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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
• Be Safe. Always. 30
• Operational Excellence 33
• Financially Fit 34
• Sustainable Future 35
Call to action 38
Strategic Direction 40
Glossary of terms 41
5-YEAR STRATEGIC PLAN
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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.
Arlen Orchard
CEO and General Manager
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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:
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• Caring
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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
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Opportunities Threats
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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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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:
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.
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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.
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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• Safe, predictable monopoly • Competitive retail environment (others will offer our
customers products and services)
• 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
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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
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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:
• 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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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’.
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Be Safe. Always.
2020 Goal
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• Ensure we have the right people with the right skills in the right place at the right time.
2020 Goal
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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.
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• Improve our business processes such as work management, asset utilization, project
management and governance to achieve operational efficiency.
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.
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Financially Fit
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
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• Promote sustainability with our workforce and in our workplace to lower the
environmental footprint of our business practices.
Sustainable Future
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Audit and
Board Office
Quality Services
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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.
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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.
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Key values
• Research and Development (Policy Number SD-10)
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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.
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Power. Done Right.®