Waiting to Outsourceenergycentral.fileburst.com/Sourcebooks/gsbk0507.pdf · There is some evidence that outsourcers are gaining ground. Despite the early success of the ASP model

outsourcing

www.energycentral.com EnErgyBiz magazinE 59

Waiting to OutsourceUtilities Resist Flattening WoRld

By Warren Causey

In his book The World is Flat, Thomas L. Friedman, a writer for the New York Times, argues that the rapid evolution of technology – especially the networking

of computer and communications systems worldwide since the turn of the century – has fundamentally

altered the way everyone does business.

In Friedman’s “Flat World,” everything that can be will be outsourced to someone else anywhere in the

world where the work can be done cheaper, faster, and just as well. There are still a few mountains left in

this supposedly flat landscape One of those remaining mountains is the U.S. utility industry.

Outsourcing vendors have been steadily chipping away at the utility “mountain” since the mid-to-late

1990s. They have made slow progress in altering the landscape. In the late 1990s and shortly after the

start of the new century, a lot of customer information system (CIS) outsourcers sprang up and landed

quite a few small to mid-tier clients. By 2002, about 25 million utility bills were being delivered monthly

by outsource vendors, generally on an ASP, or application service provider, basis. That represents about

9 percent of all electric, natural gas and water meters in the United States.

outsourcing

60 EnErgyBiz magazinE May/June 2007

During the same time period, several major U.S. utilities – though

few smaller ones – decided to outsource all or part of their IT depart-

ments. This is known generally as business process outsourcing. These

utilities included Xcel Energy, in Minneapolis, the first, Entergy in New

Orleans, Avista in Spokane, Wash., San Diego Gas & Electric, Cinergy, in

Cincinnati, Ohio, and, most recently, TXU in Dallas. These six represent

approximately 5 percent of the 130 largest investor-owned utilities

with more than 100,000 customers.

A much larger proportion of utilities of all types and sizes have

outsourced the bill-printing process. Exact numbers are hard to come

by, but it is thought as many as 15–20 percent of all utilities outsource

bill printing. Many utilities, possibly as many as 10–20 percent, have

outsourced meter reading.

While not outsourcing entire platforms, such as CIS or IT depart-

ments, many utilities have gone offshore for certain data-crunching

capabilities. As an example, Reliant Energy, in Houston, outsourced

a huge backlog of GIS updates to firms in India. Several others have

made similar moves.

Several other large utilities have outsourced discrete pieces of

their IT systems as part of “disaggregating” large systems, such as

CIS. One of these is NSTAR in Boston. In speaking about the recent rash

of consolidations among vendors serving the industry, NSTAR’s vice

president and CIO Gene Zimon says: “To offset this market power, we

are moving more of our applications to ASP models and outsourcing

business functions so we do not have to own the licenses.”

There is some evidence that outsourcers are gaining ground.

Despite the early success of the ASP model for utility customer

information systems, the growth slowed dramatically after about

2004, and additional clients have been extremely difficult to come

by. That 20–25 million bills rendered has not changed substantially in

the last two or three years. Alliance Data Services did have a signifi-

cant win recently when Pinellas County Florida Utilities signed a six-

year agreement to provide CIS services for about 100,000 water and

wastewater customers.

The outsourcing of entire IT departments also has remained slow with

an average of about one every two or three years. The last one, TXU, now

is approaching two years ago

First Data, which bought Peace Software for the express purpose of

providing ASP CIS outsourcing, has yet to land a client for the software

on an ASP basis, although First Data does have other utility clients for

other products.

Several of the larger early adopters of CIS outsourcing now are

reversing course and are known to be in the market for CIS licenses.

One of these, which has publicly announced its intent, is Austin Energy

in Texas. Most of the utilities that went with BPO outsourcing faced one

type of crisis or another with their IT departments. There aren’t many

other large utilities in similar situations.

Recent survey data also indicates that the outsourcing market

among utilities is not thriving. Sierra Energy Group, the research and

analysis division of Energy Central, publisher of EnergyBiz, asked utility

executives if they were considering outsourcing either their CIS or their

call centers. Only about one in 10 indicated any interest in outsourcing

either of those functions.

The utility industry stands in stark contrast to a number

of other industries. In the United States, the processing of

millions of credit card transactions daily is almost totally

outsourced to companies such as First Data and Alliance

Data Systems and others. The telecommunications industry

outsources most of its billing transactions to similar firms,

as well as now having most of its call center operations

offshore. Many of the largest financial institutions in the

U.S. also outsource much of their data processing and

customer care.

