CHANGING UTILITY BUSINESS MODELS
Comparing the utility industry ten years ago to the industry today is like comparing checkers to chess. Not only are the rules different and the pieces more powerful but also the shapes of the players have changed. Five years ago vertically integrated utilities moved in prescribed, straightforward manners over a regulated environment; today, the industry having experienced the changes caused by deregulation has metamorphosed through mergers and acquisitions into larger players that often operate globally. Some large utilities have treated components of the old vertical utilities almost as pawns to be traded in an effort to develop even more powerful companies. Increasingly utilities are measured using new and ever changing financial models. The shapes of the utility companies have changed until some offer only specific services and others no longer consider themselves utilities. Many utility players seek opportunities to move the length of the global board.
As if the California crisis and 9/11 were not enough for the utility industry, 2002 has brought the aftermath of Enron, the painful dismantling of the utility trading industry and financial market uncertainty. The bright glare of aggressive companies with inflated stock valuations riding the wave of deregulation through mergers and acquisitions has dimmed and many utilities are back to providing reliable, cost effective service to their relieved customers – what many would say is the utility core business.
De-regulation has left a permanent mark – focus on providing business value. The utility must control costs, increase asset life-cycle value, and provide world-class customer service. While five years ago the industry said these same words, today the industry actually has the powerful tools and the experience to meet these requirements.
What Will Utilities Do?
I believe we will see three utility tiers emerge this year in the systems world for the Distribution utility industry. First, some very aggressive utilities will take this time to become even more competitive. They have an objective to be the "best" distribution company in the world and that objective has not changed – in fact in tough financial times it is even stronger. “When times are tough, the tough get going.” These companies are continuing to drive costs down and improve customer service – objectives they see as complimentary not contrasting.
The second tier is for utilities to re-trench and assimilate the technology they already have. These utilities are focusing on assimilating the technology they have been developing and integrating their systems and processes to increase the business and IT benefits. The business impact of GIS, Work Management (WMS), Asset Management (AMS), Financial Systems, and Decision Support Systems is magnified if the systems form an enterprise wide solution that provides appropriate users access at the desktop and in the field, where the work is done. These companies will make system investments to improve their environments but the investments may be more tactical than strategic. Perhaps they will make a major upgrade to a new system, purchase system capability to meet new compliance standards, or fill out their system repertoire. These utilities will not stand still.
The third tier of utilities will take this environment of uncertain business models and uncertain financial times and conserve what they have. Their system and IT expenditures will be scaled down and they will “stand pat”.
The financial market and regulatory organizations will be even harder for them and when the market turns up they may be the cheap targets of yet another round of acquisitions. The regulatory environment will be rewarding business value through performance-based rates and increased service standards and these companies will be further behind compared to more aggressive companies.
Aggressive Approaches
Aggressive utilities have already cut costs and reduced staffs. Typically these companies are the result of mergers and acquisitions and have cultural and business process issues to overcome. They are driving to become one utility with one business practice – and the practice must be the most cost and service effective. This leads to integrated enterprise systems and new ways to use these systems.
The utility growth trend for these utilities is the implementation of new applications with different views of the application’s purpose and requirements. For example, reduce the cost of construction materials by optimizing the design of new construction; use the asset data you have been capturing and change your processes and standards; manage the outage event – don’t let it manage you. The emphasis will be to enable the field not with copies of desktop capability but with systems designed for the field. Regulators are demanding the retention of inspection results for ten years – new systems will not only retain the data but they will also use the data to make better decisions. The paradigms for each of these applications are changing.
Work is Work – Resources are Resources
As the capability of WMS systems increases, more and more work is being managed through the WMS system. Managing all work in a consistent manner assures that all costs are captured, all the other systems are updated appropriately, and enables using joint crews. By treating the company’s crews as a total resource pool and scheduling the crews through a central process, an entire tier of management structure can be removed and the crews will be scheduled more effectively, appointments will be met, and travel time optimized. Utilities that have embraced these technologies have reduced their crews and vehicles by significant percentages. These benefits are fully realized when the systems and processes are integrated over the enterprise.
Managing Company Assets Effectively Using Asset Knowledge
Knowledge of the utility's facilities and physical network and dissemination and analysis of that knowledge is a fundamental business requirement of the utility. How can the Distribution Company reduce cost without knowing their facility assets and their status, the processes that have been performed on the assets, and the associated costs? However, knowing this information is not enough. Knowledge comes from the act of understanding and interpreting the asset information.
The value of an asset is not merely the costs of purchase and installation depreciated over time. The value of the asset includes the knowledge of the full cost of the asset through its useful life and the status and condition of the asset. It also includes the knowledge of how the asset is, has been, and could be used in the network so that its use can be optimized and its useful life extended. The value of the asset should include an evaluation of the importance of the asset to delivery of energy and system reliability. When a utility’s assets are evaluated (during a merger or acquisition for example) the utility’s knowledge of the asset and how the asset is used are considered as well as the book value of the asset.
It Takes Time and Diligence
Utilities, that have implemented GIS, WMS and AMS systems several years ago, are beginning to accumulate the information necessary to make reasoned decisions. They can determine asset life cycle costs and define material standards not based on the lowest purchase price but on the best value. They can prolong the productive life of the assets through effective preventative maintenance strategies. They can examine the performance of their crews and modify their procedures to reduce costs, allocate resources based on actual needs, and understand how to manage their maintenance expenditures. With the knowledge of the cost and duration of each process step, the informed manager can determine the bottlenecks, tweak the processes, and reduce costs while improving service and reliability.
Acheving Project Benefits Quickly by Aggressive System Integration
In today’s environment, enterprise wide systems must be implemented rapidly and within budget. In the utility environment where corporate change is likely to happen within the next two years, projects that require two or more years are unacceptable to executive management. In fact projects that don’t provide measurable progress in six months may not survive next years budget cutbacks.
Designing and implementing systems and converting data concurrently reduce project timelines by years. Setting an environment that promotes (in fact expects) vendors to work together in a cooperative environment reduces risks and further reduces the time line.
Without careful control of change requests and scope creep, your project is probably doomed to failure. Planning incremental deliveries that offer benefits encourages continued project support.
Many of these approaches require taking short-term risks that favor getting the project done now rather than planning the project for years while technological changes continue to impact the plans. It is often less expensive to fix minor deficiencies after the system is developed and implemented than designing unnecessary complexity and extended schedules into the system up-front.
Recognizing the need for system integration capabilities whether inhouse or with an experienced vendor is critical to project success. You have to plan for success. System integration and effective project management are not enough – utilities should use the latest in IT standards and new more effective integration capabilities.
Designing Flexible/Adaptable Systems and System Architectures for an Uncertain Future
As I write this, I am aware of more than ten utilities that are evaluating or implementing a new GIS because through merger or acquisition they now have GIS capabilities from different vendors. Many of the same utilities have different WMS and OMS systems.
As the pace of technology innovation accelerates significant new releases of all the component systems occur frequently. Some of these new systems require significant effort to embrace the new technology that the utility wants. In this environment, utilities are seeking system solutions that insulate their mission critical systems from the impact of constant change while allowing the utility to embrace the latest technology. They want tightly integrated user environments with loosely coupled system approaches.
Vendors are moving this technology forward to a service-oriented architecture centered on defined business processes. This service-oriented architecture includes the ability to not only monitor the performance of the integration software but also to monitor and manage critical processes and functions.
Enterprise Application Integration (EAI) technology provides an infrastructure to deliver new strategic business solutions by combining existing applications with new systems, custom applications, and off - the - shelf applications. The key to EAI is message driven or event driven solutions that enable integration of disparate applications through loosely coupled messaging approaches. Today’s point-to-point interfaces increase in number and complexity as new technology is implemented, until rapid implementation of changes and new technology becomes increasingly more difficult. The EAI architectural approach applies a component-based methodology where messaging and events are the mediums that bind all the enterprise level applications and data irrespective of their platform or architecture. This is a technological approach that reduces risk and enables rapid implementation in a fast moving, changing environment – today’s utility market. The EAI industry is changing rapidly – if you took a peak at the industry a couple of years ago, look at it again because there are more real installations and the industry has adapted to these experiences.
