InformationWeek
Defining The Business Value Of Technology
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Sept. 11, 2000 |
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IT Helps Utilities Stay Competitive
Amid deregulation, utilities turn to IT to cut costs and satisfy customers
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or years, the specter of deregulation hung over the utility industry, threatening to bring major changes to what traditionally had been a slow-moving market. Now that the specter has become reality, utilities are using IT to reduce the trauma of deregulation, compete more effectively and efficiently, improve customer service, and boost profits."Without IT, none of it would be possible," says Paul Anders, VP and CIO at Xcel Energy Inc. in Minneapolis. "You need good engineering and business practices, but IT is an important part of the synergy it takes to run a utility and service the customers."
Anders experienced some of the industry changes firsthand in August when Northern States Power Co. merged with New Century Energies in Denver, to create Xcel Energy, which provides electricity and gas to customers in 12 states.
But Anders says some things in the industry won't change--and providing top-flight customer service is one of them. The key is to generate and deliver power where it's needed in a manner that satisfies customers and produces profits. "It's a sequence of events," Anders says, and they all involve IT.
First, utilities must run the power-generation plants efficiently. That requires world-class maintenance systems that can schedule crews to perform the right work at the right time in a safe manner. More utilities also use sophisticated procurement systems to let them buy raw materials at lower prices and have them delivered where they're needed. Of course, once the power leaves the generation plants, it needs to move across robust transmission systems.
"Without poles and wires, the entire system can't operate," Anders says. The system all ends up in the hands of the individual system operators at each utility. "Then we have to provide good customer service, especially in these times of deregulation," he says. IT systems can help utilities quickly respond to outages, conserve energy during times of peak demand, and provide increased flexibility in how they bill customers.
Xcel is one example in an industry being transformed by deregulation, the Internet, and consolidation. Utilities are investing in technology to make sure they remain competitive in the new environment, where deregulation and competition make it even more important to keep customers happy.
Utilities are also attempting to be innovative when it comes to organizational structure and project management, to better focus IT resources on profitable endeavors. In addition, utilities are beginning to embrace the Internet and plan to have an industrywide procurement consortium up and running by year's end.
Dealing with power outages remains a top priority for all utilities, and that hasn't changed, even as the industry consolidates. The FPL Group Inc., a major provider of electricity and related services in Juno Beach, Fla., last month revealed plans to merge with Entergy Corp. in New Orleans. But Don Tomlin, director of retail applications at FPL, says the merger shouldn't affect the work FPL does with customers--especially when it comes to outages.
"We have a highly integrated system when we have outage information," Tomlin says. "We tell customers where it is, the estimated time to get it fixed, and we respond back if the time changes." The company also has a standard estimated time for resolving an outage, which is reported to customers. The company monitors its response time based on the standard, and customers know how often the standard is met. "It's based on the level of outage, the number of people out, and how large an area is out," Tomlin says. "We're constantly evaluating it. The key is communicate, communicate, communicate."
Southern Co., an Atlanta holding company for five electric utilities serving four states, uses a third-party tool to help during a power outage. Southern's "trouble-call management system" is based on Centricity software from CES International, a 10-year-old software company that offers an integrated suite of products for outage management, operational efficiency, and safety. When a customer calls to report an outage or other problem, the information is entered into the system, which is integrated with Southern's customer-information center and call center. "We have diagnostics and tools, so we do a better job figuring out where outages are, which helps us focus our resources and gets the lights back on quicker," says Robert Beason, senior VP and CIO at Southern. The utility also uses an Oracle8i data warehouse running on Unix servers to keep track of outages and determine if recurring problems exist.
Getting the word out is another priority, and IT is helping there, too. Xcel has an outage hot line for the media that provides real-time updates about the areas affected and the estimated times for repairs. The hot line uses a secure Internet interface.
Communications--especially with customers--must be one of the top priorities for all utilities in the new, competitive era, according to Jim Kensok, corporate director of MIS at Avista Corp., a Spokane, Wash., energy supplier to customers in five Western states. The company has constructed a comprehensive customer-service system using PCs, servers, and an IBM mainframe. It includes a homegrown Core Customer Information System; an interactive voice-response system from Periphonics, a subsidiary of Nortel Networks; databases from IBM and Oracle; and applications from Billserv.com and CheckFree for bill presentation and payment.
