer relationship. When our customers think
about energy solutions, we want them to look first to SMUD for
the solution or information that will help them make the best

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5-YEAR STRATEGIC PLAN

choice. The “Value Our Customer and Community” point of the


North Star supports the new business model by establishing the
“value for what you pay” metric, to measure customer loyalty. It’s
a change. We’ve traditionally measured customer satisfaction.
Customer satisfaction is important, but a satisfied customer won’t
necessarily be a loyal customer in a competitive future. Our goal is
to create customer loyalty, and we’ll do that by delivering value to
customers. A loyal customer is much more likely to stick with SMUD
despite having options to buy energy, products and services from
someone else.

From inside out to outside in


To deliver value to our customers, we must “work backwards” from
what our customers value and need to understand what products,
services, and supply options will meet customers’ needs and then
determine whether we can competitively provide a product or
bundled products to meet a particular need. To consistently deliver
this new customer-centric approach, we’re improving how we use
and manage data to better understand what customers value at a
much more individual level. This includes viewing our customers
through the lens of energy usage patterns, demographics,
“psychographics” (understanding customers’ values, personalities,
attitudes, interest and lifestyles) and market research. We’ll
then use complex analytics to finely segment our customers
to deeply understand what they value. We know the needs of
our restaurant customers are different from those of our small
manufacturing customers. Similarly, what retired, fixed-income
senior citizen homeowners need and value is different from that
of young, digitally-engaged, urban professional renters. The key
is to distinguish between the different, narrowly-drawn customer
segments to proactively identify what that group of customers

22 SMUD 3.0
2016 – 2020

needs and values and deliver a solution to a problem they’ve


identified or a solution to a problem they didn’t realize they had
until we identified the solutions for them. That analysis will also
help us market only the products and services to a specific group
of customers.

Advancing our customers’ perception of SMUD as a good corporate


citizen, community supporter and ally is an important part of how
we’ll build customer loyalty. Experts tell us that 82% of consumer
purchases are influenced by awareness that the selling company
is socially responsible. We plan to build on our already strong
reputation as a good corporate citizen by continuing to invest in our
community through aligning with identified community priorities,
supporting local nonprofit organizations, offering scholarships and
internships, providing community infrastructure and beautification
grants and demonstrating our commitment to improving the
environment and sustainability of our region.

Our products and emerging technologies


The new business model recognizes that SMUD will transition away
from providing a single, undifferentiated product — electricity — to
offering an array of product and service options aimed at meeting
the needs of specific groups of customers (“segments”) or even
individual customers. Equally important, part of our product
development process must be to take a hard look at whether SMUD
can competitively offer the new products or services at a scale that
contributes to our net revenues, or is likely to increase net revenues
as the market for the new product or service develops.

Our position in the solar market is a good example of how we


are thinking about new products and services with the potential

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5-YEAR STRATEGIC PLAN

to increase net revenues and help meet our environmental goals.


We recognize that many business and residential customers are
interested in solar, and many would prefer for SMUD to be their
provider. There’s an opportunity for SMUD to earn revenues that
would otherwise be lost to third parties offering rooftop solar.
When we looked at where SMUD could be successful in the solar
market, we asked: Do we make a play in community solar, rooftop
solar or both? Looking at the market, our competitors and our
cost structures, it’s clear that SMUD can’t compete with the many
companies providing rooftop solar. However, community-based
solar offerings such as SolarShares® uses SMUD’s strengths in
offering utility-scale solar, which means we can offer the product
at a price that’s competitive with, or less than, rooftop solar. It’s
a largely untapped market opportunity, and one we’re actively
pursuing to expand our offerings. We’ll offer customers an array of
community-based solar options through SolarShares to meet the
goals of different customer segments. For business customers we’ll
offer different solar pricing options depending on the length of
their contract with SMUD and whether the customer wants a local
or remote solar source.