Because of those huge successes, executives at firms

like First Data and Alliance Data and a lot of smaller firms

thought utilities, with their scale (nearly $300 billion per

year in revenues) and their transaction volume (approxi-

mately 270 million bills rendered monthly) should be ideal

candidates for outsourcing business. But while salivating

over the volume, the outsourcing firm executives over-

looked certain facts about the utility industry.

Utilities were developed almost from the beginning as

quasi-state entities, with protected service territories and

guaranteed rates of return. While deregulation of the tele-

communications, financial, airline and trucking industries

in the U.S. created highly competitive markets, that never

happened among utilities.

Because of their cultural background, utilities are accus-

tomed to owning and controlling everything they do – and

many of them still do so, though generation has been pried

away and made competitive in some parts of the country.

Utilities still do not operate as private businesses and have

considerably less flexibility than private businesses. They

are subject to stringent regulation at several layers of

government. Many utility executives cannot stomach the

idea of outsourcing something as core as the billing function

– or many others – to a firm over which, despite extensive

performance guarantees, they don’t have control.

Most outsourcing firms make cost reduction their

major selling point. Utilities are less subject to these cost

pressures than other types of businesses, though regula-

tors are getting more concerned about costs.

So, where does this leave outsourcing in the utility

industry? About 10 percent of utility bills now are rendered

on an outsourced basis. Certain other discrete functions,

such as bill printing, meter reading, tree trimming and

other functions are outsourced more widely.

Friedman’s flat world theory presumes that everyone

will play the outsourcing game because it makes finan-

cial sense. But in the utility industry, which is somewhat

unique, that argument so far has fallen on deaf ears. Most

utility exectuives have yet to be convinced. Outsourcing

firms probably will make more inroads in the future, but

it isn’t likely that the institutional barriers will melt away

rapidly as they did in other industries that underwent

much more effective deregulation.


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outsourcing


In 1999, Entergy Services, the service company affiliate of Entergy, made the decision to pursue a broad-based outsourcing of most IT

operations and applications services. At the time, Entergy was dealing with the IT require-

ments of five public utilities in four southern states and additional generating plants

located in several New England states. This outsourcing involved most of the IT operations

and applications development and support work provided internally by Entergy Services.

Although Entergy previously had utilized IT outsourcing, the outsourcing effort in 1999 was

far more global in scope, with implementation scheduled for midnight, Y2K.

Various factors drive businesses to outsource their IT functions, including the pursuit

of a “quick fix” for a dysfunctional IT operation, the potential for cost savings, or the

desire to have a platform from which to address future business needs. Most experts

suggest that outsourcing the IT function to address a dysfunctional operation may be

a serious mistake because to effectively manage a commercial service it should be well

understood and functioning.

Dominant drivers for Entergy’s outsourcing of its IT function were the need to access

changing IT staff skill sets as business requirements for new systems and services

evolved, greater flexibility in terms of staff size and skills, and a more predictable and

manageable cost structure to support future business changes, which tend to not follow

an anticipated script. Prior to outsourcing, Entergy spent significant time and effort

developing a formal IT governance model, which was driven largely by the need to align IT

with the way the public utility and generation business would develop in the late 1990s

and beyond.

While a great number of factors affect the success of IT outsourcing, IT governance

and communication with key stakeholders, internal customers and IT employees are the

principle of these. IT governance generally includes dealing with the process for making

key technology and prioritization decisions consistent with enterprise business drivers

and objectives. The key stakeholders are most likely to have serious concerns regarding

a change of this type, particularly if they were “comfortable” with the former system.

Most modern business functions depend heavily on IT, so expect push-back from these

key stakeholders. To address the concerns of key stakeholders, it helps to first attempt

to define what “success” will look like in the context of outsourcing and how it might be

measured. Then collaborate with the key stakeholders to agree on the definition, the

measurement and the timing for success.

If your organization is seriously considering outsourcing, it is vital to get focused on

communicating with employees and internal customers. The announcement of a possible

outsourcing is a stark reminder to employees that the decisions of the business may

The View from Entergy ServicesyaRdstiCKs FoR sUCCessFUl oUtsoURCing

By Ray Johnson


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or may not accommodate their individual

plans. Starting this communication process

early and frankly is your best opportunity

to maintain trust, maintain productivity,

and manage attrition.

