Passion

Founders build a culture around the word “Passion”. The team is built around “Passion”. Pixar, Apple, Microsoft (once upon a time), Nike - the list, while finite, goes on. Go back in time to the start-up years of these successful businesses. You will find that the founders were passionate in their area of work. Pixar is no different. Ed Catmull and Alvy Ray Smith put first things first by establishing Pixar with a very clear vision and communicating that vision to its employees. They also sought out self-motivated individuals to work at Pixar. Self-motivated individuals bring with their a passion to go a good job and are necessary for the development of high-performance teams. Passion breeds innovation.

Long Term Goals

With the economic roller coaster ride we have had over the last year and half, it should come as no surprise that businesses need to have a long term goal. The goal should not be dictated by the stock price in this quarter or the next. Tying a CEO’s compensation to stock prices is myopic as we have just learnt. At Pixar, “it’s never been about cheaper [and] faster … It’s about creating for the long term … they go through great lengths to ensure that its culture can support new ventures and still remain true to their values.” With long term goals you are not concerned about short-term failures.

Team

I do miss the days when I was part of a team. Teamwork in big business has come down to working in silos or at the most working towards furthering your own department’s goals. Section 1 of Innovate the Pixar way has this picture where the “can do” attitude is having to fight with “that will never work” attitude. I thought it aptly described today’s corporate world. More often than not, you will find the corporate world littered with “that will never work” people. They sap your energy, the team’s enthusiasm and morale. Don’t let such individuals get to your team. It’s fun solving the “perceived impossible” problem and to constantly challenge the status quo. A high performing team collaborates and is necessary for innovation.

Risk

The “that will never work” people are risk averse. They are also CYA (cover your ass) people. They expect all the answers before they move. They are very uncomfortable with uncertainty. Innovation by definition has a certain amount of uncertainty associated with it. Will it always work? No. But because you failed, you are a step closer to success. “Try, fail, learn and try again. If you get it right the first time, it’s probably not very innovative.”

Bill Capodagli and Lynn Jackson have gone a great job in highlighting Pixar’s culture in the book. I was once involved in a strategy planning exercise and the subject of culture was not even broached when problems and issues were being discussed. Your company’s culture drives growth and innovation. Culture is driven foremost by the company’s leadership and in the processes and systems they create.

To summarize, “Innovate the Pixar way” offers an interesting insight into how the business is run. It also offers tips on how you can implement some of the ideas in your business and grow. In Pixar director Pete Docter’s words, “Prototype … Try … Learn … Try again. Prototype … Try … Learn … Try again. Prototype … Try … Get the picture?”

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# # #

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aXcentis is backed by nearly a century of American Express experience in providing travel management services to business of all sizes and travel budgets. Through aXcentis, small to medium-sized companies have access to a broad array of travel services through local account management and a reliable and experienced global organization. A focus on driving savings and control over travel and related spending through a proactive and consultative approach can help companies achieve a positive return on travel investment. Our reach may be global, but at the heart of our success are businesses just like yours.

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American Express Company (www.americanexpress.com) is a leading global payments, network and travel company founded in 1850.

About American Express in Canada

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A reminder: Any opinion on this subject of NB Power sale is solely my own based on my research and information I could gather online. My commentary on this topic does not reflect the opinions of any organization I am involved with.

North American Electric Reliability Corporation - NERC

Let’s start with the North American Electric Reliability Corporation or in short NERC. NERC ensures reliability of the bulk power system in North America. It develops and enforces reliability standards, and monitors the bulk power systems. NERC is self regulatory and is subject to oversight by the U.S. Federal Energy Regulatory Commission (FERC) and government authorities in Canada.

NERC works with eight regional entities across North America to improve the reliability of the bulk power system. These eight entities account for virtually all the electricity supplied in the U.S., Canada and a portion of Mexico.

Northeast Power Coordinating Council - NPCC

The entity responsible for New Brunswick, Nova Scotia, PEI, Newfoundland & Labrador, Ontario, Quebec, New York state, and the six New England states is Northeast Power Coordinating Council (NPCC). NPCC delegates authority from the U.S. Federal Energy Regulatory Commission (FERC) and by a Memorandum of Understanding with Canadian Provincial regulatory and government authorities. One of the goals of NPCC is to facilitate attainment of fair, effective and efficient competitive markets.