We must also analyze the products, services and programs we


currently offer and assess whether they continue to provide value
to our customers, are delivered efficiently and contribute to the
bottom line or provide a strategic advantage. There can be no
sacred cows as we move forward. One example is the carbon offset
program. Providing customers with a product that helps them
offset their overall carbon footprint is a nice idea. But, the reality
is that customer uptake is extremely low, and the time and effort
spent on the program doesn’t justify its continuation. We must be
willing to stop doing things that don’t provide value or align with
our North Star objectives.

24 SMUD 3.0
2016 – 2020

Emerging technologies Building and transportation electrification represents a long-term


opportunity to increase our net revenues, improve air quality
Many of our new product and service opportunities will come and lower the carbon footprint of our region. In the short term,
from emerging technologies maturing and the transition we’ll partner with customers to expand workplace electric vehicle
to a more distributed energy future. Our research and charging and build additional DC fast-charging stations in our
development efforts and exploration of distributed energy region to overcome range anxiety and build SMUD’s brand in this
resources and other emerging technologies will focus on area. We’ll support education and marketing programs to increase
providing solutions to problems SMUD or our customers are adoption of electric vehicles by our customers and community.
trying to solve while advancing environmental sustainability. Over the next few years, we’ll move more cautiously into building
We’ll also look for opportunities to increase net revenue electrification, beginning with pilot programs to test developer and
in areas such as energy storage, demand response and customer acceptance of all-electric residences and support targeted
electrification of buildings and transportation. rebates around electric appliances such as electric hot water heaters.

Our technology

“We must be willing to stop doing Technology will play a major role in driving innovation and evolving
our business model. The transforming energy and utility environment
things that don’t add value or align requires us to rethink the role of technology in our business and
with our North Star objectives. consider significant technology investments over the next several
years. We’ll use technology (existing and new) and data analytics to:

• Better understand our customers.

• Manage data.
In some areas, like solar, we’re jumping in because the • Improve our processes and lower our costs.
market opportunity is clear. In others, such as storage and
demand response, we’ll stay up to speed on emerging • Automate where appropriate.
technology and test applications so that we’re ready to move
• Assess our aging infrastructure and target replacements or upgrades.
into the space when the benefits to SMUD, our grid and our
customers outweigh the costs and we determine we can do • Effectively manage the expected increase in distribution energy
so competitively. resources like solar, storage and electric vehicles on our grid.

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5-YEAR STRATEGIC PLAN

While the potential benefits of technology are great, they come at with digital self-service options in areas such as billing, starting
a substantial cost and with resource requirements. With staffing and service, qualifying and enrolling in programs, payment arrangements
financial constraints, we can’t do it all at once. We have to make tough and scheduling appointments for programs and services. These
choices about priorities and delay certain investments to future years. options will create an improved customer experience at a lower cost
to SMUD. A digital customer transaction, for example, costs around
The focus of our technology investments will be on improving the
$2, compared to $16 for the same transaction through the Contact
quality and lowering the cost of our core work, improving the agility
Center. Similarly, a paper bill costs about $1 to prepare and deliver
and governance of our key processes and enabling our new business
while a digital bill costs between 3 and 4 cents.
model for the utility of the future. In balancing the competing need
for new technology investments, we‘ll focus on: With the increase in distributed energy resources, operating our
• Optimizing our existing distribution system is becoming
technology platforms. more complicated, and investments
in technology will be necessary to
• Creating the technology
modernize our distribution grid so we
infrastructure foundation that
have the visibility into our system to
will allow us to adapt to the
understand the impact of distributed
changing business environment.
energy resources on our system. As
• Enabling customer education, distributed technologies mature and
control and choice.
new markets for our customers and third
• Improving the efficiency and parties develop, the flow of energy-
cost effectiveness of our related products and services will no
business operations. longer be one-way. Our grid will become multi-directional among
• Ensuring our systems to meet customers’ demand for distributed utilities, customers and third parties. Our job will be to connect the
energy resources as it grows over time. dots and create the platform to facilitate this new multi-party, multi-
directional energy future.
Technology plays a role in achieving the targets under every point
of the North Star. For example, we’ll use analytics and technology Over the next several years, we’ll make investments in our
to support our customer segmentation efforts, to better understand telecommunications infrastructure and a distribution management
specific customer needs, and create targeted product and digital system to provide the foundational capabilities and advanced
marketing to increase the uptake of our products and services and functions to safely and efficiently manage distributed energy
lower our marketing costs. Creating a richer digital experience for our resources and meet the demands of our customers and third parties
customers supports the “value for what you pay” measurement of the as they grow. Longer term, we’ll make decisions about when to invest
North Star. We’ll continue to invest in solutions that provide customers in more advanced technologies to allow us to forecast and optimize
all energy resources — ours, our customers’ and third parties’.
26 SMUD 3.0
2016 – 2020

