UtiliPoint has had the opportunity to meet with several of the business leaders from utilities, vendors and outsourcers to ask their opinions on the changing environment in the utility sector and what it means to their organization. When asked the most important need facing the industry, the head of one vendor gave a simple, but astute, answer—"the industry needs people who can see the big picture."

One reason for the need to see the big picture is the rapid pace of change in and around the utility industry. In the rush to incorporate the latest and greatest technology and systems, the impact on day-to-day business processes is almost always under estimated. Utility and energy companies are moving forward with projects but are being challenged on how to best integrate changes into operations. Business leaders have to develop plans today for the next 10 to 15 years knowing that the technologies they depend on will change dramatically on a shorter time frame than their planning horizon.

Seeing the big picture means recognizing that change is made more difficult by a lack of standards in technology and by different evaluations of the importance of adopting new technology by regulators. Regulators are carefully assessing the costs and benefits of change and want to avoid making premature investments while at the same time realizing that business as usual is just not possible when energy is undergoing enormous change on a global scale.

These changes represent a tremendous financial investment and take years to fully implement. Management must decide if they want to slowly integrate these changes into the business or use the big bang method; should they modify their existing infrastructure and systems or invest in replacement packages; should they outsource various business functions or consolidate in-house, should they be risk takers and trail blazers or take the wait-and-see approach? There are no right answers but the key to making the best decisions possible is to have a solid understanding of business drivers, areas of change, potential impacts to operational processes within the organization, and the need for flexibility in major IT systems.

There are multiple business drivers forcing changes in the utility industry with no two companies exactly alike. These business drivers include regulatory decisions, rising fuel charges, green policies, and customer demand.

Regulatory Decisions—The requirements for a utility which operates in multiple regulatory jurisdictions can vary drastically. Some regulators offer rate recovery for investment into new infrastructures and systems, while others may require utilities to prepare pilot programs to determine the effectiveness of new rates and programs. The utility must develop the flexibility to be able to function efficiently under multiple market regulations.

Rising Fuel Costs—The rising fuel costs the country is facing is impacting utility operations from generation to field services. This is putting pressure not only on the bottom line but on the customer perspective of energy sector. The local utility in my area has begun running an advertisement stating that they don't make a single dime on generation fuel charges to try to educate the consumer. Utilities may need to ask for additional rate increases to offset increased fuel costs, exacerbating their woes with customers struggling with rising gasoline and food prices.

Green Policies—Being "Green" can mean a wide variety of things. It ranges from green generation based on wind, solar, and water to efforts to reduce consumption by offering rates to encourage conservation in electric usage. Both state and federal government requirements concerning the reduction of the carbon foot print will continue to be challenges to be addressed by the utility industry. Utilities will be required to develop new capacity generation levels while managing both costs and environmental requirements.

Customer Demand—As more and more technology becomes available, consumer expectations are growing. Some consumers want the ability to control consumption and have the option to select from a menu of pricing options. The amount of data that will need to be managed and the communication requirements to support these expectations present utilities with new risks and obstacles to overcome.

The areas of change stemming from these business requirements are being addressed by innovative solutions in hardware, communications, and software to provide the technology needed to enable these enhancements. The industry is evolving around the use of smart grids consisting of intelligence added to the physical infrastructure to manage the capacity and distribution of electricity from generation to end-point through the installation of advanced metering, meter data management, and home gateways/controllers. There are tremendous advantages in moving to next step for both utility and consumer. Benefits include efficient use of capital assets to help reduce waste by optimizing the use of the network, self healing and outage management to increase reliability; and access to information and control to tailor the offering to each specific customer. But there are risks that must be addressed as well.

Keeping in mind the big picture, new technology alone is not enough to bring about the evolution to the next level. Significant changes in the pricing structures, information access, and policies will be required to drive change and will impact many of the day-to-day processes. The individuals that possess the true understanding of changes needed at this level will be the key players in the successful implementation and adoption of the new utility blueprint. Major changes in processes will be necessary to build the foundation of a positive migration to the new programs.

One of the key processes that will require care is that of data management and security. The utility industry has been highly successfully in maintaining such security but must be careful to keep its high standards. The amount of data, types of data, and channels of data will continue to increase as utilities move towards the new energy environment. Real time control of household appliances, pricing information, and billing data will become available on thermostats, in-home consoles, web interfaces, and wireless devices. Increased levels of security will be needed to ensure privacy controls are met. The accuracy of the data the data will be critical. Proper edits and controls will need to be put in place to ensure the quality of the information and address issues such as communication failures.

How each utility manages new functionality will have a dramatic impact on both billing and service order processes. Pricing plans can be used to influence consumer behavior. The ability to perform remote connect/disconnect opens the door for prepaid billing. CIS applications will need flexibility to adjust to new data elements, calculate bills based on new and innovative pricing structures and present information in a clear and concise manner to customers. The Meter Data Management system's ability to perform estimation and validation of metering data will be crucial for creating usable billing determinants that are fair and accurate.

Ever mindful of the big picture, regulatory and consumer groups will be watching very closely on how changes will impact retail customers and will provide input on how fees are accessed and rates are structured. Utility call centers and back offices will need to be prepared to answer more complicated questions and to address a different set of customer concerns.

Each utility will need to determine what their strategic direction will be and how to best prepare their business to incorporate change. Industry leaders with the vision to see the big picture are crucial to guiding their organization in the right direction. Leaders will need to find the right fit of internal resources and key partners to form teams with the necessary skills and insight to successfully translate this vision smoothly into reality.

UtiliPoint's IssueAlert(SM) articles are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlert articles are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind.