Enterprise Risk Management at Hydro One A Case Solution

1. How would you describe Hydro One’s strategy? What types of risks and uncertainties does Hydro One face?

Laura Formusa is the new CEO of Hydro One and has endorsed Hydro One’s overall strategy and vision, which have remained consistent in recent years. However, the company is facing new risks in a dynamic environment. Formusa’s strategic plan is detailed and ambitious. It contains seven specific objectives and, as a whole, contributes to achieving Hydro One's vision of becoming the best transmission and distribution business in North America. The seven objectives include achieving the best safety record, being in the top quartile for transmission and distribution reliability, being in the top quartile for employee productivity, achieving 90% customer satisfaction across all segments, improving operating efficiency, achieving an "A" credit rating, and finally negotiating a long-term deal with unions. These targets and objectives are interlinked and work well together. For example, improving employee productivity and operating efficiency is likely to improve performance in terms of transmission and distribution reliability as well as safety records. This, in turn, would improve customer satisfaction. In addition, a company that is operationally productive and efficient is also more likely to be financially sound and, thus, achieve its targeted credit rating. 

The risks and uncertainties faced by the Company fall within the following categories: operational/reliability, financial, regulatory, safety/environmental, and reputational. Operational or reliability risks include the ability to provide an adequate electricity supply to meet the increasing energy demands of its customers. It also includes reliable delivery of electricity without outages. These factors also impact customer satisfaction. Financial risks involve maintaining profitability with increasing costs and government fixed prices which can restrict margins. Financial stability is important to maintain credit rating and repay debtors. Regulatory risks arise from changes in regulations by the government, which would require Hydro One to make changes to its operations and/or strategies. An example is changed to environmental regulations, which prevent new coal power plants and require Hydro One to rely on renewable energy, such as wind which may be less reliable and more costly. Safety and environmental risks are caused by incidents that may harm public or workforce safety or cause environmental damage, such as an oil spill. These types of incidents are also likely to lead to reputational risks as they can lead to negative press and lower stakeholder confidence. Certain specific factors, such as the provision of adequate electricity supply, "getting the work done", and government policy uncertainty, have been assigned a high-risk rating by Hydro One due to their critical nature.