Another key element to successful

outsourcing is the metrics selected, which

will define the focus areas, the commer-

cial incentives, and the services that are

most important to internal customers. If

such metrics already are in place, plan on

a collaborative and thorough review with

your business leaders to make sure that

those metrics represent what they want

IT to deliver going forward. Metrics domi-

nated by technology statistics, such as

a network availability and work back log

measures, usually are irrelevant to the

business leaders, who actually care more

about product delivery, services, costs,

quality or defect measures. While tradi-

tional technology metrics are good indica-

tors, they may not be sufficient to keep IT

aligned with the business.

If your organization decides to enter into

an outsourcing partnership, agree upfront

to an early “health check” review process.

Consider bringing in an independent third

party early on to test how the relation-

ship is working and to determine whether

corrective actions are necessary to improve

the arrangement, and be mindful that you

should have a clear exit strategy for your

outsourcing arrangement.

No one wants to face a disaster-driven

test of relationships and partnerships,

but as the 2005 hurricane season proved

for Entergy and its technology partners,

outsourcing relationships are not immune

to such a challenge. Fortunately, when

Entergy and its technology partners were

put to the test, the parties conducted

themselves as all would have hoped in

such a situation. We did not know where

the regulatory and business environment

would lead, and so, had to be prepared to

adapt. Because of our outsourcing partner-

ships, we found that, as an organization, we

had the flexibility and the diverse skill sets

necessary to make it work.

There is a tendency to assess out-

sourcing in terms of specific results, such as

service level agreements and costs, which

do help to ensure the successful transi-

tion in a sustainable operation. However,

at Entergy, we talk about transformation

in more general terms because an internal

function focusing on such specific results

will almost guarantee a less than satisfac-

tory outcome. I suggest that you take some

time on the front-end to define the objec-

tive transformational expectations of your

business. Our experience has been that once

you define the transformational expecta-

tions and create appropriate measures, the

behavior on both sides is predictable and

therefore beneficial to both parties.

Ray Johnson is chief information officer for Entergy Services, the service company affiliate of Entergy.

Ray Johnson


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outsourcing


The PlayersMany Will BUild gRid

By William Opalka

Imagine a track meet in which the runners line up, prepare to race and the official

starter raises the pistol to fire. Then, assistant starters

show up, and for several hours each suggest a set of

rules, the number of runners, even whether the race is a

sprint, a marathon or with hurdles. Then, in unison, they

all shout “Go!” And the runners still aren’t sure what kind

of race they’re in.

Now, think of Congress and the passage of the Energy

Policy Act of 2005 as the official starter and the starting

line in this new kind if race. Then, imagine the Federal

Energy Regulatory Commission (FERC), state regulators,

the independent system operators (ISOs), the public,

investors and new generation builders setting the rules

and determining market conditions for the next several

years, all clamoring for a lane in their respective states or

regions. Then, in several years, the starting gun fires and

the race is on. And the runners – the utility construction

divisions and their contractors – start running and still

don’t know how long the race is on, all the while hoping

the lights in the arena stay on.

The current build-out is necessary because of an

aging infrastructure that is approaching the end of its

expected lifespan of 40 to 50 years.

Construction will translate into many new business

opportunities for outsourcers, industry sources say. Utili-

ties have embraced outsourcing as they have moved to

new business models.

Energy companies are now trying to get more projects ready to move through

the pipeline as the demand ramps up nationally. The projects have to be carefully

scheduled so that crews and massive pieces of equipment can be moved shorter

distances to the next job.

As utilities have become leaner operations, they have not only become more

willing to rely on their outsourced talent to build and start up their facilities, but

also for more operations and maintenance functions. InfraSource is one of the

companies that have responded to this shift in the market to acquire more engi-

neering talent as this project involvement becomes more common.

“The transmission and substation projects are demanding that they become

more of a turnkey type of operation. That means you are seeing more emphasis on

the project management aspects of the projects and not just construction,” says

John McNamee, operations director-business

development for InfraSource Services.

That has always been a consideration,

but as projects become bigger and more

numerous, there is an imperative to reduce

costs through planning consecutive projects

on a regional basis, McNamee says.

Large projects that will take years to

complete are filling up the construction queue

in all areas of the country, with massive jobs

in the Northeast, Texas, Arizona and other

parts of the West lining up.


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These changes have fundamentally

altered the drivers for utility investment

in technology. Instead of “reliability” and

“redundancy” being the mantra of utility

engineering departments, “efficiency,

productivity, cost-avoidance” and leverag-

ing of technology enterprise-wide have

held sway for more than a

decade now.