Our infrastructure and power supply


We must maintain and upgrade our to other energy markets in the Pacific
existing utility infrastructure to continue Northwest, providing us with improved
to provide highly reliable service while access to clean energy resources. The
meeting carbon goals and customer proposed transmission line also supports
expectations. Much of SMUD’s distribution operations of the Balancing Authority of
system is 50 years or older, and replacing Northern California (BANC) and our plan
and/or upgrading infrastructure will to remain an independent, vertically-
be a key priority. We have good integrated electric utility.
vegetation management, pole and cable
SMUD is embracing and is committed to
replacement programs in place. However,
a low-carbon future, and our approach to
with better data, we can reduce the cost
achieving this objective is a balanced one.
of grid asset maintenance while targeting
We must meet our carbon goals while
the replacement of assets before they
minimizing the cost to customers. We’ve
fail. We’ll select and implement a data
procured enough renewable resources to
and analytics solution to accomplish
meet our 2020 33% renewable portfolio
these goals to deliver our Operational
requirement. The target grows to 50% by
Excellence goals. We must be open
2030, which will bring our energy supply
minded as we look at applications where
portfolio to more than 75% carbon-
distributed energy resources like storage
neutral by that date. We’ll continue to
and micro-grids may enhance reliability
focus on acquiring low-cost renewable
or delay traditional investments in our
resources. In most cases, we’ll purchase
distribution grid. Likewise, we’ll increase
new renewable resources through power
the utilization of our generation and
purchase agreements to shift the project
transmission assets to maximize
development and operational risks
their value.
away from SMUD and our customers to
We’ll study new investments, such as the renewable developers and/or operators.
Colusa/Sutter (CoSu) 500 kV Transmission An exception to this approach would be
Line which, if built, will provide additional consideration of expanding SMUD’s wind
power import and export capabilities resource in Solano County.

SMUD 3.0 27
5-YEAR STRATEGIC PLAN

Our North Star


We make every move a safe one for employees, our
customers, and our community.
The North Star translates SMUD 3.0 into 6
priority areas (the points on the star), each with
goals and measurements. The North Star helps
to focus our efforts to ensure we fulfill SMUD’s
purpose, vision and the Strategic Directions Employees are the most important part of our success,
adopted by our Board. The North Star also and we create an environment where employees thrive
and do their best.
creates outcomes and measurements that tell
us about our progress under our new business
model. We can’t look at any one point of the
North Star in isolation. They’re all interrelated
We act in the best interest of our customers
and collaboration across SMUD will be critical
and community.
to meet our North Star objectives and ensure
SMUD’s future success.

The Strategic Plan spells out the priority areas


we’ll focus on from 2016 to 2020. It gives We do it right. We innovate to improve our quality of
business units and departments direction in service and lower our delivery costs.

setting priorities and measurable goals that


connect our employees’ day-to-day work to
SMUD’s strategic priorities.
We are financially flexible to make necessary and timely
investments and take advantage of opportunities while
remaining competitive.

We embrace a low carbon future while balancing affordability,


reliability and customer choice. We are committed to
sustainability in our business practices.

