MANAGEMENT 301 2016

Mid-term Exam
Due no later than March 4, 2016 11:58pm local time
Instructor: Karin Carlson

Name:
Student ID #:

Instructions:
You must answer all the questions at the end of the case. This is an individual activity. Your work is
required to be original work. There is no minimum or maximum number of words required. Each of
your answers should be clear and concise and build support for your response. The use of tables and
bullets can be used where it is useful. The exam should be typed and appropriate references/citations
using APA or HBS format. You are to submit your mid-term exam online to the D2L dropbox titled Midterm Take Home Exam.

Peachtree Power and Light

Robert Bensen, Vice President of Finance for Peachtree Power & Light, propped his feet up on his desk and stared
out the window. Developing a proposal for this problem was going to be more difficult than he had originally
thought. He reached for his coffee cup and reluctantly turned back to the computer output strewn across his desk.
The data indicated that inventory levels across several divisions in the utility had increased dramatically over the
last three years. These increases had resulted in a significant jump in holding costs for the utility. After reviewing
these figures last Friday, Frank Giarello, PP&Ls Chief Executive Officer, called Bensen to his office and offered
him. . . the challenge and opportunity to reduce holding costs for our firm. Yeah, Bensen thought, some
opportunity. Good old Frank, he fancies himself to be a Tom Sawyer kind of manager.
Inventory levels had never really been of major concern to the management of Peachtree Power, or for that matter
of concern to the management of other utilities in Georgia. Recently, however, the Georgia Public Service
Commission, reacting to angry complaints by consumers about recent rate increases awarded to several investorowned utilities across Georgia, had publicly stated that they would be taking a closer look at managerial practices
within utilities. One of the managerial practices mentioned in the announcement made by the director of the
GPSC was materials management. Giarello felt that now was the time to be proactive rather than wait for the
inevitable hand slap from the Commission. The CEO told Bensen that he also did not want the Commission to
view Bensens proposal as simply being a political snow job. Consequently, the proposal should convince the
Commission that PP&Ls plan would have a significant impact on holding costs.
The timing was also right for this proposal, given a recent letter from Arthur Anderson, Peachtree Powers external
auditors. This letter, addressed to Giarello, expressed concern about materials management at the utility. Bensen
sighed. It was going to be a very long week. He reached for the phone and pushed the intercom button. Please
schedule a conference for me with Lee Gladden and Irving Tingley. Oh, and Peggy, would you cancel me out of
the company golf outing this Saturday? Yeah, it was going to be a damned long week.

The Utility
Peachtree Power & Light provides service to over 330,000 residential and commercial customers of eastern
Georgia. PP&Ls service region is bordered on the east by the Savannah Riverthe Georgia South Carolina
border, and extends from Toccoa (N) to Athens (W) to Augusta (S). PP&L employs over 3200 personnel and has
annual revenues of $815 million. Corporate offices are located in Augusta.
PP&L operates three coal-fired power plants. Located on Lake Hartwell, the Hartwell Plant is approximately 75
miles north of Augusta off State Route 77. Hartwell, the oldest of the three power plants, has been in operation
since 1965 and is equipped with a Westinghouse turbine and a Combustion Engineering boiler. A second power
plant was brought on-line in 1976 to replace an existing facility in the Augusta area. This plant, the Clark Hill
Power Plant, was equipped with General Electric turbines and boilers manufactured by Babcock and Wilcox. The
Clark Hill Plant, located on Clark Hill Lake near the town of Thompson, is approximately 20 miles west of
Augusta, off Interstate 20. Fifteen miles northeast of the Clark Hill Power Plant is the third power plant, the Hunter
Power Plant. Finished in 1983, this plant replaced PP&Ls oldest power station and was named after former CEO,
Joseph D. Hunter. Like Clark Hill, the Hunter Plant utilizes General Electric turbines and Babcock and Wilcox
boilers.
The three plants generate 11.5 billion kilowatt-hours per year. The Hunter Plant produces approximately 47% of
this load, or 5.4 billion KWHs. Approximately 4.3 billion KWHs are generated by Clark Hill, whereas the
Hartwell Plant produces 1.8 billion KWHs. Approximately 5% of the total power generated by PP&L per year is
sold on the wholesale market.
Equipment failure and maintenance account for occasional unit unavailability. During 1987, unit availability was
97%, 97%, and 91% for the Joseph D. Hunter, Clark Hill, and Hartwell Plants, respectively. When a unit is
unavailable, PP&L purchases power from alternate sources. During 1987, about 3% of the total collude hours
distributed by PP&L was purchased from alternate sources.
Each power plant has a superintendent of generation who oversees plant operations. As shown in Figure 1, each
superintendent reports to the Vice President of Production, Irving Tingley. Four departments report to the
superintendent at each power plant: plant maintenance, production, inventory, and fuels. The inventories at each
power plant are considered maintenance inventories, consisting of spare parts and maintenance items for the
boilers and turbines. The superintendent of Hartwell is Jack Ringold. Ted See manages the Clark Hill Plant and
John Williams oversees operations at the Hunter Plant. These three superintendents have between 18 to 21 years
of experience in the company.
PP&L has over 7700 miles of transmission and distribution line. T&D maintenance and construction is serviced
by three regional facilities: the Northern division (located in Hartwell), the Western division (located in Athens),
and the Southern division (located in North Augusta on Greeth Street). Each regional facility is managed by a
division manager who reports to the Vice President of Transmission and Distribution, Lee Gladden. Reporting to
each division manager are four departments: transmission and distribution engineering, overhead construction,
underground construction and inventory. The T&D inventory consists of construction items used for building
new or repairing existing electric lines. Tarpley Jones, Chris Roberts, and Wally Hendrix are responsible for the
Northern, Western, and Southern divisions respectively.
An annual survey conducted by Peat Marwick indicated that, for 1987, PP&Ls average revenues of $.071 per
kilowatt-hour sold, ranked the utilitys rates as 53rd lowest out of the 112 utilities sampled. Although the recent
10% rate increase granted to PP&L in 1986 by the Georgia Public Service Commission only changed the utilitys
rank by one position (from 52 to 53), the rate hike spurred extensive complaints from customers and from
consumer advocate groups, particularly the Georgia Public Action Council (GPAC). PP&Ls stockholders have
been delighted with the utilitys financial performance. PP&L has increased the dividend every year for the past
16 years. In fact, PP&Ls performance has been outstanding within the industry since 1981, when interest rates
peaked. Peachtree Power & Lights stock price tripled between 1981 and 1986.