As the scope of the GIS increases to provide enterprise access and services, it becomes increasingly more important to know how to implement the interfaces and integration effectively. The industry trend today is to define common business processes across multiple applications and business requirements and to relate them to the way the applications share data and functional capability. Some of these applications may serve the data over the web to customers outside the enterprise. The MultiSpeak initiative is an example of the need for standardization based on new EAI technology for the smaller utility. Major system integrators are taking similar approaches for the large investor owned utilities.
EAI technology has suggested an inter system and inter enterprise messaging capability that provides business functions and data to a variety of systems and users without requiring the users to understand the specifics of the underling systems and data. The messaging capability is defined in a manner that isolates the details of a specific system from the user and also from the IT developer. Through EAI, a loosely coupled environment can be implemented that provides the user with tight integration but provides the IT professional with an easy expansion path as systems and process change. The IT professionals are also enabled to share this data with new partners and new enterprises. Systems defined based on business processes and modern integration technology can be quickly expanded to meet new regulatory requirements and new mergers. This leads to increased security requirements to provide access to all appropriate users. With the pace of technology ever increasing, systems that are highly configurable and based on the latest IT standards and processes offer the best value over years of productive use.
Conclusions
Enterprise systems including GIS, WMS, AMS, and OMS integrated with modern integration techniques offer increased benefits and enable the entire utility from the desktop to the field to be more productive. They manage resources effectively and increase the span of control of the company’s managers. They provide the knowledge for informed users to make decisions that reduce costs and increase system reliability.
As the financial markets improve, aggressive utilities that implement best practices and make the commitment to be the best in the industry will emerge as the strong companies of this decade. They will lead the industry in adopting new approaches to minimize cost while maintaining customer service. Integrated enterprise wide systems will be the cornerstones of their effective systems.
About the Author
Chuck Drinnan is Director of GIS Applications for LogicaCMG’s energy and utilities division in North America. He has 29 years of experience in the GIS and utility industries. LogicaCMG provides IT solutions, including systems integration, consulting, products and services. Chuck can be reach at chuck.drinnan@logicacmg.com.
Comparing the utility industry ten years ago to the industry today is like comparing checkers to chess. Not only are the rules different and the pieces more powerful but also the shapes of the players have changed. Five years ago vertically integrated utilities moved in prescribed, straightforward manners over a regulated environment; today, the industry having experienced the changes caused by deregulation has metamorphosed through mergers and acquisitions into larger players that often operate globally. Some large utilities have treated components of the old vertical utilities almost as pawns to be traded in an effort to develop even more powerful companies. Increasingly utilities are measured using new and ever changing financial models. The shapes of the utility companies have changed until some offer only specific services and others no longer consider themselves utilities. Many utility players seek opportunities to move the length of the global board.
As if the California crisis and 9/11 were not enough for the utility industry, 2002 has brought the aftermath of Enron, the painful dismantling of the utility trading industry and financial market uncertainty. The bright glare of aggressive companies with inflated stock valuations riding the wave of deregulation through mergers and acquisitions has dimmed and many utilities are back to providing reliable, cost effective service to their relieved customers – what many would say is the utility core business.
De-regulation has left a permanent mark – focus on providing business value. The utility must control costs, increase asset life-cycle value, and provide world-class customer service. While five years ago the industry said these same words, today the industry actually has the powerful tools and the experience to meet these requirements.
What Will Utilities Do?
I believe we will see three utility tiers emerge this year in the systems world for the Distribution utility industry. First, some very aggressive utilities will take this time to become even more competitive. They have an objective to be the "best" distribution company in the world and that objective has not changed – in fact in tough financial times it is even stronger. “When times are tough, the tough get going.” These companies are continuing to drive costs down and improve customer service – objectives they see as complimentary not contrasting.
The second tier is for utilities to re-trench and assimilate the technology they already have. These utilities are focusing on assimilating the technology they have been developing and integrating their systems and processes to increase the business and IT benefits. The business impact of GIS, Work Management (WMS), Asset Management (AMS), Financial Systems, and Decision Support Systems is magnified if the systems form an enterprise wide solution that provides appropriate users access at the desktop and in the field, where the work is done. These companies will make system investments to improve their environments but the investments may be more tactical than strategic. Perhaps they will make a major upgrade to a new system, purchase system capability to meet new compliance standards, or fill out their system repertoire. These utilities will not stand still.
