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Much has been made about the downfall of energy trading and the retrenchment of energy utilities. The reality is that commodity pricing will not leave the natural gas and electricity markets. Therefore, the biggest hurdle will be managing the transformation of the senior management governance of the utility industry. Commoditized markets call for a reversal of the management structure for utilities. Under “cost of service” regulation, capital investment was the source of all earnings. In turn, managing the capital investment process – as the engineer or finance person managing the large construction projects – was the preferred career path. In merchant systems and non-“cost of service” environments, the ability to manage the return on risk capital is the critical roll for senior managers. This conversion of the governance process may take significant one-on-one training, changes in both the style and content of the information flow in the organization and changes in the corporate policies. This is already happening. The risk management policies, procedures and processes, the new ERM systems and the new reporting structures are all an implicit recognition of this change. The senior managers have too many pressing issues – how the changing landscape of the local economy (and for some utilities the local economy includes multiple continents) impacts on demand and revenues, the deregulation initiatives at the state and federal levels, the demands of the SEC and the rating agencies – to have to focus on the process of running the individual components of the utility operation. The senior managers must focus on the allocation of risk capital throughout the organization and the expected return on those investments. Similarly, the staff reporting to them must be given an intellectual construct that allows the range of potential outcomes to be explored and explained. The Volatility Managers staff has participated in all these processes but the single most important factor in their success has been the recognition by senior management that their role is no longer one of managing the capital expenditures and is now one of managing the allocation of risk capital throughout all the alternative investment choices – information systems, new asset purchase, asset redeployment, financial product investment, etc. One of our focuses has been the shifting of the decision basis from one of single value decisions – such as base case DCFROR presentations – to one based on risk weighting – using certainty equivalents and other probabilistic measures. The investment in ERM and other infrastructure prior to the change management at the C level may be counterproductive. The ability to better focus and manage these investments after this change management is startling. This shift in the decision criteria serves to alter the discussions supporting a capital allocation. Now the focus is on the balance between the likelihood of achieving a return and the likelihood of failing to achieve a return incorporated in a project. This can be used to incorporate all the infrastructure investment in stress testing and analysis developed in the trading function and leveraging it into the rest of the organization. These shifts also serve to free senior managers from having to become encumbered with the specifics of a particular investment unless they chose to do so. And finally, it creates a common vocabulary of risk and expectation in all parts of the utility. The process of redefining the corporate vocabulary and decision criteria need not be a ten-year undertaking. The Volatility Managers staff worked for less than 18 months on an individualized consultation basis with C level executives at one major utility to achieve a common vocabulary that embraced certainty equivalents as the decision criteria. The change process need not be an endless pit of money and time and it can create a decision process that allows senior managers to focus on the business of making money in the utility industry rather than on the business of managing the utility process. But when achieved the change process creates a vocabulary that allows senior management and the utility staff to talk in language that incorporates the concepts necessary to focus on the business of making money. That is the true goal of the change process in utilities – empowering the organization to continue to grow earnings in a controlled and reasoned manner.