Innovating in Asset Management: A Conversation with Alectra Utilities Vice President Tom Wasik [Recognizing One of the 2022 Energy Central Innovation Champions: Tom Wasik]

Earlier this year, Energy Central dispatched our annual call for nominations for power professionals leading the way in Innovation, and we're proud to announce the 4 winners and 2 honorable mentions, which you can read about here. This week, we'll be spotlighting each of those 4 winners after conducting interviews to learn more about their great work. 

Please help us celebrate Tom's and the other champions' successes by reading some of the insights garnered from these exclusive Innovation Champion Interviews.

The relatively staid world of utility infrastructure management might seem an unlikely setting for innovation. Tom Wasik, vice president of asset management at Alectra Utilities, is rethinking the company’s approach to asset investing by tying them to its Environmental, Social, and Governance (ESG) initiatives. A veteran of the industry, Wasik has initiated several projects – from a non-wired alternative pilot to a storm hardening – at Alectra to ensure that the company becomes an ESG steward.

Those who follow investing markets already know that ESG offers material benefits to companies. But the discourse around ESG has become muddy in recent times. Companies have been accused of creating arcane metrics to measure and boost their ESG efforts. 

Wasik says Alectra considers the acronym from a ‘value-based standpoint.’ “Instead of developing a concrete definition, we look at the spirit of ESG and break it down by component,” he explains.

Thus, a focus on being environmentally sound for Alectra means lowering their carbon footprint and enabling customers to do so as well. The emphasis on social factors translates to a ‘strong belief’ in equity, diversity, and inclusion. In terms of action, it means promoting a culture of inclusive respect inside the organization, Wasik says. Finally, governance translates to a transparency in reporting and universal measures and metrics that are easily understood by shareholders and investors.

At the core of its ESG initiatives, however, is the firm’s ability to make clever asset investment decisions that combine its present-day needs with the future trajectories of energy markets.    

Innovation In Complex Asset Investment Decisions

To say that asset investment decisions have become complicated in recent times is understating the case. 

Typical utility infrastructure investment decisions earlier were based on simple return of investment (ROI) calculations. How much is the upfront cost? What are the maintenance costs? By how much will the equipment’s cost depreciate annually?

These were just some of the questions that utilities grappled with when making an investment decision. The emphasis on financial returns skewed calculations in favor of fossil fuels, which had a thriving infrastructure ecosystem and were the dominant source for power generation.

But extreme weather patterns and climate change concerns have changed that narrative in recent years. While fossil fuels still remain a popular option to generate power, most utilities are phasing out their coal plants and investing in renewable energy infrastructure.

As Wasik puts it, utilities now must strike a balance between sustainability and affordability in their asset investment decisions. “Sometimes sustainable solutions have higher upfront costs. But over the [sustainable] asset’s lifetime, you might see it has more value,” he explains.

That value is derived over a long term, instead of immediately, and involves calculation of new metrics or expanding existing ones. For example, utilities can reduce power generation costs by co-opting customers as stakeholders in demand response programs. “[The question is] how do you balance something that is more economical and cheaper upfront but, over its lifetime, becomes more expensive [with the opposite case],” explains Wasik, referencing the costs of investing in fossil fuels vis-à-vis renewable energy.      

This is where Alectra’s use of decision-making software has made a difference in its strategy, according to him. The company uses the Copperleaf Decision Analytics Solution software to make key investment decisions in its portfolio. The software helps them in identifying and extracting value that is enduring for their portfolio from multiple options, says Wasik.

In simple terms, this means that it enables comparison between different asset investment alternatives on a common economic scale. Thus, it helps them define criteria for evaluation and predict outcomes over the long term. Not only that but the software also helps them track the value [and returns] on their investment over time. 

Using Analytics Software to Make Decisions at Alectra

Wasik illustrates Copperleaf’s usefulness with the example of Alectra’s portfolio – a collection of different assets, from poles and wires to IT infrastructure and trucks. “How do you compare these disparate assets on a single platform and using a single economic framework?” he asks.

The answer to that question is the calculation of a common economic denominator to tie the diverse components of a grid together. That common denominator itself is a composite of the many considerations – whether they are related to the environment or to risk mitigation or finances – that electric utilities must take into account in their operations today.

As with any major investment decision, there are tradeoffs to be considered. For example, infrastructure investments are typically driven by reliability, cost, and maintenance metrics. The addition of environmental factors to this mix can compromise the importance of these metrics. While they are equipped with environmental credits and benefits, renewable energy sources are not available 24X7 and can be beholden to weather patterns.

Creative thinking is key in such instances. “As we developed our criteria, we realized that it is not all one or the other,” explains Wasik. Thus, Alectra framed its investment in demand response systems as one that eliminated the need for additional capacity in the system. At the same time, the investment helped provide a service to customers with energy storage because they could place power supply bids during peak periods.

While the use of analytics software has simplified the process of making investing decisions, making a similar case to regulators is more difficult. “Most regulators are economic regulators,” says Wasik and adds that their efforts to demonstrate the value of their investments is a “work in progress.” “We are still looking for the win-win-win solution for regulators, customers/ratepayers, and shareholders,” he says.

Innovations At Utilities

Utilities have a bad rep among industries for being slow on innovation. As someone who has had extensive experience in different positions within the industry, Wasik has a more nuanced take on that perception. “Because of the unforgiving nature of electricity and the dangers around it, we do have to check and maintain it properly,” he says. That has meant an “incremental evolutionary innovation” cycle in which infrastructure and processes remain embedded in utility operations for a long time.

These ingrained practices have led the industry to prioritize efficiency above everything else. “Sometimes, when you are focused on efficiency, you sacrifice a little bit of innovation or a little bit of progress,” says Wasik.

And the pace of innovation at utilities must increase now because the pace of change is increasing, he says. Customers now expect electric utilities to anticipate their energy needs and preferences. “We have to be knowledgeable about their operating environment: how they use energy and what their expectations from us are,” he says.

To that end, electric utilities must refocus their priorities from opting for the “lowest cost” solution to one that promises “sustainable total cost of ownership” in the long run, he says. Agility and an openness to trying out different things is key. “[If Utilities fail, then] fail quickly and learn from it,” says Wasik. 

That may be sound advice in the long-term but current circumstances present a different sort of challenge. Russia’s invasion of Ukraine has roiled commodity markets and led to supply chain disruptions and increased energy prices. “The true solution has to figure out how to meet both,” counsels Wasik. By both, he means balancing present-day affordability with long-term sustainability.