The third tier of utilities will take this environment of uncertain business models and uncertain financial times and conserve what they have. Their system and IT expenditures will be scaled down and they will “stand pat”.
The financial market and regulatory organizations will be even harder for them and when the market turns up they may be the cheap targets of yet another round of acquisitions. The regulatory environment will be rewarding business value through performance-based rates and increased service standards and these companies will be further behind compared to more aggressive companies.
Aggressive Approaches
Aggressive utilities have already cut costs and reduced staffs. Typically these companies are the result of mergers and acquisitions and have cultural and business process issues to overcome. They are driving to become one utility with one business practice – and the practice must be the most cost and service effective. This leads to integrated enterprise systems and new ways to use these systems.
The utility growth trend for these utilities is the implementation of new applications with different views of the application’s purpose and requirements. For example, reduce the cost of construction materials by optimizing the design of new construction; use the asset data you have been capturing and change your processes and standards; manage the outage event – don’t let it manage you. The emphasis will be to enable the field not with copies of desktop capability but with systems designed for the field. Regulators are demanding the retention of inspection results for ten years – new systems will not only retain the data but they will also use the data to make better decisions. The paradigms for each of these applications are changing.
Work is Work – Resources are Resources
As the capability of WMS systems increases, more and more work is being managed through the WMS system. Managing all work in a consistent manner assures that all costs are captured, all the other systems are updated appropriately, and enables using joint crews. By treating the company’s crews as a total resource pool and scheduling the crews through a central process, an entire tier of management structure can be removed and the crews will be scheduled more effectively, appointments will be met, and travel time optimized. Utilities that have embraced these technologies have reduced their crews and vehicles by significant percentages. These benefits are fully realized when the systems and processes are integrated over the enterprise.
Managing Company Assets Effectively Using Asset Knowledge
Knowledge of the utility's facilities and physical network and dissemination and analysis of that knowledge is a fundamental business requirement of the utility. How can the Distribution Company reduce cost without knowing their facility assets and their status, the processes that have been performed on the assets, and the associated costs? However, knowing this information is not enough. Knowledge comes from the act of understanding and interpreting the asset information.
The value of an asset is not merely the costs of purchase and installation depreciated over time. The value of the asset includes the knowledge of the full cost of the asset through its useful life and the status and condition of the asset. It also includes the knowledge of how the asset is, has been, and could be used in the network so that its use can be optimized and its useful life extended. The value of the asset should include an evaluation of the importance of the asset to delivery of energy and system reliability. When a utility’s assets are evaluated (during a merger or acquisition for example) the utility’s knowledge of the asset and how the asset is used are considered as well as the book value of the asset.
It Takes Time and Diligence
Utilities, that have implemented GIS, WMS and AMS systems several years ago, are beginning to accumulate the information necessary to make reasoned decisions. They can determine asset life cycle costs and define material standards not based on the lowest purchase price but on the best value. They can prolong the productive life of the assets through effective preventative maintenance strategies. They can examine the performance of their crews and modify their procedures to reduce costs, allocate resources based on actual needs, and understand how to manage their maintenance expenditures. With the knowledge of the cost and duration of each process step, the informed manager can determine the bottlenecks, tweak the processes, and reduce costs while improving service and reliability.
Acheving Project Benefits Quickly by Aggressive System Integration
In today’s environment, enterprise wide systems must be implemented rapidly and within budget. In the utility environment where corporate change is likely to happen within the next two years, projects that require two or more years are unacceptable to executive management. In fact projects that don’t provide measurable progress in six months may not survive next years budget cutbacks.
Designing and implementing systems and converting data concurrently reduce project timelines by years. Setting an environment that promotes (in fact expects) vendors to work together in a cooperative environment reduces risks and further reduces the time line.