28 SMUD 3.0
2016 – 2020

SMUD 3.0 29
5-YEAR STRATEGIC PLAN

North Star point 2016 to 2020 focus

• Develop a safety-for-life culture throughout SMUD —


­ safety at work, at home and at play.
• Reduce ergonomic risk and soft tissue injuries.
• Promote public and contractor safety.

Be Safe. Always.

Examples of 2016 and 2017 initiatives

Outcomes 1. Create and hold employee and family safety events.


2. Identify public safety risks, track incidents and use data to mitigate risks.
3. Educate contractors about electrical risks in conducting their business.
We make every move a safe
one for our employees, our 4. Implement near-miss reporting SMUD-wide.
customers and our community. 5. Implement the recommendations of Grid Assets’ Joint Labor Management
Safety Committees.

2020 Goal

Zero incidents and injuries.

2016 Family Safety Day

30 SMUD 3.0
2016 – 2020

North Star point 2016 to 2020 focus

• Ensure we have the right people with the right skills in the right place at the right time.

• Create a culture that fosters innovation, collaboration and accountability.

• Deliver (develop and/or recruit) high-performing leaders who enable optimal


employee performance.
Treasure Our Employees

Examples of 2016 and 2017 initiatives


Outcomes
1. Implement a Strategic Workforce Plan with a focus on:

a. Succession planning, recruitment and retention methods.


Employees are the most
important part of our success, b. Increasing technical and business acumen to meet current and future business needs.
and we create an environment
where employees can thrive and 2. Implement Workplace 3.0 to drive SMUD’s desired culture.
do their best.
3. Pilot an innovation program to crowd source employee ideas.

4. Enhance employee communications to improve employee and business engagement


and meet employees’ expectations for communications in their preferred channels.

5. Pilot alternative and new work spaces.

2020 Goal

Achieve 86% “engaged”


employees within 2 years and
maintain that level.

2016 Information Technology Staff

SMUD 3.0 31
5-YEAR STRATEGIC PLAN

North Star point 2016 to 2020 focus

• Enhance community value and SMUD’s reputation.

• Create customer loyalty and differentiate SMUD from the competition.


• Focus our efforts on what matters most to customers – improved basic services, added
services tailored to customer preferences and improved billing and payment services –
Value Our Customers in ways that are easy, efficient, responsive, personal and collaborative.
and Community

Examples of 2016 and 2017 initiatives


Outcomes

1. Enhance technology to drive digital marketing strategies, billing, and customer tools
to improve the customer experience in alignment with SMUD’s Channel Excellence and
We act in the best interests of
market segmentation focus.
our customers and community.
2. Strengthen the connections between quality of life for the people in our community
and the sustainability of the places they share, including:
a. Community development and beautification grants.
b. SMUD’s scholarship program.
3. Address the needs of low-income customers by improving energy affordability for
customers most in need through rate design and targeted programs.

2020 Goal 4. Implement a coordinated cross-business unit strategy that anticipates the needs of the
development community and provides a seamless, transparent, easy processes.

80% of our customers agree


that SMUD provides them with
“value for what they pay.”

32 SMUD 3.0
2016 – 2020

North Star point 2016 to 2020 focus

• Improve our business processes such as work management, asset utilization, project
management and governance to achieve operational efficiency.

• Leverage technology and data to improve decision making and operations.

• Ensure the security and resiliency of our data and systems.


Operational Excellence

Examples of 2016 and 2017 initiatives

Outcomes 1. Implement enterprise-wide programs to improve efficiency, including:


a. Develop and implement a sustainable records management program.
b. Create and validate business continuity for secure and reliable business operations.
We do it right. We innovate to c. Implement a standard framework for project management to lower
improve our quality of service costs and increase effectiveness.
and lower our delivery costs.
d. Implement tools and capability for employees to work anywhere.
e. Enhance compliance and data security/privacy.

2. Enhance data-driven decision making:


a. Implement a Data Governance program to enable consistent, transparent, accurate
and accessible enterprise data.
b. Use predictive analytics to better focus efforts and resources.