The new environment

in which most utilities

now operate really isn’t

all that competitive

between them, but the

threat of competition has

changed their entire business regulatory

and economic equation. They still have

money to invest in technology, but each

investment must be much more carefully

weighed against other demands for much

more scarce resources. Additionally, as

technology changes utilities increasingly

are faced with the issue of

“stranded assets,” an issue

that loomed large just a

few years ago. At that time,

the issue dealt with assets,

utilities were required to

amortize if they were to

become separate genera-

tion and distribution entities. Today, the

issue of stranded assets has more to do

with aging assets that have been rendered

obsolete by new technology.

Why outsourcing has been slow to catch on at most utilities

WhIle The chAnges outlined in the previous

section have been profound and almost

ubiquitous, they have taken place against

cultural backgrounds in utilities that have

been slow to change. The traditional utility

owned and controlled nearly everything it

did, from building and servicing the grid to

billing customers to communicating with its

field crews. For more than 20 years various

third-party firms have tried to convince utili-

ties to outsource some of their functions,

especially billing and remittance, something

The Utility of the Future

A neW pArAdIgm In TelecommunIcATIons sourcIng For enTerprIse TrAnsFormATIon

Aggressive market forces continue to sweep across our nation impacting virtually all industries. utilities are not immune to

those market forces and trends and they continue to adjust to past deregulation efforts.

These include economic constraints, a competitive wholesale market, stringent new

security regulations and aging infrastructures and workforces.

Prepared for

Sprint Nextel

By Warren B. Causey

Vice President,

Sierra Energy Group

a division of

Energy Central

70 EnErgyBiz magazinE May/June 2007 ThoughT lEadErship — sponsorEd by sprinT nExTEl

that is done routinely in other industries

such as telecommunications and finance. The

results have not been especially favorable

for the outsourcing vendors, especially in the

last four or five years.

despite all the changes outlined above,

utilities still have an institutional bias

towards controlling/owning what they do.

This bias grows out of that cultural back-

ground that enabled and often even encour-

aged the development of multiple silos in

centers of business. The grid was operated

by engineers. distribution was separate

from transmission. Field service and asset

management was separate. design and new

construction was separate. cIs and customer

billing was handled separately. Accounting

and finance was different.

As a result of the “siloing” of operations

utilities ended up with disparate IT systems

that have not been easy to integrate. only

recently have utility executives realized

the need to embrace standards-based

technology that allows easy integration

across the enterprise. Because all these

systems were separate and “owned” by

the different divisions, not only were

those divisions reluctant to integrate with

other utility systems, they certainly were

opposed to “outsourcing” any of their

functions.

however, there is one area where the

rapid evolution of science, coupled with

the economic constraints utilities face,

means there will likely be substantially

more outsourcing in the future. This

area is in telecommunications, including

wireless voice and data and fiber optics.

Telecommunications cuts across all the

silos and is less “owned” by one of them

than other traditional utility functions.

Cost and technological currency shift the paradigm to outsourcing telecom

uTIlITIes TrAdITIonAlly oWned and

operated their own land mobile radio (lmr)

systems. These were built up over past

decades to enable the utility to deliver

work orders (emergency and routine) to

field crews, exclusively by voice com-

munications. utilities are organizations

with large infrastructures that exist in

geographical areas—often very large areas

involving hundreds of miles. As long as

work orders could be dispatched by voice,

lmr systems were more than adequate

and utilities had large, effective systems

with many towers and radios they owned.

With the development of digital com-

munications—increasingly demanded

as work order and asset management

systems became computerized, not to

mention digital geospatial information

systems—utility lmr systems suddenly

became obsolete. This technological

revolution was rapid in the 1990s and

came just as utilities were threatened

with deregulation and competition. some

utilities went to the expense of upgrading

their large lmr systems to digital, but the

number that did this was not great. It was,

and remains, a very expensive prospect

that provides limited improvement when

the systems upgraded or replaced. For

example, current and upgraded lmr

systems still lack the ability to have

interoperability with other first respond-

ers locally, regionally and nationally. This

is typically important when helping other

utilities through the mutual aid agree-

ments that utilities support.