Bulk Power System

Bulk power system refers to an interconnected electrical system comprising of generation and transmission facilities across large distances. Transmission companies deliver power from the generating stations to a geographic location. Bulk power systems differs from local power systems in the sense that the local systems are the transmission lines that deliver power to your house or business. Distribution companies deliver power to your residence and place of business. The adjacent image shows the breakdown of power generation capacity by the type of fuel used in North America.

Today, the bulk power systems are designed to meet customer demand in real time power cannot be stored. As power is generation 24/7, it is consumed. This means that as power demand fluctuates throughout the day, variable power needs to be brought onto the grid when demand rises and taken off the grid when demand falls. Think for electricity generation as fixed power plus variable power. Typically, the fixed generation plants will be hydro, natural gas (at today’s rates) or nuclear since they are the cheapest to operate. If demand increases and the fixed plants cannot meet the demand, the variable power stations are fired up. Variable plants are typically use fossil fuels (oil and coal) since they are the most expensive plants to operate. (check out Efficiency NB site for more information)

Back to NPCC. NPCC is a membership driven organization. It has two types of membership: General and Full. General membership is voluntary and is open to any organization that has an interest in the reliable operation of the Northeastern North American bulk power system. On the other hand, Independent System Operators, Regional Transmission Organizations and Transcos are expected to be Full members of the NPCC. Full members are subject to compliance from the NPCC.

There are five Reliability Coordinators within NPCC:

1. Hydro-Quebec TransEnergie
2. Independent Electricity System Operator
3. ISO-New England Inc.
4. New Brunswick System Operator
5. New York Independent System Operator

Some of the Transmission Owners are (as it relates to our region):

1. Hydro-Quebec TransEnergie
2. Nova Scotia Power Inc.
3. New Brunswick Power Transmission Corp.

Hydro Quebec and NB Power are also players in the generation and distribution business. This brings us to NBSO.

New Brunswick System Operator - NBSO

New Brunswick System Operator (NBSO) is a non-profit organization whose primary responsibilities are to ensure reliability of the electrical system and to facilitate the development and operation of a competitive electricity market in New Brunswick. Here is what NBSO’s mission is:

To plan, direct and operate an effective integrated electric power system by:

• Maintaining reliability and adequacy of electric power to the Maritimes area
• Achieving an open competitive market that optimizes net economic benefit

Being members of NPCC also means that, they have to follow the following:

“The Federal Energy Regulatory Commission (FERC) has required that each U.S. public utility that owns, controls or operators facilities used for the transmission of electric energy in interstate commerce create or participate in an Open Access Same-time Information System (OASIS). The purpose of OASIS is to provide access Transmission Customers through an electronic medium with relevant information regarding available transmission capability, prices, and other matters to enable them to obtain open access non-discriminatory transmission services from transmitting facilities. FERC regulations also require each utility to implement standards of conduct to functionally separate transmission and wholesale merchant functions…”

What this all means is that all electric companies’ (NB Power, NS Power, Maritime Electric, etc.) in this region falls under the supervision of NBSO.

Here is some additional reading on NBSO’s activities:

• Open Access Transmission Tarriff - OATT is an important concept to understand.
• Standards of Conduct
• NB Electricity Market Participants - This page has a good graphic representation of all the players in the NB electricity market. You may also want to follow the additional links on the page for more understanding.

So the summarize, the NB Power transmission grid is one of the most important grids in the Northeastern North American sector. It ensures power can be distributed from/to Newfoundland, PEI, Nova Scotia, Maine and Quebec, and further along to the New England States. Additionally, the transmission companies are regulated to ensure that any generating company will have access to transmit the power at prevailing fair market rates without discrimination. This means that if you and I decide to start a power generation company, NB Power will have to grant me access to its transmission lines at prevailing market prices.

Armed with this background, you should be in a better position to understand the implications of the terms and conditions outlined in the MOU. We’ll talk about the specific terms and conditions on the MOU in my next post.

