questions to be answered
DESCRIPTION
Future Shock: What Did Restructuring Uncover? What Will the Next Industry Upheaval Bring? April 12 th , 2005 Presented by Eric P. Cody. Questions to be Answered. Has utility restructuring failed? What changes have been wrought? What lessons learned? Are metering and billing safe now? - PowerPoint PPT PresentationTRANSCRIPT
Future Shock:Future Shock:What Did Restructuring Uncover?What Did Restructuring Uncover?
What Will the Next Industry Upheaval Bring?What Will the Next Industry Upheaval Bring?
April 12April 12thth, 2005 , 2005
Presented by Eric P. CodyPresented by Eric P. Cody
Has utility restructuring failed? Has utility restructuring failed? What changes have been wrought?What changes have been wrought? What lessons learned? What lessons learned? Are metering and billing safe now?Are metering and billing safe now? What about utilities that didn’t have to What about utilities that didn’t have to
run the gauntlet?run the gauntlet? Who won?Who won? Who’s going to prison?Who’s going to prison? What’s next?What’s next?
Questions to be AnsweredQuestions to be Answered
Lessons fromLessons fromPreparing-for-CompetitionPreparing-for-Competition You never run half as hard as when You never run half as hard as when
someone is chasing yousomeone is chasing you Customers want choices, not necessarily Customers want choices, not necessarily
ChoiceChoice Regulators must regulateRegulators must regulate Competition introduces new concepts and Competition introduces new concepts and
dynamicsdynamics Differentiation ≠ discriminationDifferentiation ≠ discrimination Metering is not easily unbundledMetering is not easily unbundled
Central ThemeCentral ThemeThe process of The process of preparingpreparing for retail for retail competition yielded important insights competition yielded important insights into how individual utilities perform their into how individual utilities perform their core customer functions, and what they core customer functions, and what they cost.cost.
…however, few utilities have capitalized …however, few utilities have capitalized on this deeper understanding of retail on this deeper understanding of retail operations. operations.
Through the Looking Through the Looking GlassGlass
Restructuringlegislation
Commissionaction to
deregulate
Developrestructuring
planPrepare
unbundledcost-of-service
Revalue assetsin market
setting
Comply withaffiliate
standardsof conduct
Divest assets
Developunbundled bills
Developunbundled rates
Estimatefixed vs.
avoidable costs
Estimatestrandable costs
Transfer assets
Maintain assets
Retailcompetition
Wholesalecompetition
File forstranded cost
recovery
File backoutcredits
Where Utilities LookedWhere Utilities LookedMore frequently—More frequently— Strandable assetsStrandable assets Overall cost structure and kWh costOverall cost structure and kWh cost Unbundled costsUnbundled costs
Less frequently—Less frequently— Customer preferencesCustomer preferences Employee adaptabilityEmployee adaptability Alternative sources for non-strategic Alternative sources for non-strategic
workwork
RegulatedMonopoly
RegulatedMonopoly
RegulatedMonopoly
CompetitiveEnergySupply
Re-regulatedUtilities
CompetitiveEnergySupply
CompetitiveEnergySupply
RegulatedMonopoly
PartiallyUnbundled
Utilities
“VirtualChoice”
Pre-1998 1998-2001 2001-2003 2003
Structural DivergenceStructural Divergence
Load Supplied CompetitivelyLoad Supplied Competitively(% Total Electric Load Served Competitively)(% Total Electric Load Served Competitively)
Note: Data not reported on a consistent basis and therefore not directly comparable between jurisdictions; estimation required
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
TX(9/04) ME(1/05) NY(12/04) MA(12/04) MD(12/04) OH(9/04) DC(12/04) PA(1/05)
ResidentialCommercialIndustrialTotal
Distinct Markets ExistDistinct Markets Exist
Major commercial and industrial Major commercial and industrial customerscustomers
Mid-market commercial and Mid-market commercial and industrial customersindustrial customers
Mass market of residential and Mass market of residential and small business customerssmall business customers
Current Utility Model ClustersCurrent Utility Model Clusters
Full retailseparation
AB, AUS, TX, UK