lmr devices for the most part don’t take

advantage of the integrated solutions found

with providers of specialized mobile radio

service (smrs) like data, gps, Java applica-

tions and a wider offering of devices to fit

the variety of users found within the utility

landscape (corporate, field worker, plant

environment users). others have limped

along without benefits found in wireless

digital voice and data networks. A significant

number have turned to traditional telecom-

munications carriers such as sprint nextel

and other carriers for specific implemen-

tations in targeted areas where digital

communications became essential. however,

providers of just cellular service are less

effective in meeting the needs of utilities as

they rely heavily on “dispatch” communica-

tions from their operations centers to direct

Voice SerViceS Data SerViceS ManageD SerViceS application SerViceS

Wireless Wireless Data Managed connectivity Mobility Solutions

nationwide Voice 1X-rtt Managed Wan Wireless email (riM/Bc)

ptt eV-Do Managed Server location Based Services

roaming WiFi Managed lan Wireless payments

Voicemail Datalink Managed 802.11 Wlan 3rd party applications

rugged & converged devices extended Workplace custom network Solutions

2-Way SMS Managed Security

local / lD email protection integrated Wireless/Wireline

Sprint complete access Data (point to point) authentication integrated office

local / centrex Direct Wavelength Firewall Mobile extension

outbound lD Sprint optical network intrusion Detection

Voice Vpn Sp packet pl Segment Solutions

operator/Directory Svc point-point ethernet Managed ip telephony Dealer network o’ Future

cisco aVViD Business continuity

call / contact center Data (Switched) nortel BcM Supply chain Mgmt

caller navigation MplS avaya (4303) Distance learning

toll-Free ip empowered Desktop

call routing Sprintlink Frame Wireless Services parentlink

Management & reporting Sprintlink atM Managed Mobility Service Field Force enablement

Do not call restriction Sprintlink Virtual lan inter-operability Solutions

premise equipment lMr augmentation & replacement

Voip Data (Vpn)

Voip / pStn gateway Sprintlink Vpn report/invoicing

ip telephony SSl Vpn

ip trunking premise ip Vpn

ip centrex

Breadth

Depth

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crews in the field. some still are limping along

with a mixture of analog lmrs and limited

digital coverage for specific applications.

unlike the area of customer information

systems, utilities do not have the luxury

of time. most cIss can be adapted and new

architectures applied so that customer

data can be shared with other applications.

With a lmr, it either is digital or it isn’t and

upgrading is very expensive.

An excellent example of this conundrum is

at Firstenergy corp., Akron, ohio, a company

that grew out of a series of mergers in the

1990s to become the fifth largest inves-

tor-owned utility in the u.s. with 4.5 million

customers spread out over 36,100 square

miles of ohio, pennsylvania and new Jersey.

In the process of combining an original seven

operating companies, Firstenergy inherited

some 50 individual analog uhF, VhF and 800

mhz lmrs that were used across the different

service territories, individual generation facili-

ties, dispatch centers and service yards. none

of the 50 were designed to work together.

rather than attempting to upgrade

all those systems to digital and integrate

them, Firstenergy turned to sprint

nextel. The utility will use the nextel

direct-connect radio feature for voice

communications and the underlying digital

network for the transfer of work orders,

gIs maps and other non-voice communica-

tions. “For our energy delivery operations,

sprint nextel meets our wireless needs

by providing utility-grade communica-

tions in a cost-effective manner,” says

charles e. Jones, senior vice president of

energy delivery and customer services for

Firstenergy. “The functionality of nextel

direct connect (radio integrated with

cell phones) will help us facilitate instant

communications between our employees

across in our service territories.”

In announcing the arrangement, First

energy said it was “more cost-effective to

use the direct connect service rather than

update the company’s multiple land mobile

radio systems.” It is this cost-effectiveness

that makes it likely that more utilities will

be traveling down the outsourcing road in

telecommunications. The nationwide tele-

communications firms such as sprint nextel

and the others are constantly investing to

upgrade their networks as new protocols

and equipment become available, almost on

a daily basis. Wireless telecommunications

has evolved very rapidly in the last 15 years,

much more rapidly than a utility (which wire-

less is not a core competency) can reason-

ably expect to keep up with.

since the telecommunications industry

in the u.s. was deregulated much more

thoroughly than utilities, competition is

fierce and that includes not only price but

also the adoption of new technologies.