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Seriously guys, if you have any objective reason to oppose the sale of NB Power, I am willing to listen. It really does not bode well for New Brunswick’s image as a business friendly province when one hears such statements; statements that are loaded with emotion but devoid of business sense. Things change, business environments change. Businesses need to adapt to changing environments or die. Reminder: NB Power is a business. In the talk shows I listen during my drive to work, I may have heard just a few isolated souls speaking intelligently about the deal. But their voices could not rise above the din to prevent the sale of the utility.

There are actually two decision points here. The first is to determine if NB Power needs to be sold, while the second is how to structure a deal. So, before we figure out the merits (or demerits) of the MOU, let’s figure out if NB Power needs to be sold in the first place. Based on my analysis, I think selling NB Power might just be a good idea. This is also a good time to introduce a disclaimer: The opinions on this topic are solely mine and do not represent any organization. I arrived at this opinion based on my analysis of the data. If you can objectively refute my analysis I will gladly rescind my opinion.

The case for selling NB Power

Here is a summarized version of my analysis. I have included screen shots of their financial statements below too for reference. You are welcome to visit the NB Power site to review the financials yourself.

1. Medium to large manufacturing units in the province have closed at a faster rate than new arrivals in 2008 and 2009. This is evidenced by the lower revenues from the sale of electricity within the province decreased in 2009. So unless new businesses arrive in the province to offset the drop in revenues or there is a significant rate increase to offset the drop in revenues, NB Power revenues are headed lower. - See NB Power Income Statement
2. Fossil fuels account for close to 50% of NB Power’s power generating assets. Making them compliant to the standards that will significantly reduce carbon emissions will costs billions. Moreover, the cost of power generation using fossil fuels depends on the price of oil. NB Power’s income statement reflects this fact where the fuel prices increased by 50%. - See NB Power Income Statement

3. The effect of the above two pressures have squeezed NB Power’s gross margins to the point where cash flow from operations is not enough to cover its investing and operating activities. - See NB Power Cash Flow Statement

   Consider your household as an analogy. If your net household income is not enough to meet your expenses, then you need to borrow to make up the difference. NB Power has been doing that for the last number of years. There is a point in time where you leverage to such an extent that your payments are not going to reduce your principle, but just enough the pay the interest. The end of that path is bankruptcy. While NB Power is not there yet, it soon will be if it continues on its current path.

4. Continuing with the household example, it is prudent to cut costs to match your income, failing which you must start selling off your most productive assets to generate sufficient cash to pay off your debts. why most productive assets? Well, you are not going to get a premium on non-productive assets are you?

   With fuel being a significant percentage of its expenses, there is only so much that NB Power can do to cut costs. Both the executives and unions are not going to lower their salaries. So it cannot do more much on labor costs unless it resorts to layoffs. NB Power does not really have the luxury of remaining an independent organization. It needs a partner, and quickly, to breathe new life into the troubled utility.

5. Update 12/25: I researched out another interesting stat from their 2008/2009 financial statement. NB Power has built up its generating capacity to 4,226 MW (Oil: 1254 MW, Coal: 514 MW, Natural Gas: 353 MW, Hydro:893 MW, Nuclear: 635 MW). NB Power’s management discussions state that they sold 13,052 GWh within NB. At a 100% utilization this translates to 1,489 MW and at 80% utilization this translates to 1,862 MW. So NB Power built up capacity (and hence debt) hoping to meet the energy demand that never materialized. Their out of province sale only accounted for 216 MW to 270 MW.

   To summarize: Capacity: 4,226 MW - Demand: 1,705 MW to 2,132 MW => translates to excess capacity.

   Another point to note that despite rates increases their revenues in 2009 is less than in 2008.

NB Power should be looking for a partner with at least the following three characteristics:

Deep pockets

This is a necessary condition. The partner must have enough cash to infuse into the troubled utility. The debt load must be reduced to manageable levels.

Must know the business

The partner must know the electricity generation and distribution business. This again is important. A partner will deep pockets and no knowledge of the power generation and distribution business is akin to throwing good money after bad.

Have similar corporate values and culture

How many times have we seen mergers and acquisitions fail due to corporate culture clash? Synergies need to exist and not only on paper. This is the most important part if the marriage is to work.

So what are NB Power’s options?

