Case Studies

Strategic Decisions At BC Hydro

Ralph L. Keeney, Timothy L. Mc Daniels, "Value Focused Thinking about Strategic Decisions at BC Hydro", Interfaces, 22:6 (1992), pp. 94-109.

The directors of British Columbia Hydro (BC Hydro), a major corporation with billions of dollars in annual sales, observed that they would face many complex strategic decisions in the 1990s. They would have to make decisions regarding the addition of resources to generate electricity, the construction of transmission lines, the negotiation of power agreements, the environmental impact of their facilities and activities, and the like. The directors wanted to prepare to make those decisions in the best possible way, using quality information and sound logic in a coordinated manner.

Various departments have key decision-making roles at BC Hydro. To facilitate the coordination of their decisions, Ken Peterson was appointed as the director of planning. His goal was to make BC Hydro the best-planned utility in North America. He realized that all the decisions should contribute to achieving a set of long-range objectives, and as such, with the help of operations research consultants, he worked towards identification of the organization's strategic alternatives and construction of a multi-attribute utility function. The process began with interviews from key decision-makers to identify the objectives and continued through the steps necessary to define and assess the utility function. The list included six major objectives (economics, environment, health and safety, equity, quality of service, and public service) and 18 attributes (see Figure 5).

Figure 5

The assessment of the utility function gave good insights to the team. It was observed that economics, environment, health and safety, and service quality were the major objectives that mattered. The assessed utility function and the potential insights it provides could be used in a variety of strategic decision contexts at BC Hydro. For example, in Peterson's view, two outages per year of two hours duration each to 20,000 large customers were equivalent to an increase of 1.7 mills/kWh for system energy costs. A 1.7 mills/kWh increase in cost is equivalent to $83,300,000 in net earnings. Thus, if BC Hydro had opportunities to reduce expected outages of that nature at a cost significantly less than $83 million, those would be good investments from utility's perspective.

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