2020 Goal 3. Optimize customer delivery by streamlining marketing channels, billing, and Contact
Center processes and eliminating programs that no longer provide customer value.
4. Optimize Grid Assets’ work management, including:
No more than a 1% rate increase a. New service design process improvements. b. Joint pole process.
in 2018, 2019 and 2020. c. Maintenance. d. Work orders.

5. Optimize SMUD’s Supply Chain by streamlining procurement workflow to reduce cycle


time and the cost of goods and services.

6. Implement a distribution management system to provide foundational capabilities to


improve outage restoration, reduce distribution system losses and manage distribution
and energy resources.

SMUD 3.0 33
5-YEAR STRATEGIC PLAN

North Star point 2016 to 2020 focus

• Improve our rate structure to better align rates with costs.

• Create new net revenue streams.

• Pay down unfunded liabilities and stranded assets.

Financially Fit

Examples of 2016 and 2017 initiatives

Outcomes
1. Implement selected distributed energy strategies to increase net revenue, including:
a. Community, residential, and low-income SolarShares®.
We are financially flexible b. Expanded electric vehicle charging.
to make necessary and c. All-electric new home construction pilot.
timely investments and take
advantage of opportunities 2. Implement Residential Time of Use (RTOU) rates to reflect costs, influence customer
while remaining competitive. behavior and reduce overall infrastructure investments.
3. Redesign energy efficiency programs to target customer value.
4. Optimize system and energy assets:
a. Participate in new energy markets such as the Energy Imbalance Market (EIM).
b. Increase the utilization and value of our generation and transmission assets.
2020 Goal

Ongoing programs and


projects are funded by cash
flow and not long term debt
and projects are evaluated
based on a risk-adjusted
economic life.

34 SMUD 3.0
2016 – 2020

North Star point 2016 to 2020 focus

• Optimize our energy resources and grid, including generation, transmission,


distribution and distributed energy resources while meeting carbon goals and other
regulatory requirements.

• Promote sustainability with our workforce and in our workplace to lower the
environmental footprint of our business practices.
Sustainable Future

Examples of 2016 and 2017 initiatives


Outcomes
1. Implement the Research and Development Strategy by piloting projects to enhance
efficient management and operations of our distribution system, including:
We embrace a low carbon future a. Solar inverters.
while balancing affordability,
reliability and customer b. Storage.
choice. We are committed to c. Advanced energy efficient products.
sustainability in our business
practices. d. Demand management.
2. Complete due diligence for the 500 kV Colusa/Sutter (CoSu) Transmission Line to
enhance the reliability of the electrical grid of Northern California, increase SMUD’s
ability to import and export power to other energy markets, particularly the Pacific
Northwest and prepare for the region’s future clean energy needs.
3. Optimize SMUD campuses’ energy efficiency and sustainability by reducing fleet
2020 Goal
emissions and waste.
4. Implement hydro license plans for transportation, vegetation management, minimum
flows, aquatic and terrestrial species and other requirements.
We accomplish our carbon
goals while reducing our carbon 5. Plan the development of Solano 4 (Collinsville Wind).
compliance cost by 10% and
SMUD sits in the top quartile for
overall business sustainability
practices.

SMUD 3.0 35
5-YEAR STRATEGIC PLAN

Our collaborative work approach


SMUD’s future success depends on our ability to effectively use our
collective skills, talents, knowledge and strengths to achieve our vision
and goals. Our company and industry are complex, and collaboration
is a key competency for each of us — one which we must continue to
demonstrate and grow. Collaboration means we consult, meet with
and inform the right people to get the right input at the right time
to make the right decisions. It requires knowing the many parts of
SMUD and how they interact to achieve our goals. It means caring
more about SMUD’s future, our collective success, our customers,
our community and our ability to serve than about our individual
success. Our future requires us to actively break down silos, improve
communication and push back on any reluctance to share needed
information with our colleagues. It means every one of us must be
transparent, expect the best, and hold each other accountable and
respectfully address each other if these expectations aren’t met.