Thus, the cost to a utility of outsourc-

ing its telecommunications to a wireless

carrier now is less than the cost of trying

to keep up with the changes itself, as

Firstenergy determined. In telecommu-

nications, assets become stranded very

quickly, especially if they aren’t related

to your primary function of delivering

electricity, natural gas or water.

successful telecommunications out-

sourcing can only occur if both utilities

and commercial carriers like sprint nextel

work together to move away from a vendor

relationship to a long-term strategic

partnership. Finally, it’s worth noting that

the paradigm shift has occurred as the

“upside” value proposition has come to

outweigh the perceived benefits of owner-

ship and control. In the past, there were good

reasons for not aggressively doing business

with carriers. The limitations included lack

of coverage throughout the entire utility

service territories, lack of responsiveness

during outages and natural disasters and

inability to develop acceptable service-level

agreements. Today, companies like sprint

nextel overcome these perceived limitations

by developing agreements that build out not

only micro in-building coverage but have the

ability to provide coverage over vast multi-

state service areas. For service restoration,

specialized equipment like cell on Wheels

(coW) are now available to deploy as and

when needed anywhere in the u.s.

Staying ahead of the communications curve

TelecommunIcATIons Are A part of what

are considered “critical infrastructure” at

utilities. utility audits on new nerc (north

American electric reliability council) cyber

security standards are on the near horizon

for utilities. ensuring that all of its voice

and data communications, especially those

72 EnErgyBiz magazinE May/June 2007 ThoughT lEadErship — sponsorEd by sprinT nExTEl

related to the network, are secure and pro-

tected is a major problem for utilities. If that

communication is outsourced, the utility has

a partner whose speciality is communica-

tions in meeting those standards.

existing scAdA networks are heavily

dependent on non-secure legacy protocols,

equipment and analog leased lines. They are

expensive to upgrade and replace, especially

during a period of IT budget constraints.

securing scAdA networks is, however, a

national priority. Besides the 9/11 attacks

which focused everyone’s attention, there

have been other less-publicized events that

have caused concern. These include a cyber

break-in at the california Independent system

operator which went undetected for 17 days;

the faulty closure of an emergency valve at

one of singapore’s two natural gas suppliers

that blocked the flow of natural gas to seven

electrical power plants; and computers at an

inactive nuclear power plant in ohio infected

by the slammer worm.

utilities must begin documentation of

nerc compliance no later than dec. 2007

and must be fully compliant no later than

June 2010. heavy fines will be assessed for

noncompliance.

utilities today seek to address multiple

communications initiatives, including:

CriticalCommunicationsContinuity.

Voiceanddatanetworksforprimaryand

secondarycommunications.Prepare,

respond,recoverduringemergency

situationssuchasterroristattacksand

hurricanes.

MobileWirelessEnnoblement.Leverage

technologyfortransformationtoawork

anywhereenvironmentasbabyboomers

beginretiring.

Telemetry.Implementwirelesssolutions

toaddressSmartMeteringandGrid

initiatives.

Added to these issues is the rapid evo-

lution of new technologies such as WimAX,

which represents tremendous potential to

drive innovation as it promises increased

efficiency resulting in better roI models.

The following chart provides a good over-

view of the myriad of issues utilities have to

deal with today in terms of telecommunica-

tions. The trend is to develop strategies for

“convergence” of both wireline and wireless

into an Ip platform. Ip brings open standards

and easy integration of main applications

throughout the enterprise.

This complexity is a major reason it

is likely utilities will continue to look at

outsourcing telecommunications as a

viable alternative to doing it themselves. In

fact, most telecom providers today provide

a depth and breadth of services that most

utilities would be hard-pressed to match.

Intelligent Enterprises, Intelligent Grids require Intelligent Communications

eArlIer descrIpTIons oF the cultural

background of utilities and their “siloed”

development and implementation of tech-

nology remain valid in many places today.

however, in addition to the shift in the

business/economic/regulatory paradigm

outlined above, another shift is taking

place. gradually utilities are moving toward

operating as fully integrated businesses.

utility cIos (chief Information officers)

say what they see on the horizon is

more integration and movement toward

Intelligent grids (Ig) and Intelligent

enterprises (Ie). “one of my major objec-

tives and goals for the year (2007) is to

develop an integration plan between the

energy operations and IT,” says one cIo.

many definitions of Ig and Ie are

floating around, but most of them involve

increasing automation of the grid so that

it becomes, in many ways, self-operating,

and to some extent self-healing. Then,

as the cIos indicate, the goal is to have

operation of the grid itself become an inte-

gral part of the overall automated utility

business, something that it definitely is

not at most utilities today.

To operate an effective, profitable

business, executives must understand

what is going on throughout the business.

In utilities, this means automation, includ-

ing their communications systems, must

provide needed information from both the

operational side and the business side.