Without careful control of change requests and scope creep, your project is probably doomed to failure. Planning incremental deliveries that offer benefits encourages continued project support.Many of these approaches require taking short-term risks that favor getting the project done now rather than planning the project for years while technological changes continue to impact the plans. It is often less expensive to fix minor deficiencies after the system is developed and implemented than designing unnecessary complexity and extended schedules into the system up-front.
Recognizing the need for system integration capabilities whether inhouse or with an experienced vendor is critical to project success. You have to plan for success. System integration and effective project management are not enough – utilities should use the latest in IT standards and new more effective integration capabilities.
Designing Flexible/Adaptable Systems and System Architectures for an Uncertain Future
As I write this, I am aware of more than ten utilities that are evaluating or implementing a new GIS because through merger or acquisition they now have GIS capabilities from different vendors. Many of the same utilities have different WMS and OMS systems.
As the pace of technology innovation accelerates significant new releases of all the component systems occur frequently. Some of these new systems require significant effort to embrace the new technology that the utility wants. In this environment, utilities are seeking system solutions that insulate their mission critical systems from the impact of constant change while allowing the utility to embrace the latest technology. They want tightly integrated user environments with loosely coupled system approaches.
Vendors are moving this technology forward to a service-oriented architecture centered on defined business processes. This service-oriented architecture includes the ability to not only monitor the performance of the integration software but also to monitor and manage critical processes and functions.
Enterprise Application Integration (EAI) technology provides an infrastructure to deliver new strategic business solutions by combining existing applications with new systems, custom applications, and off - the - shelf applications. The key to EAI is message driven or event driven solutions that enable integration of disparate applications through loosely coupled messaging approaches. Today’s point-to-point interfaces increase in number and complexity as new technology is implemented, until rapid implementation of changes and new technology becomes increasingly more difficult. The EAI architectural approach applies a component-based methodology where messaging and events are the mediums that bind all the enterprise level applications and data irrespective of their platform or architecture. This is a technological approach that reduces risk and enables rapid implementation in a fast moving, changing environment – today’s utility market. The EAI industry is changing rapidly – if you took a peak at the industry a couple of years ago, look at it again because there are more real installations and the industry has adapted to these experiences.
As the scope of the GIS increases to provide enterprise access and services, it becomes increasingly more important to know how to implement the interfaces and integration effectively. The industry trend today is to define common business processes across multiple applications and business requirements and to relate them to the way the applications share data and functional capability. Some of these applications may serve the data over the web to customers outside the enterprise. The MultiSpeak initiative is an example of the need for standardization based on new EAI technology for the smaller utility. Major system integrators are taking similar approaches for the large investor owned utilities.
EAI technology has suggested an inter system and inter enterprise messaging capability that provides business functions and data to a variety of systems and users without requiring the users to understand the specifics of the underling systems and data. The messaging capability is defined in a manner that isolates the details of a specific system from the user and also from the IT developer. Through EAI, a loosely coupled environment can be implemented that provides the user with tight integration but provides the IT professional with an easy expansion path as systems and process change. The IT professionals are also enabled to share this data with new partners and new enterprises. Systems defined based on business processes and modern integration technology can be quickly expanded to meet new regulatory requirements and new mergers. This leads to increased security requirements to provide access to all appropriate users. With the pace of technology ever increasing, systems that are highly configurable and based on the latest IT standards and processes offer the best value over years of productive use.
Conclusions
Enterprise systems including GIS, WMS, AMS, and OMS integrated with modern integration techniques offer increased benefits and enable the entire utility from the desktop to the field to be more productive. They manage resources effectively and increase the span of control of the company’s managers. They provide the knowledge for informed users to make decisions that reduce costs and increase system reliability.
As the financial markets improve, aggressive utilities that implement best practices and make the commitment to be the best in the industry will emerge as the strong companies of this decade. They will lead the industry in adopting new approaches to minimize cost while maintaining customer service. Integrated enterprise wide systems will be the cornerstones of their effective systems.
About the Author
Chuck Drinnan is Director of GIS Applications for LogicaCMG’s energy and utilities division in North America. He has 29 years of experience in the GIS and utility industries. LogicaCMG provides IT solutions, including systems integration, consulting, products and services. Chuck can be reach at chuck.drinnan@logicacmg.com.
