Paul Italiano: Corporatising Western Australia’s network

Western Power CEO Paul Italiano
Western Power CEO Paul Italiano

It’s not often someone without an engineering background becomes CEO of a major utilities company. For Western Power however, Paul Italiano’s experience in the finance and business sectors is playing a key role in driving Western Australia’s electricity network forward. Energy Source and Distribution catches up with Paul one year into his leadership to discuss how the state-government owned organisation is connecting people with safe, reliable and affordable power.

In August, Paul celebrated one year as Western Power’s chief executive officer, a role he has acted in since February 2012. The leadership turnover came at a tumultuous time for Western Power, which was under public scrutiny for its management of assets while negotiating a multi-billion dollar five-year investment plan with the state’s economic regulator.

Unlike other energy corporations owned by the WA Government that generate or retail electricity, such as Verve Energy and Synergy, Western Power is solely dedicated to building, maintaining and operating the state’s electricity network. And for Paul, this goal of connecting people with electricity has become a mandate on which his new business model is based.

Back to basics

In the past year, Paul and his executive team have refined Western Power’s business strategy to regain the confidence of 920,205 residential customers and 94,183 business customers.

The strategy takes a strong ‘back to basics’ approach, where attention is focused on providing a safe, reliable and affordable supply of electricity.

“When you get down to it, if Western Power did nothing else, it would be to connect people with electricity. Defining the company’s role as connecting people with electricity was my first task as CEO and it’s something we have continued to draw on,” Paul says.

“For the customer, this means three things must be ensured: Firstly, electricity must be provided without any personal or physical loss; secondly, electricity must be available when it is needed; and thirdly, it must be affordable. Knowing this, it’s easy to see what we need to do to re-earn the trust of the community – a safe, reliable and affordable connection to electricity.”

Private sector mentality

Like many leaders within the Australian energy industry, Paul’s predecessor Doug Aberle came from an engineering background. Paul, however, is unusual in that his experience lies within the corporate sector.

With a professional portfolio including roles with Wesfarmers General Insurance, HBF Health Fund and Ernst & Young, it’s not surprising he has a vision to harness Western Power’s capacity in a way that is commercially viable.

“I was fortunate to have had the support of an executive team, which was predominantly comprised of electrical engineers, with a very long history with Western Power. They had exceptionally strong technical skills and when you’re going through a power outage crisis, they are a wonder to watch. I didn’t have that background,” Paul says.

“But what I did have was the ability to view a lot of Western Power’s challenges through a generic business perspective. I was able to say, ‘I’ve seen this before’, not in a network sense, but in general business sense. This has allowed me to tap into what appears to be a very different way to solve network challenges.”

With this background, it’s no surprise Paul is considerably risk adverse. Operating within one of the largest isolated electricity grids in the world, however, Paul says this attitude is essential for Western Power to remain viable.

“Unlike networks in Europe and the eastern states of Australia for example, which are all interconnected, Western Power is unable to source power from generators outside of the state,” Paul says.

“Western Power has to rely on itself and this is a critical factor that has re-focused the business’ priorities. This is something I’ve learnt from the insurance industry; we can’t afford the luxury of being innovative. First and foremost, the network needs to be self-reliant because there is no insurance policy to fall back on if the lights go out.”

Safety, reliability and affordability

Paul prioritises Western Power’s implementation of safety procedures above all else.

“Electricity can be hazardous and like every electricity network around the world, workplace safety at Western Power goes beyond the somewhat methodical process of meeting KPIs – it’s about embedding a culture of safety within the workplace,” he says.

As a strong believer in active leadership, Paul has implemented a program of executive-led workplace engagement, where senior staff regularly visit Western Power’s depots to spend time with staff in the field and to share stories.

“By engaging in dialogue with the guys in the field we can ask, ‘what are we doing that is making your job harder or less safe?’ Then we can work on resolving these issues,” he says.

“It’s not a bombastic, dictatorial style of driving safety. Rather we refer to it as ‘adult to adult’ conversation.
“It’s very personalised and we share our stories. For example, I had a brother who was killed in a car accident 25 years ago. I received the phone call and I don’t want to ever have to make that phone call. Person-to-person: this is active leadership. It’s not about an asset, or a work practice, it’s about you and your family and the consequences if you are unable to work again or are not around any more.

“These people-based conversations have a far greater and long-lasting impact than rattling off a number of safety codes.”

The strategy is not just rhetoric. The hands-on approach to safe network management is already producing positive and quantifiable results. For example, Western Power’s key safety indicator – the Lost Time Injury Frequency Rate – has been cut in half, from 16 incidents in 2012 to just 8 in 2013.

Despite customer numbers growing 16 per cent in the past six years, Western Power has also outperformed its reliability target in the past year.

“Western Power’s customers expect a reliable service – they want the lights on and if the lights aren’t on they want power restored quickly, all in a climate where households have a number of power hungry modern conveniences including air-conditioning, televisions and computers,” Paul says.

“At the same time, we understand the pressure that utility costs present for customers and the importance of driving efficiencies.”

