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September 14, 1998

The Power To Cope With Deregulation

With monopolies a thing of the past, utilities find they must track and manage their assets more efficiently

By Martin J. Garvey

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UTILITIES

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With data from Hoovers Online

Heat waves, hurricanes, earthquakes, and ice storms have long tested the ability of utility companies to deal with crises. But over the last decade, the utility industry has confronted an even bigger challenge: deregulation.

To survive in the increasingly competitive market, gas and electric companies have been reining in costs, reinventing their business processes, and refocusing on customer needs. At stake is the control of power generation, the means of gas and electricity distribution and transmission, and the allegiance of customers tempted by lower rates from competing suppliers.

"Because of deregulation, the long-term future in the utility business is evolving and direction is not crystal clear," says William Synwoldt, VP of IT and CIO at Niagara Mohawk Power Corp., a gas and electric company in Syracuse, N.Y.

Among the problems threatening utilities' existence are their free-spending habits, developed over the years in which each company was the only option in its service area. To put a cap on profligate practices, IT departments at companies such as Niagara Mohawk are at last implementing asset-management programs. These companies are late to see the advantages of asset management, however; retail outfits, for instance, long ago established such programs to keep costs down, a vital requirement in an industry with low profit margins.

But back in the days before deregulation, utilities vendors didn't have to care. They were almost assured of revenue-every year, the companies would add up the depreciation of their capital assets and their costs of doing business, and regulatory boards would routinely approve the rate increases they requested to cover their operations. But with those days gone, getting a handle on tracking, managing, and operating their assets is now a necessity.

"During regulation, utilities charged what they needed and had a monopoly, so the more they spent, the more they got back," says Mike Blalock, director of market development and sales for Mincom Proprietary Ltd., which delivers automated asset-management software to the utility market. Those utility companies that haven't begun an asset-management program, says Blalock, "have cost-of-business so high that they aren't attractive to their own customers."

Today, Niagara Mohawk's IT and business executives use cost-accounting principles to help the company categorize its assets-for instance, assigning the specific cost of running drills to work management, the number of pipes and transformers it owns to materials management, and employee salaries to human resources. With such detailed analysis-as opposed to educated guesses about, say, the costs of maintaining each truck in its fleet-it's easier for the company to realistically plot expenses as well as cut down on them. "We no longer can afford to let costs rise," says Joseph Rufo, director of finance at Niagara Mohawk.

Wise Use Of Assets Pays
So, before embarking on any IS project, net cash flow, capital expense, and depreciation are all factored into the picture. The result: A wiser use of assets is helping the company deliver $78 million to its bottom line. "We manage by fact now," says CIO Synwoldt, "and that helps us deliver core requirements" that are necessary to be a profitable company.

No one is saying that implementing asset-management plans in utility companies will be easy. In fact, according to analysts, it was more than inertia that kept utilities from moving ahead with such plans before deregulation. "Cost accounting necessary for a competitive industry hasn't been done because of the sheer magnitude of utility infrastructure," says Bart Taylor, an analyst with Aberdeen Group. "Examine a power company's territory on a map, with the generation access, high-voltage lines, and a distribution network down to every curb, and they have to answer for every connection point on the map."

Streamline For Competitive Edge
Other companies are working to streamline operations to maintain their edge. For example, Southern Co. in Atlanta, one of the nation's largest electric utilities, had to come up with a way to better integrate practices across its five separate operating companies-Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric-and most of its unregulated affiliates, including Southern LINC, Southern Nuclear, Southern Co. Energy Solutions, and Southern Co. Services.

Its answer was Home Run, a simplified client-server environment based on Windows NT 4.0, Microsoft Exchange, and Microsoft Systems Management Server. The Home Run environment is being rolled out across 600 servers and close to 20,000 desktops. "In the past, with five separate operating companies, we didn't always have the necessary standards," says Robert Beeson, CIO at Southern. "It's important to have centralized management and remote support of the desktops." Beeson says Southern is the first site using Microsoft SMS to do all software downloads from a central site to remote locations, for example. This means the company no longer has to dedicate considerable time and resources to mundane software installation tasks.

Home Run was the result of a seven-step business process, called Deliver Solutions, that Southern now follows for all its business and IT projects. The process is designed to ensure that the company and its different business arms deliver solutions with full knowledge of their impact on the infrastructure; it also helps the company use solutions that can work for more than one business area, and avoid duplicating efforts.

As part of the process, business analysts in different areas (such as application development or purchasing procurement) respond to or identify particular needs, and report them to regional CIOs. The analysts then present that information to the company's "virtual" technical consulting resources group, which is made up of technical experts in infrastructure operations, client services, and so on.