As executives learn more about what is

going on, they can continue to make better

decisions and all the while technology can

continue to advance to do more of the

work that is currently done manually.

The fact that utilities now are turning

their attention to the utility of the future,

when grids and back-offices are tightly

integrated, is a major reason why it seems

likely that they will increasingly outsource

telecommunications. Telecommunications

is vitally important to utilities, but it is not

a core competency. With the complexities

utility executives already face in moving

forward, with aging and older technol-

ogy field communications systems and

with wireless technology that is evolv-

ing rapidly, it makes better sense to let

experts handle this area at less cost than

replacing old systems.

The utility of the future where intel-

ligent grids and intelligent enterprises are

tightly integrated will require increasingly

complex wireless, wire-line and other

forms of communications. Installing

and maintaining this entire increasingly

complex communications infrastructure

is not a core competency at utilities.

however, new federal security standards

and other external pressures are forcing

utilities to undertake extensive upgrades

to their communications capabilities.

By making a partnership with a

telecommunications company, utilities

can have access to the latest technol-

ogy without the huge capital expense of

replacing legacy analog and other systems.

Because of serious competition in the

telecommunications industry, pricing

can be attractive. utilities traditionally

have been slow to outsource. But telecom

seems likely to become the first area where

they do so on a widespread basis.

outsourcing


companies that are not well known or may

not yet exist, but there is a very good chance

large construction firms will be booked for

several years.

An aging workforce also will drive out-

sourcing. Mike Edmonds, vice president and

general manager of Siemens PTI, says an aging

workforce has forced companies not only to

aggressively recruit talent, but also to spend

time and money training replacements.

There are also collaborations in the

U.S. and Canada to develop courses and

programs of study at community colleges

to develop workers who will be needed for

the building boom that could start within

three to five years, when the current glut

of projects in the planning queue complete

their approval processes.

Siemens thinks it may have an advan-

tage provided by its size and global reach.

If enough engineering talent is not available

for the workload, it may have the ability to

tap into its operations in other countries

to fill the need. In any case, a coming labor

shortage may require an importation of

talent or a loosening of immigration restric-

tions, industry sources say.

Chris Gomperts, vice president of marketing and strategic planning for Siemens

Power Transmission & Distribution, says an important influence has been the

regional transmission organization (RTO) model encouraged by the FERC. Trans-

mission is now being planned to accommodate markets. This demand has forced

marketing and outreach to the affected communities to be done well before any

holes are dug or lies are laid.

“This has turned the traditional T&D planning model on its head,” Gomp-

erts says. “With 5 percent to 7 percent of a project cost now spent in plan-

ning and marketing that project before there is even any engineering, there

are less guarantees that cost will be recovered if it turns out that the project

is ever going to be built.”

Additional stress on the transmission system is being caused by mandates

for renewable energy in an ever-increasing number of states. Renewable port-

folio standards, primarily served by wind energy in many places and with dead-

lines for compliance in many of those states over the next decade, are adding

to the demand for transmission access. Often, these projects are distant from

load centers.

Amin Bishara, vice president and global leader for Europe and the U.S.

outsourcing for Capgemini, said that utilities have gotten comfortable with

hiring outside companies for back office functions such as billing and they may

embrace other functions due to cost pressures. “There will be a lot more activity

in outsourcing as there will be more responsibilities turned over to the service

providers,” he says.

Capgemini’s Bishara sees the convergence of all these trends impacting T&D

construction as soon as 2010. “No matter what else happens by 2010 it will be

very difficult to find a top-tier company to outsource your project,” he says.

In other words, the market demand will certainly create opportunities for


outsourcing


Alliance Data is the leading provider of integrated billing and customer care solutions to the regulated, deregulated and municipal utility markets, supporting millions of end-use custom-ers. With over 50 utility clients, Alliance Data has a history of providing measurable business results and financial benefits through proven processes and methodologies.

Our services include: - Strategic Consulting - Strategic expertise to meet your business objectives - Systems Integration & Implementation - Proven methodology to manage the impact to your core business - Application Management - Tailored solutions for reliable maintenance of your mission-critical software systems - Business Process Outsourcing (BPO) - Outsourced billing and customer care solutions that measurably enhance your relationships with your customers

Capgemini7701 Las Colinas Ridge, Suite 600Irving, TX 75063(972) 556-7415Fax (972) 556-7006www.us.capgemini.comContactAmin Bishara, VP, North America Utilities

Practice, Business Development Leader [email protected]

Mark Fronmuller, VP, North America Utilities Practice [email protected]

Capgemini, one of the world’s foremost pro-viders of Consulting, Technology and Outsourcing services employs approximately 60,000 people worldwide and has global revenues of 6,954 million euros. With more than 10,000 consultants dedicated to energy, utility and chemical projects across Europe, North America and Asia Pacific, Capgemini brings industry-specific expertise to its clients. Through commitment to mutual success and the achievement of tangible value, Capgemini helps businesses implement growth strategies, leverage technology, and thrive through the power of collaboration.

