In the past twenty years, the power-generation business has seen a significant upheaval. The previous business model was entirely regulated; public utilities owned and operated all aspects of providing service, from the power plant to the meter attached to a customer’s home or business. In the nineties, the Federal Energy Regulatory Commission issued orders that effectively opened the energy market to competition, enabling states to unbundle the generation, transmission, and distribution services.
Starting in the late nineties, Pennsylvania-based PPL Corporation operated separate regulated utility and competitive energy supply businesses. Then, in 2014, PPL spun off its competitive energy supply business, and combined it with the generation business owned by private equity firm Riverstone Holdings to form Talen Energy. And with the launch of Talen, Jim Schinski went from leading IT at PPL to leading IT, HR, supply chain, and more at Talen.
Launched in June 2015, Talen is now the fourth-largest power producer in the country with more than 15,000 megawatts of generating capacity in Maryland, New Jersey, Texas, Massachusetts, Pennsylvania, and Montana. With the recently falling price of natural gas, stagnant electricity demand, and more stringent environmental regulations, the landscape of the competitive generation business has changed. “It’s truly a competitive market in electricity generation business in the markets where Talen Energy operates,” says Schinski.
Starting in June 2014 until its launch, the organization performed an exhaustive review of its business processes, technologies, and costs. “The effort came to be known as the development of the Talen Operating Model,” Schinski says. “The process included questioning the need and efficacy of previous business processes and technologies with the knowledge that they would be insufficient to run the new company.” Those insights were used to determine the size and skills needed in the new organization as well as the necessary technology portfolio.
“The first priority after developing the operating model was hiring the right people,” Schinski says. “Because the business is so different from the previous PPL, it was important to attract people who find the challenge of starting a new company exhilarating and the need for change empowering.”
In order to reach the goal of driving $200 million in annual run-rate synergies by 2018, one of the first things Schinski identified was whittling down the number of enterprise applications used by people around the company, which stood at roughly 500. Ultimately, through rationalization and consolidation, Talen will support approximately 160 applications—a third of what it previously maintained at PPL. With the reduction in applications came an even greater reduction in staff to support those applications. “At PPL we had an IT team of 350 employees, and at Talen Energy we now have 80,” says Schinski.
Schinski is also moving to infrastructure and software-as-a-service models. “We will no longer have our own data center; instead we have signed a contract with Amazon for infrastructure to house our 160 applications,” Schinski says. “The other side of that coin is that we won’t bear the capital cost of infrastructure upgrades or the depreciation expenses.” Talen also subscribed to human resources and finance solution platform Workday, eliminating its previous heavily customized on-site solution.
“As a company, one of our goals is to drive free cash flow, and in reviewing the business case for the ERP solution, the cost of utilizing our previous system was several million dollars higher over a five-year period,” Schinski says. “Utilizing a SaaS solution forces us into a regimented maintenance cycle because Workday performs upgrades twice a year, and we’re required to move with it, gaining additional functionality while someone else does most of the heavy lifting.”
Luckily, Schinski isn’t without experience in this arena, having worked on many large projects, including building a $150 million data and operations center at PPL. He also spent five years as CIO of Midwest Independent System Operator, where he led the organization during a market launch in 2005 and an ancillary market launch in 2009.
Schinski has learned to not underestimate the human dynamic. “The planning period from June 2014 to June 2015 was tumultuous for everyone,” he says. “We were deciding on the size of the organizations, making offers to employees, negotiating with vendors, and literally tearing apart a 100-year-old company. Many exciting opportunities are on the horizon for Talen Energy, and while the spin was difficult, we found a way to capitalize on the opportunity to start over with our IT systems and business processes. Ultimately, we will benefit from the change through reduced operating expenses and a more productive and engaged workforce.”