1. Joint Venture - This is going to be a very hard sell. A JV will only occur if both parties stand to gain something. The only parties who stand to gain are the electric utilities in each of provinces of Nova Scotia, Newfoundland & Labrador, PEI and Hydro-Quebec. Now the question to ask is, will NS Power, Electric Power in PEI, or Newfoundland Power join hands with NB Power to create an Atlantic region electric utility?

   While there are economies of scale for power generation to be attained, I highly doubt the four provinces will join forces. Hyrdo-Quebec is large enough to buy out NB Power so that ’s its option. I have not researched if any company in the north eastern US states can purchase an electric utility in Canada. So I cannot comment on that. But it is an option.

   However, I do not see a JV reducing NB Power’s debt. In fact I see more capital requirement of NB Power if a JV were to be formed.

2. Merger - NB Power cannot acquire another company. It just does not have the cash. However, it might want to look for another utility in a better position to join forces. Then again we need to answer what’s in it for the partner
3. Acquisition - Given NB Power’s cash position this is the most likely scenario. NB Power will need to be bought out.
4. Remain independent - I would not consider the status quo as an option at all. The question you need to answer is, “Where is NB Power’s revenue stream? If it is within NB, then rates HAVE to raise. If we are looking to the North Eastern states in the US, then it has a very powerful competitor in Hydro-Quebec who can use its own lines via Quebec to distribute electricity. It’s generation costs are also significantly lower and hence can bid lower in the US. NS, NFL and PEI would also have to bid against Hydro-Quebec to win business in the States.

So as residents of New Brunswick, you have two options: Sell NB Power or brace for HIGH power rates given the current demand for power in New Brunswick.

Update 12/25: NB Power Sale - NERC, FERC, NPSS, NBOS - Making sense of it all



We’ll dissect the MOU in my next post.





NB Power Financials

Here is a snapshot of NB Power’s income statement. You may click on the image to zoom in (will open in another window)

As you can see, revenues from the sale of power within the province dropped from $1.24 million to $1.22 million. Their financial statement does not break down the segmented information on residential and industrial customers, but it would have been useful to have some numbers associated with the closure of all those mills across the province.

I managed to get some information on revenue breakdown by segment (page 12). Industrial revenues dropped from $362million in 2007/2008 to $307 million in 2008/2009.

Here is the expense side of the income statement:

Taking out the (Loss) gain on long-term receivable contracts, Revenues less expense for 2009 is just 3 million while for 2008 it was $293 million.

Let’s assume that the closure of manufacturing units were responsible for the drop in revenue. I think that’s a fair assumption. We constantly hear that there is an exodus of people from NB westward. I also think that the industrial users will pay a lot more than the residential users. So if our assumptions are valid, do we see a rebound in revenues with new manufacturing units opening in NB? I do not think so.

Did you notice the 48.5% increase in the fuel and purchased power in the expense site from 2008 to 2009? It does not take a lot of business sense to figure out that if revenues dropped 1.5% in 2009 while some of the cost items went up nearly 50% over the year, profit margins are going to be squeezed. The problem is that most of NB Power’s raw material for fuel generation is fossil fuel. Given the spikes in oil we have seen over the last year, it is certain that high energy prices are here to stay. Even if NB Power is a not-for-profit organization, it does need to generate enough revenue to cover its costs.

Now here is the statement of cash-flows:

Cash-flow from operating activities dropped significantly in 2009. NB Power had to resort to financing activities (like borrowing) to fund its operations and investing activities.

Finally here is the liabilities side of their balance sheet showing all of their $4.8 billion debt of which $1.37 billion are short term debt and payable most likely within the next year.



Let’s do some quick financial analysis:

1. Current ratio: Current Assets/Current Liabilities: 736/1377 = 0.5. This implies that for every 1 dollar in assets NB Power has $2 in liabilities. With falling revenues and rising costs, wonder how will NB Power continue to service its liabilities and reduce it to more manageable levels?

   Newfoundland power in comparison has a current ratio of 0.9. This means that for every $1 in debt they have 90 cents of equity. If you were to compare these two organization’s credit rating, Newfoundland power should have a better score than NB Power.

2. Cash ratio: (cash + securities)/current liabilities: (6+147+82)/1377 = 0.17. This implies that if NB Power’s creditors were to demand repayment immediately, NB Power can only replay 17 cents to the dollar. Of course I have assumed that NB Power’s derivative contracts are marketable quickly.