THE MEETING

I am very proud of our unit availability record. We look real good compared to other utilities like us. If a
condenser goes down, I want my plant manager to be able to grab a new one off the shelf and put the unit back
into service. Having said this, Tingley leaned back in his chair and stared at Bensen. Besides, he added, these
inventory issues and holding costs are problems for the bean counters. I am responsible for managing generation
facilities.
It had been another long day. Bensen had spent most of the morning gathering operating ratio data for the power
plants and for the T&D divisions. He has tried to start the meeting on a friendly note by joking with Tingley and
Gladden about his golf game. Everyone seemed congenial, but Bensen had barely started to describe the purpose
of the meeting when Tingley interrupted with his thoughts on unit availability.
Irvs right, you know, Lee Gladden chimed in. I got similar problems in T&D. I got linemen making 18 bucks
an hour and I cannot have them sitting on their butts at a job site waiting for some cable that costs 63 cents a foot
to be delivered. I rate my T&D division managers on productivity, and they are not going to make their ratios if
we have a stockout on construction materials. The main ratio I emphasize is labor costs per mile of construction.
Just look at my figures. These ratios have been stable and low for the past three years. In fact, we were able to
decrease them by 2% last year.
Yes, replied Bensen. But, over the last three years, your inventory levels have doubled and your inventory
turns are half of what they were in 1985. With a holding cost of 15%, that is costing us millions of dollars every
year.
Show me those costs on a P&L statement, countered Gladden. I do not give a damn about holding costs. What
is important to me is efficiency and it is grossly inefficient to have crews idle because of a stockout.
And, I consider it grossly inefficient to have plants idle, Tingley added. Just look at my performance ratios.
Clark Hill is 12 years old, yet its availability is the same as Hunters97%. That is damned near a record in this
industry.
Do you think that Clark Hills performance indicators have anything to do with the fact that the inventory levels
of the plant are 46% higher than those at Hunter? For the amount of inventory you are carrying under Ted Seel
you might as well have a spare plant in your hip pocket. We do not have a just-in-time inventory, we have a justin-case inventory. Bensen paused for a second before continuing. And, I am not the only one who thinks our
inventory levels are excessive. You have read the management letter from Arthur Anderson. They think our
inventory levels are way out of line, too. Besides that, they pointed out that we have got six inventory sites across
your two departments and six different procedures regarding order points, order quantities, material control, and
requisitioning.
So what? responded Tingley. I give my plant managers authority to run the plant. If one of them wants to
operate inventory differently from another plant manager, that is their business. I want results. I do not want
headquarters dictating to my people how inventory should be managed.
Gladden nodded his agreement.
Following this, Bensen thanked the VPs for meeting with him. It was clear to Bensen that PP&Ls inventory
system was completely out of control. However, it was equally clear that whatever change he recommended,
Tingley and Gladden would oppose it. Engineers, he muttered. Yeah, it was turning into a very long week.

Exam Questions
1.

Identify the power, motivation, and delegation obstacles facing Bensen in this case.

2.

What specific supportive communication principles could Bensen have used in his meeting?

3.

How could this meeting have been made more productive?

4.

What should Bensen do now?

Source: This case was written by Marya Leatherwood.