Is Your Back-office System Ready for Deregulation?

The proliferation of computers in the utility industry, as in most industries, was hailed as the key to removing human error from the process of analyzing and transferring information. Computers, we were told, would allow critical customer information to bounce almost seamlessly from system to system.

As a result, utilities installed complex, capital-intensive computer systems based on the regulated environment in which they had always existed. But now, with more than 30 states engaged in some level of consumer deregulation, back-office systems for utilities and the new breed of energy marketers have been thrown into chaos.

Bills are coming out wrong and late, if at all. Call center volume has increased dramatically. Tension levels are reaching their peak.

These are just a few of the problems that utilities, marketers and public officials are facing in states where deregulation has reached its latter stages. The results have been increased customer complaints, increased frustration by all parties involved and, perhaps most importantly, increased labor and dollars allocated toward attempting to remedy the problem. In an industry where profit margins already hover in the low single digits, a significant expense increase in any area could be devastating to a company and its shareholders.

Deregulation has changed the way customer information is processed and delivered. Reports show deregulation is causing some utilities to take six times longer to process critical customer information, metering data and the actual bill.

The reason: Many current back-office systems were not designed for the changes that the new deregulated marketplace has brought. While utilities and marketers attempt to twist, turn and tweak their regulated-model systems into something that will work, customer complaints are rising and profits are falling.

To function at peak levels in a deregulated environment, next-generation back-office CRM and CIS software must have four key capabilities:

  • Provide flexible billing of multiple commodities and services;
  • Efficiently transfer metering and customer information;
  • Embrace e-commerce and the Internet;
  • Cut operational costs.

Without these capabilities, systems, at worst, will continue to have processing errors. At best, they will function satisfactorily but prevent a company from remaining competitive in the quickly evolving marketplace.

For many IT departments, this problem likely will be viewed as the next wave of necessary change since the Y2K tsunami. And similar to Y2K, the consequences of not preparing could be extremely hazardous to a company’s future stability and profitability.

However, financing this technology does not have to mean another round of capital investment or pleas to regulatory officials for rate relief. As was recently reported in Time magazine, “ASP” is the newest buzzword in the IT industry, with utilities and marketers included.

Like their counterparts in other industries, utilities and marketers are now exploring the concept of utilizing application service providers to enhance or replace their current back-office systems, paying for the service on a transaction-fee basis. The advancement of Internet applications means that utilities and marketers can retain full control of their information while outsourcing labor-intensive maintenance and data updating.

Whichever route companies take, it is critical they begin preparing for deregulation before it becomes fully implemented in their markets. If the need for seamless information flow is not enough of a reason (and it should be), perhaps the opportunity for increased profits will draw some attention.

As many utilities and marketers have realized, deregulation cannot be profitable for all. The unbundling of the utility function has resulted in thinner profit margins for utilities and marketers. With most, back-office operations will be the difference between success or bankruptcy.

Operations is one of the few remaining areas of opportunity for lower expenses and thus increased profits. After all, billing is the second largest expense behind only the purchase of the actual product. An operations department utilizing next-generation software technology not only will reduce its costs but will be primed for expansion into other related commodities and services as well. This means new potential revenue streams without significant system changes.

We know two things for sure about the utility industry’s future: Deregulation is coming, and processing critical information will require systems different from those built for the regulated environment. Many utilities and marketers have had to learn this the hard way.

Now is the time to ask: Is my system ready?

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Rick Woodward is president and chief operating officer for UtilConnect, where he oversees the company’s operations and marketing functions. A 29-year utility industry veteran, Woodward joined UtilConnect after serving as a senior vice president at AGL Resources in Atlanta. Contact Woodward at rwoodward@utilconnect.com.

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