Outsourcing

SOURCEBOOKItron

2111 N. Molter Road Liberty Lake, WA 99019(800) 635-5461Fax (509) 891-3932www.itron.comContactTim Wolf, Marketing Communications Manager

(800) 635-5461

Itron is a leading technology provider and critical source of knowledge to the global energy and water industries. Nearly 3,000 utilities world-wide rely on Itron’s award-winning technology to provide the knowledge they require to optimize the delivery and use of energy and water. Itron creates value for its clients by providing industry-leading solutions for electricity metering; meter data collection; energy information management; demand response; load forecasting, analysis and consulting services; distribution system design and optimization; web-based workforce automation; and enterprise and residential energy management. To know more, start here: www.itron.com.

NewEnergy Associates, A Siemens Company400 Interstate N. Parkway, Suite 1500Atlanta, GA 30339(770) 779-2800Fax (770) 779-1025www.newenergyassoc.comContactHeather Pritchett, Marketing Manager

(770) 779-2800

NewEnergy offers consulting services and unique software solutions that encompass plan-ning, forecasting, operations, trading, and risk management for the energy industry. With clients in 19 countries, NewEnergy serves power and gas utilities, energy marketers and traders, power producers, and transmission companies, as well as local, state, and federal governments.

Accenture180 Fountain Parkway, Second FloorSt. Petersburg, FL 33716(727) 687-0803Fax (501) 665-7952www.accenture.com/utilities6ContactMark D. Papia, Marketing Manager

(727) 687-0803Dan Sullivan, Senior Executive

(713) 837-4144J. Patrick Keyes, Senior Executive

(414) 212-1546

Accenture is a global management consult-ing, technology services and outsourcing company. Committed to delivering innovation, our Utilities Industry group collaborates with its clients to help them become high-performance busi-nesses. With deep industry and business process expertise, broad global capabilities, and a proven track record, Accenture can mobilize the right people, skills and technologies to help our utilities clients improve their performance. With over 30 years of experience working with electric, gas and water companies, and more than 7,500 Utility industry professionals worldwide, we work with over 300 clients in 43 countries and serve 83% of the Global Fortune 500 utilities.

Alliance Data17655 Waterview ParkwayDallas, TX 75252(800) 748-1289Fax (972) 348-5106www.alliancedata.com/utilityContactRichard Charles, SVP, Business Development

(972) 348-5315Kay Fuhrman, VP, Business Development

(972) 348-4396


outsourcing


ProCore Solutions1260 Cobb Parkway NorthMarietta, GA 30062(678) 355-3550Fax (678) 355-3720www.procoresolutions.comContactGreg Steel, President/COO

(678) 355-3550Drew Brown, Director of Marketing

& Communications(678) 355-3550

Tyndall Chapman, Director of Client Services(678) 355-3550

ProCore Solutions is a full service call center outsourcing firm, specializing in the utility industry. We offer a full range of customer care services 24/7/365. Services including after-hours call handling, overflow call handling, surveys, product sales and outage notification. ProCore Solutions offers a variety of choices in the types of service, training and pricing companies can choose from.

Quanta Services Inc.1360 Post Oak Blvd., Suite 2100Houston, TX 77056(713) 629-7600Fax (713) 629-7676www.quantaservices.com

Quanta Services Inc. is a leading provider of specialized contracting services, delivering infrastructure solutions including construction, maintenance, energized services and emergency restoration.

UPCOMING Guide & Sourcebook Topics

For advertising opportunities contact LARRY ROBINSON [email protected] or 800.459.2233

July/August ASSET MANAGEMENT Space close: July 1

September/October METERING, AMR & DATA MANAGEMENT Space close: August 3

November/December GENERATION TECHNOLOGIES Space close: October 12

Documents

Waiting to Outsourceenergycentral.fileburst.com/Sourcebooks/gsbk0507.pdf · There is some evidence that outsourcers are gaining ground. Despite the early success of the ASP model