Pam Boschee, Managing Editor
IT spending at most utilities over the last two years or so has been limited, to say the least. For many IT vendors, sales have been anything but stellar in this sector. However, there appear to be some signs of revival.
IDC, a global market intelligence and advisory firm, recently reported that IT spending by the U.S. energy industry is expected to grow from $18.9 billion in 2002 to more than $25 billion in 2007.
Christopher Boone, program manager of U.S. Vertical Industry Research, Energy/Utilities at IDC, said, “In just a few short years, the energy industry has gone from promises of great growth to picking up the pieces with the collapse of energy trading markets, the uncertainty of deregulation, and the war with Iraq.”
EL&P had the opportunity to speak with three IT executives in exclusive interviews in late September. Stuart Bagshaw, CEO, Knowmadic; Jim McCray, general manager of Siebel Systems’ energy vertical; and Rick Rogers, Mincom, president, North America shared their views from the top regarding utilities’ IT priorities.
EL&P: IT departments in many electric utilities in the last two years have been charged with “doing more with less.” What do you identify as the top IT priorities in utilities today?
Bagshaw: Wholesale trading is certainly our biggest market today. About 50 percent of our current sales opportunities are in the wholesale trading space. There you’re selling to fairly sophisticated business people who understand the real business benefit. They basically are traders, and they are highly motivated to improve their margins on trades. Anything they can do to eke out a couple of extra points is very important to them and the ROI [return on investment] is obvious. We tell people that we’re not trying to be the big bang solution, and, in fact, I do believe that a lot of utilities are very wary of huge, big bang projects these days.
McCray: Over the last six months, I’ve seen an incredibly renewed interest in fixing the interface between the utility and the customer. Any ideas of wholesale replacement of CIS systems are over in all but maybe the really small utilities that can do it very quickly. There just isn’t money to do a $50 to $200 million changeout anymore, and the CIOs would probably get fired on the spot if they went to the board and recommended that. Lower budgets are forcing them [utilities] to say, ‘how do we fix this, fix what we have and make it better.’ Also, there are changes in the marketplace where forces like expectations of increased natural gas prices are making them think about what they are going to do when they get massive increases in call volumes due to rate increases and uncertainties.
Rogers: There has been a fundamental shift over the last 10 years where the business would go to IT and say ‘we have a need for something,’ for example, work management, and IT would lead the charge and in some cases do the programming. In most cases, there was not a lot of emphasis on return on investment. What has happened recently is that business units were forced down a path of looking at how technology could support the business processes and improve those processes to the extent that they increase productivity, reduce materials on hand, or increase uptime availability for assets. IT is now in more of a supporting role vs. a leading role. Today, there’s a real focus on the assets, not only the hard, physical assets, but also the people. I think many companies are looking to improve their bottom lines through cost containment. These last two years have been a fairly tough marketplace. A lot of companies got themselves into trouble with the deregulated side of their businesses. Right now, there’s a shift back to core business: generating, transmitting and delivering electricity to clients.
EL&P: What kind of ROI on IT implementations/enhancements are utilities seeking today?
Bagshaw: We actually have on staff financial engineers, ex-CFOs, who really understand how to do these ROI calculations. They’ll sit down with the business owner and go through this with them. This results in two benefits. The business buyer really sees and gets it in terms of the true ROI. We’ve created a document that we give to that business buyer; he then uses that as an internal justification as to why he should make this investment. If [the business buyer] agrees that there’s a saving to be made, let’s try to quantify it. Once we’ve agreed to that, my promise to them is, ‘Look, I want my share of that [the saving] if I solve this problem, and I don’t expect you to pay me a dime until I’ve solved it.’
McCray: In the last six months, every discovery effort we do with a utility involves putting together an ROI, total cost of ownership study for them. Two years ago, they weren’t asking those kinds of questions. If they were looking at these kinds of things at all, they were looking at it in terms of customer service issues—improvement in service, improvement in their comparisons and benchmarks, etc. Now, it’s all about ROI. The metric we’re being asked to look at is first call resolution time.
Rogers: I don’t think it has a chance based on what I’m hearing unless it has a three-year return. Today, even if you have the three-year return, it may not get funded to do a technology project. We’re seeing that if we can get a year return on investment, normally we’ll get funded almost every time.
EL&P: Are utilities getting ready to invest again in IT?
Bagshaw: In this current quarter, about 70 percent of the deals we’re closing are actually repeat business deals with utility companies we have sold to previously, but we’re selling a different product in a different part of the same utility.
McCray: I did a sweep through the Midwest over the last month and talked to a number of utilities, and I heard from them that they had hunkered down and had looked at their operational integration issues, like starting to get the outage management systems tied to the billing systems, tied to the call centers, talk to their field services, but they hadn’t really looked at the customer interface or the enhancement of their CIS. Now that they have some of those other connections and integrations, using whatever middleware strategy they’ve taken, they’re starting to look at the customer-related issues and saying, ‘how can we do this in the same manner’—not with huge projects, but with projects that fix specific targeted tactical things, like the high bill complaint or the resolving of customer concerns on the first call.
Rogers: There is little up-tick, but not to any great extent. We experienced nearly a 50 percent decrease in the number of RFPs at the end of fiscal year ’03 [ended June 30] compared to fiscal year ’02. We had at least two withdraw because they couldn’t fund it. Even though they were convinced they needed to do it, they just couldn’t come up with funds.
EL&P: What trends do you see evolving in IT related to utilities?
McCray: In the bigger companies, most have done some deep thinking about their integration or middleware strategy and are beginning to deploy it. I’m seeing a wide range of integration server technologies falling into place. The technical issue around ‘what’s your middleware strategy going to be’ is now over with—it’s in place at bigger utilities. At smaller utilities, munis and coops, I think they’re still grappling with that. The issue will continue to be the cost of deploying those kinds of strategies in the company. I’ve seen a real change in [utilities’] perspectives on marketing, campaigns and sales over the past year. A year or two ago, it was the idea that there is no deregulation and ‘we don’t have to do marketing, we’re selling energy basically.’ Now, questions are being asked about how to develop energy efficiency, demand response, and other programs or products, how to test market them, deploy them consistently across their Web, call center channels, and direct customer account management. They’re starting to think about marketing again.
Rogers: There has been a shift back to technology that’s out there that strikes on productivity. We’re seeing many of our clients looking at mobile technology. It has gone through some transformation where instead of putting laptops out in trucks, there are more handhelds and PDAs. Another trend is toward reliability. People want to put maintenance and work management practices in place that would help them increase their reliability and have some early warning signals to be more proactive about what they’re doing, whether it is tree-trimming or bad pole replacements. They want something in place that will help drive those kinds of activities. I think there are going to be mandate around infrastructure improvements at utilities, particularly in transmission. Clients are looking at technology in a better way—as an enabler of business processes. I have a number of clients, not only in utilities, but in mining and transit that realize technology supports the business process—it can automate certain portions or enable certain processes. Instead of saying technology is the Holy Grail, it’s more about trading efficiencies in your business processes.