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EC Power has clients that range in size from one-person competitive retailer with a handful of customers to multi-national competitive retailers with millions of customers. Each client’s success is very important to
EC Power.
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Case Study: Outsourcing More Functions for Retailers: Gaining Wider Acceptance
Jon T. Brock, Chief Operating Officer
In 1998 I had the good fortune to participate in the "great deregulation rush" in the United States. Many states were racing to un-bundle their vertically integrated electricity markets. You can imagine the excitement that existed at the major investor-owned utility where I received my bi-weekly paycheck when the company decided to not just study the market, but to "play" in it. Of course being a major IOU with years of history and legacy applications posed a small problem. How do you create an unregulated subsidiary and get them competitive in a short amount of time? Outsource of course. In 1998 finding the right outsourcer was next to impossible because the market was so young (the deregulated market that is) and requirements were constantly changing. The only obvious group of outsourcers at the time were the EDI VANs. I had no problem finding, selecting, and using an EDI provider for market entry into California, Pennsylvania, and eventually Texas. Let's take a look at a summarized timeline in the utility industry.
 History
Utilities are re-examining their futures and in the process are seeking to cut out their excesses and to focus on their strengths. If a process can be done better and cheaper by others without sacrificing quality, then it is a candidate to be outsourced.
For the utility industry outsourcing essentially began when IBM Global Services signed their exclusive outsourcing deal in 1995 with New Centuries Energies (NCE) worth approximately $500 million over the course of five years. Over the next five years there were only two other sizeable outsourcing deals.
2001 is the year when the concept of outsourcing began to truly register with utilities. This is due largely to the fact that at this time many utilities were becoming financially troubled due to poor investments in energy trading operations and unsuccessful forays into international markets. Outsourcing was seen as a way to improve the utilities financial metrics.
Since 2001, interest in outsourcing has continued to rise. While many utilities still cite financial reasons for considering outsourcing, still others also now cite strategic or performance-based reasons. Retailers often cite speed-to-market, margins, and flexibility as the reasons to outsource.
Current Data Points on Outsourcing
Each year, UtiliPoint leads an effort to survey North American utilities to explore their positions on utility outsourcing. That survey results in 308 utilities participating in the study.
Over 77 percent of respondents indicated that they have either outsourced a customer service function, or that they were planning to outsource one in the next two years.
Source: UtiliPoint International, Inc.
Utilities That Are Outsourcing
Most of the growth in outsourcing over the last year has come from all segments of the utility market. Eighty-two percent of investor-owned utilities (IOUs), seventy-three percent of municipal utilities, and seventy-nine percent of co-operative utilities have either outsourced or are planning to outsource an aspect of the customer service function. While not broken out on the charts, retailers fall in the 100% range of outsourcing a function of customer service.
Services That Are Being Outsourced
While outsourcing is gaining acceptance among utilities, different functions of customer service are receiving varying levels of interest.
When the 308 utilities in the UtiliPoint survey were asked what they would likely outsource, the three most common functions were (in priority order):
EBPP
Bill Print
Bill remittance
Source: UtiliPoint International, Inc.
Outsourcing Functionality Expanding
In 1998 the outsourcing options were few and far between for retailers in North America. Since then, the functionality has gone from EDI, to customer service functions, to other market interaction functions. Recently I became aware of some wholesale market functions being outsourced to energy retailers. The "case" that I am referring to is the Structure Group. It is a company that participates in restructuring energy markets. The firm helped launch many of the today's markets with consulting, software and services. It provides market participants and operators with software and strategic consulting in each North American ISO and RTO, while expanding technology and service offerings to additional energy commodity markets in North America and Europe. I became aware of the Structure Group years ago when many of my retail clients were looking at what software they needed to enter competitive markets. The Structure Group has built one software product known as nMarket.
nMarket provides bid-to-bill, straight-through processing (STP) for companies participating in competitive markets. The product assists retailers by performing all data communication to and from market operators, warehousing real-time decision support information for reporting needs and allowing the companies to bid directly into the various markets, perform shadow settlements and track disputes with markets.
Historically nMarket was a product that could be purchased and implemented at an energy retailer's operational site. Recently, the Structure Group has partnered with EC-Power to provide nMarket in a hosted or outsourced fashion to market. The services provided include:
Hosted application server hardware
Internet connection
Shared database server
Virtual Private Network (VPN) connection
nMarket installation
nMarket upgrades
Oracle enterprise edition database
Oracle upgrades
Backups for database
Database tuning
Application server monitoring
Database performance monitoring
Data center
24X7 operation support
This service has actually seen some action as retailers have recently signed up for the service, validating the trend of outsourcing from EDI to customer service to operations.
Conclusion
It should be no surprise that retailers see value in outsourcing. Their focus is on the margin and in order to maintain maximum flexibility and profitability, utilizing a scaling model where costs match revenues (accountants love matching), allow them to maintain profitability from start-up to maturation. I am somewhat envious of today's retailers as I did not have these options available to the retailer I worked for in 1998. As the market matures, one can expect more outsourced offerings in the market and more acceptance of the concept across various segments of the market.
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