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Medium Profitability Cost Reduction

Utility Co.

#Energy
ProHub Comment

This case guides the candidate through a structured cost reduction analysis using comparative benchmarking (Exhibit #1) to identify maintenance & construction as the cost driver, then time motion studies (Exhibit #2) to quantify specific savings opportunities. The case emphasizes the importance of moving from problem diagnosis to actionable implementation recommendations with clear risk mitigation.

Estimated Time 15 minutes
Difficulty Medium
Source Duke
50 / 100
Our client is Utility Co., a US-based utility company that operates on the West Coast of the United States. Utility Co. has been profitable over the last several years, and has seen relatively stable/favorable business conditions during that time. However, 2 weeks ago, regulators began pressuring Utility Co. to reduce its costs in order to improve prices/rates for customers. Utility Co. operates in a highly-regulated energy market, and is required to justify the prices/rates it charges customers through an annual process that examines a provider’s cost structure and attaches a “reasonable return” on top of its cost structure in order to arrive at prices/rates. The CEO of Utility Co., Larry “Chipper” Jones, has engaged our team to identify where and how Utility Co. can reduce its costs by $500M.

Clarifying Information

  1. Utility Co. provides both gas and electric services, but both businesses operate the same
  2. Utility Co. is a fully-integrated utility, performing all functions of the utility value chain: generation, transmission, and retail
  3. Good structure will segment the utility by activities and consider:
    • Generation: cost of fuel (e.g. renewables, gas/coal, nuclear, etc.) and efficiency, efficiency/throughput (TPT) of labor & assets (including maintenance/repairs and capital expenses)
    • Transmission/maintenance: cost of maintaining assets (e.g. power lines), construction of new assets, TPT/efficiency of labor
    • Retail: call center costs & TPT/efficiency, cost of customer billing/payment, overhead/SG&A, building/infrastructure costs, technology/systems