A collaborative work approach also requires trust. Trust in your leaders,


your peers and yourselves to deliver on commitments. A collaborative
environment based on trust yields faster and more effective decision
making, more productive conversations and meetings and higher
quality work.

SMUD continues to be recognized as an industry leader, and that


recognition was hard won. The future will require more from us —
individually and as an organization — to ensure we remain an industry
leader and our customers’ first choice. We have the knowledge
and talent to accomplish great things, using the North Star as
our compass. With our personal and collective commitment to a
collaborative work culture, we will do just that. At the end of the day,
we are one team, Team SMUD!

36 SMUD 3.0
2016 – 2020

Organizational chart (by major business functions)


CEO &
General Manager

Audit and
Board Office
Quality Services

Chief Chief Chief Grid Chief Chief Chief Chief


Legal Officer Financial Officer Strategy & Workforce Energy Delivery Information Customer
Operations Officer Officer Officer Officer
Officer

• Legal • Planning, • Grid Planning • People & • Power • Operations • Customer


Services Performance & Operations Organization Generation Retail Strategy
& Enterprise Development • Application
• Legislative Risk • Commodity, Services • Grid Assets Development • Customer
Regulatory Procurement & Maintenance Solutions
& Local • Corporate & Sales • Safety & • Sacramento
Government Resource Security Power • Strategy & • Customer Care
Affairs Planning & • Research & Operations Academy Governance
Development • Revenue
Pricing/Rates • Operations • Information Operations
• Records • Infrastructure
Management • Treasury • Distributed Maintenance, Planning & Security
Energy Compliance • Customer Value
Operations Operations & Performance
• Regulatory & Insurance Strategy Support
Compliance • Commercial
Risk • Balancing & Asset Development • Communications,
Management Authority Management Marketing &
Northern Community
• Corporate • Real Estate & Relations
Accounting California Environmental
Operations Stewardship
Services

SMUD 3.0 37
5-YEAR STRATEGIC PLAN

In summary
Our 2016 to 2020 Strategic Plan is a living document. The executive
team will review it each year, and as our industry and business drivers
change, we’ll revise the Plan as necessary to meet new challenges
and opportunities. Our annual enterprise metrics will align with
the outcomes, goals and measurements detailed in the North Star
and Strategic Plan and will tell us how we’re progressing in our
transformation to SMUD 3.0. Our business unit’s 5-year and 3-year
plans and annual budgets will detail the specific projects, programs
and other initiatives each of us will deliver in our day-to-day work in
support of our Strategic Plan and North Star goals.

Call to action
Take time to understand the Strategic Plan, our new business
model and SMUD’s strategic direction. This Plan provides the
high-level, long-term direction for SMUD’s future success. That’s
stage 1. Through your business unit and department planning
process, your director will develop measurable goals (and the
projects, programs and initiatives to achieve them) that connect
the work you do each day to the goals in the SMUD Strategic Plan.
We finalize measurable goals each fall. You’ll hear about yours
from your director, and we’ll share all business unit measurable
goals with the organization to help everyone understand what their
colleagues in other parts of the company are working on and how
cross-department collaboration is necessary to achieve our goals.

38 SMUD 3.0
2016 – 2020

We’ve laid out an ambitious future for SMUD, and achieving our
goals will require everyone’s commitment. Embrace change.
That means being open to acquiring new skills: doing your work
differently and speaking up about work that no longer provides
value. Find new and innovative ways to work more efficiently
and streamline processes while maintaining or improving
quality. Be transparent and collaborative with your leaders and
colleagues across SMUD.

We’re reimagining our business to create a successful future.


Each of us has a role in securing that bright future. Working
together, we can make our vision a reality and ensure SMUD
is great place to work — to the benefit of the customers and
community we’ve proudly served for 70 years.