• Customer base transferred to affiliate• Regulated wires company delivers energy• Retail providers issue a consolidated bill
Unbundled operations Cooperatives,municipals
• Focus is on distribution and retail services• Generation supply is contracted, mainly long term• Customers not enabled to choose retail supplier
Competitivegeneration supply
MA, ME, NJ,NY, OH, PA
• Generation separated and subject to competition• Incumbent delivery companies act as providers of last resort• Billing, metering & customer care remain bundled utility services
Non-residential choicewith portfolio of
options forsmall customers
OR• Non-residential customers may switch retail suppliers• Residential customers may choose from regulated portfolio• Small business customers may choose portfolio options or switch retail suppliers
Market/Market/regulatory modelregulatory model
RepresentedRepresentedbyby
ModelModelcharacteristicscharacteristics
Vertically integrated Most U.S.states
• Utility maintains assets in G,T, and D• Customers not enabled to choose retail supplier• Majority of load requirements supplied by rate based units• Wholesale competition increasingly used to supply load growth
Rest
ruct
ured
mod
els
Esta
blish
ed m
odel
s
1111
0%
5%
10%
15%
20%
25%
30%
35%
40%
AB AUS TX UK GA gas MA ME NJ NY OH PA OR
Percentage of Residential Percentage of Residential Customers Served CompetitivelyCustomers Served Competitively
Full RetailSeparation
Direct CustomerAssignment
CompetitiveGeneration
Supply
RegulatedPortfolioChoices
2003 data; underlying figure originally prepared by Plexus Research for MA Division of Energy Resources
100%
Unmet Restructuring Unmet Restructuring ExpectationsExpectations
Markets have defied ‘regulatory Markets have defied ‘regulatory prescription’prescription’
Distinct sub-markets have emerged with Distinct sub-markets have emerged with divergent requirementsdivergent requirements
Residential customers mostly left out inResidential customers mostly left out inthe coldthe cold
One model does not fit all utilitiesOne model does not fit all utilities Metering competitive in only a few marketsMetering competitive in only a few markets IT systems subject to lingering uncertaintyIT systems subject to lingering uncertainty Electricity prices have not fallenElectricity prices have not fallen
1998 Expectations Re: Metering1998 Expectations Re: Metering Interval meters on large customers for Interval meters on large customers for
settlement purposessettlement purposes Universal interval metering was a distinct Universal interval metering was a distinct
possibility possibility Daily remote interrogationDaily remote interrogation Enhanced metering to take advantage of Enhanced metering to take advantage of
innovative pricinginnovative pricing Metering services would becomeMetering services would become
competitive in some statescompetitive in some states New metering standards would emergeNew metering standards would emerge
‘‘Then’ and ‘Now’ Perspectives: Then’ and ‘Now’ Perspectives: Metering RequirementsMetering Requirements
Meter readingMeter readingfrequencyfrequency
MeteringMeteringinformationinformationgranularitygranularity
AMR technologyAMR technologyarchitecturearchitecture
Ownership ofOwnership ofmetering functionmetering function
Daily or Daily or on-demandon-demand
Hourly interval dataHourly interval data
Universal intervalUniversal intervalmetering via fixedmetering via fixed
networknetwork
Unbundled metering; Unbundled metering; subject to competitionsubject to competition
All customersAll customers Residential & smallResidential & smallbusinessbusiness
Large commercial &Large commercial &industrialindustrial
MonthlyMonthly
Cumulative energyCumulative energyusageusage
Mobile radio; Mobile radio; drive-bydrive-by
Bundled meteringBundled metering
Daily, hourly or Daily, hourly or on-demandon-demand
Hourly interval dataHourly interval data
Wireless networkWireless networkor power line carrieror power line carrier
Unbundled or enhancedUnbundled or enhancedmetering services metering services
per tariffper tariff
1998 Looking Forward 2005 Looking Backward
MeteringMeteringRequirementsRequirements Cu
stom
erCu
stom
ercla
sscla
ss