Customers can get information from the voice-response system, via the Web, or by talking to service representatives. "The integration of multiple platforms allows us to anticipate customer needs and provide a service that builds customer loyalty," Kensok says. "With this system, we can add or move a customer in minutes, optimize outage response very quickly, and provide instant information for our customers. Activities that used to take minutes to hours now only take seconds to minutes."
A year ago, it took the company nearly four months to add customers to its Core Customer Information System; it now takes 30 days, thanks to the new system, Kensok says.
The challenge for many utilities is to modernize IT systems while at the same time cope with the growing internal demand for more IT resources. In many cases, existing legacy systems can't handle the new needs. "Utilities had legacy systems squeak by before," says Ethan Cohen, a senior analyst at Aberdeen Group. "But they don't have the IT competency they thought they once had." He says utilities need to investigate new technologies, including third-party products, to help improve customer service.
Part of what's driving this change is a new view of the customer. In the past, utilities viewed their customers as ratepayers because they paid rates set by regulators. "For many years, utilities referred to customers as meters," Cohen says, "not people that had to be marketed to. That's changing this year in the face of deregulation." That means utilities have to pay more attention to billing, customer service, and marketing than ever before, he says.
At the same time, utilities are asking their IT staffs to do more to improve operations throughout a company. "There are absolutely more requests than there are resources," says Southern's Beason.
That has forced some utilities to adopt innovative project-management approaches to handle the demand for IT resources. Southern has redefined the internal customer. Now, instead of everybody in the company, the internal customer is a business unit officer from areas such as transmission, generation and distribution, and marketing. "We can better prioritize expenditures and refocus investments into areas we believe, from an executive level, will make a strategic difference in our business future," Beason says. "We've taken $10 million out of the budget for back-office, noncustomer-touching systems like budgeting, procurement, financial systems."
While that means that some lower-level employees won't get all the IT resources they want, Beason says setting priorities for IT expenditures can be done better at the business-unit level. "We had a real problem keeping up with requests, so we're changing the customer," Beason says.
An explosion in requests for IT resources has also hit the Tennessee Valley Authority, a Chattanooga, Tenn., wholesaler of electricity for 159 municipal distributors and 62 direct-service customers. "We're looking at business processes, at what needs to be changed and done, in our approval process," senior VP of IS Diane Bunch says.
One key area is asset optimization. "Our generating and transmission facilities use 60 different models for load forecasting, production costing, maintenance planning, and market forecasting," Bunch says. "We're reengineering the process and want to reduce the number of models by 50%."
In addition, the TVA wants to reduce the amount of power reserves it keeps. "Having the right reserves at the right time could mean $150 million to $300 million to our bottom line," Bunch says. The initiative is divided into components such as supply-chain management, customer value, workforce management, and performance management.
One big industry initiative is the development of an online marketplace for procurement called Pantellos Corp. The marketplace has $100 million in financing from member companies. Pantellos will use software from Commerce One Inc. and expects to be operational by year's end. Members of the effort include American Electric Power, Carolina Power & Light, Cinergy, Consolidated Edison, Dominion Resources, DTE Energy, Duke Energy, Edison International, Entergy, El Paso Energy, First Energy, FPL Group, GPU, Ontario Power Generation, PG&E, Public Service Enterprise Group, Reliant Energy, Sempra Energy, Southern, TXU, and Unicom.
"We hope it will lower costs by aggregating buying, and in turn lower the power manufacturing costs for the suppliers," says Susan Gampfer, director of planning and architecture at FPL. The marketplace can also provide other benefits. "When a hurricane comes though, there's a critical need for supplies," she says. "Pantellos should make it easier to order supplies in times of crisis."
Pantellos has strong industry support. "We saw a tremendous opportunity for streamlining processes and taking advantage of cost savings," says Dan Valenti, VP and CIO for PGE Corp.'s National Energy Group in San Francisco. "We have lots of high-dollar items and lots of little things that add up, so that any percentage in procurement savings means a lot to our bottom line."
An online marketplace is one example of the influence of the Internet on the industry. "I can't think of any part of the business that the Internet hasn't had an impact on," says Southern's Beason.
One key area is providing employees with easy access to a wide range of data, especially human-resources information. "Our vision is total self-service by the employee," Beason says. "We have to put clamps on systems that aren't interfacing with the customers or aren't Internet-based."
Illustration by Jeffrey Fisher
Photo of Bunch by Chris Berkey
Photo of Beason by Mark Escher
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