SMUD 3.0 39
5-YEAR STRATEGIC PLAN

Strategic Directions Core values


SMUD’s publicly-elected Board of Directors create Strategic
Directions which spell out our vision for the future, our role in the • Competitive Rates (Policy Number: SD-2)
community and how we’re managed. The Board has adopted
• Access to Credit Markets (Policy Number: SD-3)
18 SD’s, which are grouped by subject, as follows:
• Reliability (Policy Number: SD-4)
PURPOSE STATEMENT (Policy Number: SD-1A)
• Customer Relations (Policy Number: SD-5)
SMUD is community-owned. Our purpose is to enhance the • Safety (Policy Number: SD-6)
quality of life for our customers and community through creative
• Environmental Leadership (Policy Number: SD-7)
energy solutions.
• Employee Relations (Policy Number: SD-8)
VISION STATEMENT (Policy Number: SD-1B)
• Resource Planning (Policy Number: SD-9)
SMUD’s vision is to be the trusted partner with our customers • Public Power Business Model (Policy Number SD-11)
and community, providing innovative solutions to ensure energy
• Ethics (Policy Number SD-12)
affordability and reliability, improve the environment, reduce
our region’s carbon footprint, and enhance the vitality of our • Information Management and Security
(Policy Number SD-16)
community.
• Enterprise Risk Management (Policy Number: SD-17)

• Emerging Technologies (Policy Number: SD-18)

Key values
• Research and Development (Policy Number SD-10)

• Economic Development (Policy Number SD-13)

• System Enhancement (Policy Number SD-14)

• Outreach and Communication (Policy Number SD-15)

40 SMUD 3.0
2016 – 2020

Glossary of terms
Balancing Authority: The agency responsible for maintaining Competitive retail environment: Others will offer energy-related
the electricity balance within a defined jurisdiction. Balance is products, services and information to our customers.
maintained by controlling the generation and transmission of
Demand management: Utility mechanisms or programs that
electricity within the balancing authority’s jurisdiction, and between
encourage customers to temporarily curtail their energy use to
neighboring balancing authorities. Balancing authorities operate
reduce overall demand on the electrical system at critical times,
24/7 to make sure generation, transmission and distribution
typically when electricity is in short supply and market prices are high.
systems are all working reliably to meet customers’ energy needs.
Distributed Energy Resources (or DERs): Electricity from
SMUD operates the Balancing Authority of Northern California, or distributed energy resources is generated or stored by a variety
BANC. BANC is a joint powers authority whose members include of small, grid-connected devices referred to as distributed energy
SMUD and other public power agencies from Northern California resources. Traditional generation (such as hydro and gas-fired plants)
that joined our regional balancing authority for reliability purposes. is centralized and usually requires electricity to be transmitted over
long distances. DER systems are decentralized, modular and more
Behind the meter: Refers to generation (such as rooftop solar),
flexible technologies located close to the load they serve. Some
storage or energy-related solutions (such as smart thermostats)
examples include rooftop solar systems, energy storage, plug-in
installed by the customer on their side of the meter e.g., inside
electric vehicles, demand response and energy efficiency.
their home or business.
MW: Abbreviation for megawatt, or 1 million watts.
Bundled products: A group of products, services or information
offered to customers to meet a specific need. For example, Range anxiety: Worry on the part of a person driving an electric
product bundles utilities would offer to young professionals renters vehicle that the battery will run out of power before reaching a
would be different than those offered to fixed-income retirees who destination or charging point.
own their own home.
Stranded assets: An accounting term that refers to assets that are
Classic utility cost of service pricing: Utilities have traditionally becoming underused or obsolete well ahead of their expected useful life.
priced their product—electricity—by adding up all costs to operate
Utility side of the meter: Refers to all the assets (generation
the business and serve customers. Newer pricing structures, such
transmission, distribution etc.) up to and including the meter that is
as system fixed infrastructure charges and time-of-use rates are
owned and/or controlled by the utility.
designed to better reflect the cost of a particular part of providing
power (such as transmission and distribution) or providing power at Vertically-integrated utility: A utility, such as SMUD, that owns all
a specific time. levels of the supply chain: generation, transmission and distribution.

SMUD 3.0 41
Power. Done Right.®

©SMUD 0852-16 7/16