Why is Metering HardWhy is Metering Hardto Unbundle?to Unbundle? Physical assets widely dispersedPhysical assets widely dispersed Integrated into electrical systemIntegrated into electrical system Economies of scale applyEconomies of scale apply Lack of practical know-how outside Lack of practical know-how outside
utilitiesutilities Metering communications infrastructure Metering communications infrastructure
begs for single, centralized operatorbegs for single, centralized operator Critical issues Critical issues safety, reliability, safety, reliability,
regulationregulation
Billing & Payment TransformationBilling & Payment Transformation
Bill printed &Mailed monthly,
on cycle
Outsourced billprint &
distribution
On-line, electronicbill presentment
BillPresentment
On-line, electronicpayment viathird party
On-line ortelephone payment
by credit card
Pre-approvedbank account
debit
Check by mail
Walk-in payment
BillPayment
PaymentProcessing
Outsourcedpayment
processing(EFT)
Outsourcedremittanceprocessing
In-houseremittanceprocessing
Credit &Collections
Assuredpayment
(pre-authorizedEFT options)
Outsourcedcollections
In-housecollections
Termination forNon-payment
Remotedisconnect
& reconnect
Instanton-site
authorization ofcredit card
payment duringdisconnect visit
Multiple site visitsto disconnect andreconnect meter
TransformedPractices
TraditionalOutsourcedElectronic
Developments inDevelopments inCall ManagementCall Management
Centralize CallCenter operations
Create virtualCall Centers
Continuously monitorcustomer satisfaction
Consolidate &
Centralize
Apply graphical userinterface to CISscreens
Track & analyzecall patterns
Implement interactivevoice response (IVR)
Link AMR systemto enable instant meter readson request
Leverage
Existing Assets
Enha
nce
Resp
onsiv
enes
s
Cost
Productivity
Loyalty
Extend hours of CallCenter operationto 24x7
Por
tabi
lity
of F
unct
ion
Retail Services DifferentiatedRetail Services Differentiated
Strategic Value of Function
CompetitiveCompetitiveMarketMarket
OperationsOperations
RegulatedRegulatedUtilityUtility
OperationsOperationsContinuingContinuingPressuresPressures
to Unbundleto Unbundle
OutsourcedOutsourcedCommodityCommodity
ServicesServices
SmallCustomer
Billing
MajorCustomer
Billing
SmallCustomerMeteringServices
MajorCustomerMeteringServices
MajorCustomer
InformationServices
SmallCustomer
InformationServices
CustomerPayment
Processing
CallHandling
Due Diligence – Retail ServicesDue Diligence – Retail ServicesCapability Scale Customer
Relationship Flexibility Synergy
New Service Connection Service Activation Meter Installation Meter Reading Meter Lock-in/lock-out Metering Communications Bill Calculation Bill Print Bill Distribution Payment Options Remittance Processing Credit and Collections Revenue Assurance Customer Inquiry Program & Rate Sign-up Outage Reporting Restoration Notification
Operational Criteria
Reta
il Se
rvice
Ac
tiviti
es
Retail Due DiligenceRetail Due Diligence How portable is the function?How portable is the function? Have automation possibilities been exhausted?Have automation possibilities been exhausted? Is the function strategic to the utility?Is the function strategic to the utility? Can it be outsourced without fanfare?Can it be outsourced without fanfare? What synergies/economies are uniquely What synergies/economies are uniquely
available to an outsourcer?available to an outsourcer? What utility IT system upgrades can be What utility IT system upgrades can be
avoided by outsourcing?avoided by outsourcing? What fixed and variable costs are associated What fixed and variable costs are associated
with the function?with the function?
Continuously profitable for 30 yearsContinuously profitable for 30 years Started a revolution; new paradigmStarted a revolution; new paradigm
Transformed customer operationsTransformed customer operations Radically simplified business processesRadically simplified business processes Redefined external business relationshipsRedefined external business relationships
Pervasively lower costPervasively lower cost Inspired and innovative employeesInspired and innovative employees
Food for Thought: Food for Thought: Southwest AirlinesSouthwest Airlines
Contact InformationContact InformationEric P. CodyEric P. CodyCody Energy Group Cody Energy Group 629 629 Massachusetts AvenueMassachusetts AvenueBoxborough, MA 01719Boxborough, MA 01719(978) 264-9839(978) 264-9839
[email protected]@net1plus.com