   Newfoundland power on the other hand has a cash ratio of 0.76. This means that Newfoundland Power can pay off 76 cents to the dollar if debtors were to collect immediately.

   The point I am driving with the above two points is that Newfoundland Power is in a much better financial position than NB Power.

3. Here is the bottom line: NB Power had $6 million in cash and about $4.8 billion in debt as of March 31, 2009. It’s operations do not generate sufficient cash-flow to pay down the debt AND sustain operations over the medium to long term. Am I the only one who sees something is wrong here?

Update 12/25: It has been a fascinating journey of discovery on the trials and tribulations of an entity called NB Power. Just discovered a rather disturbing document by AIMS authored by Dr. Thomas L. Tucker titled Power Trip: Stumbling Toward a Policy for NB Power. NB Power’s debt has been chronic for well over two decades. It had $3.1 billion in long term debt in 2000. Over the last decade it added an additional $1.7 billion in long term debt to $4.8 billion today. For this reason alone, I would recommend a sale of NB Power.







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]]> http://www.atlanticcanadabusinessblog.com/index.php/2009/12/22/strategy/nb-power-sale-a-really-good-idea/feed/ http://www.atlanticcanadabusinessblog.com/index.php/2009/12/22/strategy/nb-power-sale-a-really-good-idea/ http://feedproxy.google.com/~r/Iqi-Strategic-Management-Inc/~3/vYkVHrzXUJ0/ http://www.atlanticcanadabusinessblog.com/index.php/2009/12/09/marketing/time-off-ted-and-how-to-find-a-job-on-linkedin-facebook-twitter-other-social-networks/#comments Wed, 09 Dec 2009 09:58:16 +0000 CA http://www.atlanticcanadabusinessblog.com/?p=1087 I have never felt miserable as I have felt over the last few days. Influenza is definitely not something to be inflicted with. Considering serious professional work requiring concentration and creativity acted as a catalyst to worsen my symptoms. So I took this opportunity to (sleep, yes) and also catch up on expanding my horizons. I endeavored to undertake those activities that involved no physical labor, I let my fingers do the walking during the waking moments. As part of my healing process, I also devoured Brad and Debra Schepp's How to find a job on LinkedIn, ... and other social networking sites, along with those bitter pills. Related posts:<ol><li><a href='http://www.atlanticcanadabusinessblog.com/index.php/2009/11/08/marketing/selecting-a-printer-for-your-small-business/' rel='bookmark' title='Permanent Link: Selecting a printer for your small business'>Selecting a printer for your small business</a> <small>Marc Raul is today's guest. He is the product specialist...</small></li><li><a href='http://www.atlanticcanadabusinessblog.com/index.php/2009/11/21/marketing/the-presentation-secrets-of-steve-jobs/' rel='bookmark' title='Permanent Link: The presentation secrets of Steve Jobs'>The presentation secrets of Steve Jobs</a> <small>The title for this post could very well have been,...</small></li><li><a href='http://www.atlanticcanadabusinessblog.com/index.php/2010/02/07/marketing/american-express-business-travel-launches-axcentis-for-small-businesses/' rel='bookmark' title='Permanent Link: American Express Business Travel launches aXcentis for small businesses'>American Express Business Travel launches aXcentis for small businesses</a> <small>American Express Canada today announced the launch of aXcentis, a...</small></li></ol> I have never felt miserable as I have felt over the last few days. Influenza is definitely not something to be inflicted with. In fact I hope never to be inflicted with any kind of virus. But I know it’s a fools hope. On the flip side, I have never had so much time to myself for a very long time. At times like these you need to get some rest; let your body and brain rest. Considering serious professional work requiring concentration and creativity acted as a catalyst to worsen my symptoms. So I took this opportunity to (sleep, yes) and also catch up on expanding my horizons. I endeavored to undertake those activities that involved no physical labor, I let my fingers do the walking during the waking moments.