Indeed, under the direction of Paul and Western Power’s chief financial officer Stewart Hart, the business has achieved a $54 million reduction in operating costs in the past financial year. This includes $24 million of operating efficiencies and a 33 per cent reduction in discretionary spending across the business.

“These efficiencies were achieved amidst a backdrop of ongoing negotiations with the economic regulator about the organisation’s five year investment plan. The state economic regulator, the Economic Regulation Authority, reduced Western Power’s Weighted Average Cost of Capital from 6.39 per cent to
3.60 per cent – the lowest of any utility in the country,” Paul says.

Wood pole replacement program

In terms of public safety, Paul identifies the company’s aging wood pole network as his biggest concern. Suffering from what he describes as “decades of under-investment”, around 180,000 of the state’s 650,000 wooden poles were more than 40 years old when Paul took over as CEO.

“Over the past year we have significantly ramped up wood pole replacements and reinforcements to address this network risk as quickly as possible. In the last financial year we replaced and reinforced a record number of wood poles,” he says.

Western Power’s wood pole replacement program is aimed at reducing the average age of poles in the network and to catch up with national standards. The magnitude of the challenge is massive, with the organisation reinforcing nearly 50,000 poles last year alone, with wood pole replacement increasing by 12 per cent to 17,432.

“Reinforcing poles costs a fraction of the cost of replacing them. It extends their life by up to 15 years, and ensures they are stable and safe until we are in a position to be able to replace them,” Paul says.

Closing the loop with customers

Immediately prior to and during Paul’s transition from general manager of corporate services to CEO, Western Power was garnering media attention for all the wrong reasons.

Just months after the critical Parliamentary Inquiry into the management of Western Power’s assets, the network suffered the most widespread damage to its assets in history, following two consecutive storm fronts in June 2012, in which more than 270,000 customers lost power.

“I’ve spent most of my life working for large businesses that have a great deal of customer interaction and the success of the business is largely dependent on how strongly they were able to establish a value proposition fro the customers,” Paul says.

“So in this climate, which was fairly negative for Western Power, it was important for me to immediately re-earn the trust of the customers”

As such, the business became increasingly clear about its accountabilities; accepting responsibility and acknowledging the inconvenience that losing power caused for customers.

“We changed our focus to be more considerate of the customer experience. We made sure that in situations, such as storm events, in which the network was damaged we kept our customers well informed of everything we were doing to restore their power,” Paul says.

At one point, Paul even took out full and half-page spaces in the state newspaper to thank customers for their patience and to acknowledge the fact they were inconvenienced due to power outages.

“It wasn’t an advertisement, it was a community announcement; the most cost-effective way to talk to 2.5 million people. We didn’t promote what we had done, or what we were doing. It simply said, ‘we thank you for your patience and we thank you for your understanding’,” Paul says.

“It was important for me to put a human face back on the business. In the face of all the external criticism, Western Power had become a negative corporate image. Coming from a business background I understand the psyche regarding how consumers engage with corporations and how they create mental modules and it was essential we helped them process what the organisation really is; thousands of people – not poles and wires and bricks and mortar – human beings who work in rain and fire and wind to keep power connected to homes.

“Gradually, we began to project an image of the organisation that has allowed the community to build a better rapport with the business.”

Personal interaction and engagement with consumers also takes a prominent place in the company’s new communication procedure, which requires responses to all customer reports.

“We have been putting a lot of material out about the importance of safety in the network and about being careful of fallen powerlines and reporting network damage. So when people do report, we make sure we reply promptly with an SMS or phone call, or an email, to say we’ve repaired it or that we’re working on it,” Paul says.

“It’s known as ‘closing the loop’ in the private sector. It shows the customer we listen, we understand and we respond. It’s been just as successful within Western Power as it has in any other business environment I’ve worked in, because not all our issues are network specific issues – they are customer issues.”

The next phase

Western Power has come a long way in the past few years. The organisation has gone on a journey from being a vertically integrated power utility in 2006, to a disaggregated corporate entity.

No-one would argue that transforming an organisation from a government department to a separately corporatised entity is a momentous task. However, by looking at the organisation through a corporatised lense, Paul has been able to respond to the challenge with confidence.

“I’ve been involved in mergers and acquisitions in my career to date and I tend to look at where organisations are in their business cycle. In the grand scheme of things we are a reasonably young business,” Paul says.

“We have gone through the first stage in our development, which is ensuring the network is operating and building business systems and processes around delivering network outcomes. The next phase is about establishing the business credentials to go to the next step – to deliver all these services at a lower cost.”

Paul, along with his executive team, are looking forward to reaching this point, at which Western Power can focus on outperforming the expectations of government and the community – essentially getting ahead of the curve.

“A lot of the energy industry talks about catching up in terms of investment in the network. Well, I’d like to reach a point where we are investing in the network in a way that drives down costs to consumers and ramps up reliability and safety,” he says.

“We’re focusing on managing more than just a network: we’re managing the business around the network.”