That group can determine whether a solution to that need already exists within the company and can be cross-implemented or whether the business analyst can proceed with outlining the cost of the project, gathering resources, and drawing up a schedule.

Before implementing that plan, only 5% to 10% of IT projects industrywide delivered intended functions, and came in on schedule and on budget. With the plan, six of the seven IT projects begun this year at Southern have delivered on all three counts. Says Beeson, "Now we look at more strategic projects across business lines."

Paperless For Efficiency
Entergy Corp., a gas and electric utility in New Orleans, has a different approach to improving business efficiency; its IT staff is deploying a paperless tracking system for field workers at the company. Field workers are equipped with handheld computers, from which they can wirelessly download schedules and inspection work orders from a mainframe; from the field, they can then log and upload to the handhelds data about problems and inspections status, and download information about how to resolve issues. This streamlined process saves time and helps avoid the inaccuracies that often occur when transcribing information from paper to computer, says Henry Fiallo, Entergy's CIO.

At Nipsco Industries Inc., a gas and electric utility in Hammond, Ind., IT professionals are charged with the even bigger task of building a relationship with new business "partners." The company has launched a pilot project that allows competitors to use its infrastructure to deliver gas to their customers for a fee. Nipsco is relying on the IT department to smooth the transactions by providing the technology needed by the other companies to move the gas as well as to market it to end customers.

According to John Dunn, group VP and chief technical officer for Nipsco, this move prepares the company to be a winner in the post-deregulation world. "This is an emerging opportunity for us," he says. "If we don't learn how to do it, we're going to get screwed."

At the same time, utility vendors realize concrete measures must be taken to assure customers that they're the main priority. "Our issues continue to be customer-related, requiring operations excellence," says Synwoldt of Niagara Mohawk.

Aberdeen Group analyst Taylor agrees that customer information systems are strategic to any utility, but says many of the companies need to rethink their presentation. "Ten years ago, utilities were able to manage their customers in a monolithic way," he says. "They did it by geography with index numbers; they were not open to analysis for business opportunities." From now on, Taylor says, a one-on-one relationship with customers is required. "They must change their attitudes," he says. "The entire business context of the utility customer has changed."

Up-To-Date Information
For Niagara Mohawk, a major project this year is an updated customer information system. The company is implementing radio and satellite links to field service representatives, hooking them directly into NiMo's customer-service center. The new setup will make it possible for customer-service phone personnel to immediately inform a client about the status of an order and the approximate time a service person will arrive. "We're giving guarantees for arrival time," says Synwoldt.

Dunn of Nipsco says deregulation has taught him two important lessons. "If you can't compete on price, you're in a death spiral," he says. The other lesson: If competition on price is level, customer service will win. To bolster its efforts in customer service, Nipsco's IT staff developed an automated voice-response system that not only speeds customer access to the company, reducing the chances that customers will get a busy signal, but also integrates technology that automatically alerts field employees to a phoned-in problem.

For instance, if several customers in a particular location call in about an outage, a message is automatically sent to field workers. That message will even specify the switch, transformer, or circuit breaker that's down. With this new system in place, 87% of inquiries are now satisfied with a single phone call. "In an electric outage, we can have someone to a house in two hours," says Dunn. "This system is extremely important with a gas leakage because that can be life threatening."

Priority: Better Service
At Entergy, CIO Fiallo also is making it a priority to better service customers. "We're focused on customer retention, because once they have choice, we want them to have loyalty for their utility," he says.

A newly deployed fleet of browser-enabled thin clients, for example, is helping Entergy to correct a miscalculation of customer behavior in the past. Some years ago, the utility closed customer field offices, believing that clients-particularly consumers-no longer required face-to-face interaction for payments and questions regarding their accounts. But over time, Entergy heard enough protests from customers to take action.

Its strategy: Set up a network of Wyse Technology terminals connected to its customer-information system in furniture stores, hardware stores, and pharmacies. Now, consumers can take advantage of these terminals to get information about their accounts and even post electronic payments.

The system, which has been in pilot mode at 100 sites, has greatly reduced activity at Entergy's call center, and is about to enter its second phase of testing. "We can streamline the device and the network connectivity," says Fiallo.

Even with such efforts, however, utilities companies will have a hard time making everyone happy. "They've got rate payers that don't want them to raise the prices one cent, and the shareholders who want higher rates so they can receive higher dividends," says Blalock of Mincom, "so with every decision they make, someone is telling them they're wrong."

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