TED - Technology, Entertainment, Design

Whether it is Shashi Tharoor espousing the soft-power of India, Pranav Mistry’s vision on merging the physical world to the digital world, Hans Rosling’s predictions on when Asia will overtake the West, Mallika Sarabhai’s dance to change the world, Eric Giler’s untangling of our wired lives by using wireless electricity or Andrea Ghez’s mission to convince a skeptical world that supermassive black holes exist in space, TED, through its speakers, is a powerhouse of knowledge. It is also a space where the word “passion” can be seen in action. So I spent a considerable amount of time recuperating with TED.

How mythology shapes the business world

This being a business blog, I would like to single out Devdutt Pattanaik’s talk on TED. I do not care much for mythology. I think they are just that - myths - with no more purpose than to tell a story with a message. The message got lost over the centuries while just the myth remained. However, Devdutt (his designation is “Chief Belief Officer” at one of the largest retail chains in India) very eloquently explains the difference between “my world” and “the world”. If you, in Atlantic Canada, plan to do business in India add this presentation to your arsenal of culture shock absorber. Whether we like it or not, each of us conducts business with certain beliefs. Understanding and empathizing beliefs in contradiction to your own will go a long way to help you with your overseas expansion dreams.

How to find a job on LinkedIn, Facebook, Twitter and other social networking sites

As part of my healing process, I also devoured Brad and Debra Schepp’s How to find a job on LinkedIn, Facebook, Twitter and other social networking sites, along with those bitter pills. The folks at McGraw Hill were kind enough to send me a review copy. About a year ago, I received a request from our HR folks to explore the potential use of Facebook for recruiting. At time time, I suggested LinkedIn instead of Facebook for its quality and professionalism. I feel vindicated.

One of the individuals I follow on Twitter (@dewaldp) sent a link to The Huffington Post article titled “The funniest Facebook snafus of all times“. I am not convinced that the snafus mentioned are all real, but the examples go to show how your online actions can come back and haunt you in the offline world. Build a brand online that complements your offline world. Do not lead double lives. Recruiters are “Googling” you. If you have not heard, Google is going to include Twitter in its search results. So if it’s online and public you are fair game for employer background search.

Note to employers: You spend a considerable amount of time and money in your recruitment efforts. Use social networking tools to vet your potential candidates. Use what you find as a guide. Unless its immoral or does not fit in with your company culture, do you use social media as a decision making tool. Your current employees may not exactly be as righteous as you would like to believe, so why would you make a decision solely based on picture of a candidate in a pub? Just use some common sense.

No, I am not looking for a job. I am also not looking for sales leads. But if you are, the book has some interesting examples on LinkedIn that you might try to emulate in your job search. I do not consider Facebook or Myspace professional enough for my time. So I confine my brand building and networking to LinkedIn and Twitter. But if you are a B2C company and are not using Facebook and Twitter as part of your online marketing arsenal, you need to rethink your marketing strategy. Back to LinkedIn. Why use LinkedIn and why read the book?

1. Brad and Debra would concur with some of my observations. 146 pages out of 233 pages in the book are devoted to LinkedIn and the rest of the pages divided among the other social networking sites. Additionally, if your network is not working for you, then you are doing something wrong and need help. I did find it rather strange that I was unable to find a blog or a website for the book maintained by the authors.
2. Every single job or contract I have worked in my life is a result of networking. Sending out resumes in response to ads is a waste of time. If you know there is a vacancy that you are a fit, then work your network to land an interview. LinkedIn makes it easy to find and talk to decision makers in your company of choice.
3. Build your band. These are turbulent times. We will see 2010 over the ruins of some respected and reputable businesses. “Job security” has become an oxymoron. So it is necessary for you to continuously build your brand. There is no other tool that boasts of millions of users who have instant access to your profile. Helps others on LinkedIn - answer questions, ask intelligent ones, share, help and build the knowledge. It will pay back dividends when you are in need.
4. For businesses: Look-up and connect with potential vendors and customers. Keep in touch with customers and strengthen those existing relationship. Keep an eye on the competition. Recruit talent from competitors.

If you are already following these strategies and more, of course the book is not for you. “How to find a job…” is intended for those individuals who are overwhelmed with the plethora of social networking sites and are unsure of how to harness it. It is also for those individuals who rather foolishly believe their online escapades will remain anonymous. If Pranav Mistry has his way, very soon the divide between the digital world and the physical world will cease to exist and you do not want to be caught with your pants down.

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