The blizzard hits Western Scotland with frightening suddenness. In a matter of hours, driving snow blankets the region. By early afternoon, roads are snarled and vulnerable rail services suspended. Soon, the weight of snow and ice starts to bring down power lines, interrupting electricity supplies to thousands of homes and businesses. While teams of repair workers swing into action, customer service representatives at the Glasgow call center of British utility ScottishPower begin telephoning affected customers with progress reports and alerting emergency services to elderly and infirm customers, such as those on dialysis machines, who may be at risk.
ScottishPower's response to the storm may seem straightforward, but there's more involved than meets the eye, explains David Jones, managing director of the utility's information systems division. TroubleCall, the call center system that coordinates those responses, "is two totally different systems that, to the end user, look like one big system," says Jones. ScottishPower has built a direct link between the engineering systems controlling its distribution network and the customer service systems in its call center, a task that calls first for relating the network diagram to references on a geographical map, then for linking those to the postal sorting codes held in the customer database. From there, ScottishPower can identify affected customers. Operational since July 1996, TroubleCall is one of more than 180 projects Jones has overseen in a two-year period of frantic development that shows no sign of abating. Like the high-tech call center-which has drawn admiring visitors from U.S. companies as diverse as Ameritech Inc. and The Walt Disney Co. and which, according to Jones, used the first two Sun Microsystems Inc. Enterprise 5000 servers in Europe-TroubleCall is firmly focused on the twin objectives of greater efficiency and increased customer satisfaction.
British utilities-government-owned until former Premier Margaret Thatcher's privatization revolution-were once known for inefficiency, high prices and a total indifference to customer needs. Under Thatcher and her successor, John Major, water, power, gas and telephone utilities were first privatized, then subjected to a wave of hostile takeover bids from foreign-owned utilities. Today, they are in the advanced stages of preparing for deregulation-a process that will see any electric utility able to supply electricity to any consumer anywhere in the United Kingdom, irrespective of whether that consumer falls into the utility's traditional regional market.
For U.S. utilities, which will eventually face similar changes in their market (see "Power Surge," CIO, March 1, 1995), the preparations currently underway across the Atlantic can provide valuable lessons. "The United Kingdom is at least five years ahead of the U.S. in terms of deregulation," says Simon Allen, a London-based partner heading consultancy Price Waterhouse's World Energy Group. In the United Kingdom, the supply of electricity to large business users has been deregulated since 1990, and countrywide deregulation for all consumers will take place April 1, 1998. In the United States, despite the impetus of the federal Energy Policy Act of 1992, which required utilities to share their power lines with other utilities, initiatives toward deregulation have thus far appeared on a statewide basis. Six states have pilot programs underway, says Allen, but most of these "are quite small, affecting 20,000 retail customers or so" (see "The View from Home").
What's more, American notions of what constitutes deregulation fall short of the wholesale upheaval for which British utilities such as ScottishPower are bracing themselves. Deregulation U.K.-style means that consumers will be able to choose not only from which company they will buy their power but which utilities will distribute and generate it. And the distinction between "company" and "utility" is substantial: Any organization with a mailing list can enter the electricity retailing market via "affinity deals" in which it buys electricity from a distributor to sell to its own consumers. ScottishPower has already inked a deal with the Automobile Association, a motoring organization, for example, and rival Northern Electric has done the same with Saga Holidays, a tourism company. The result is that nonutility companies such as these will increasingly be a part of the retail electricity market.
The year 2000 will bring a further complication: Consumers will also be able to choose the company that will meter and aggregate their consumption, an important consideration given that the price of electricity can change every half hour, so electricity bills must be calculated to reflect that.
For the CIOs of once-staid British electric utilities such as ScottishPower, the IT implications are frightening. Consumers are to be sent not four bills, from the generator, distributor, meter reader and retailer, but one, from the electricity distributor (or its affinity partner), which will then have to divvy the proceeds among the other participants in a complex clearinghouse transaction. "It's not going to be easy," stresses Jones. "There are 25 million households in the U.K. and an unknown number of providers, affinity partners and would-be meter readers and data aggregators."
All 14 of the U.K. utilities have joined forces to develop a ¡ê3.5 million ($2.2 million) Metering Point Registration System (MPRS), based on Oracle Corp.'s database and application tools, that keeps track of the companies that supply power to every electricity meter in the United Kingdom. Like the ¡ê4.25 million Initial Settlement and Reconciliation System that performs the clearinghouse function, much of the development and management work has been outsourced to Cap Gemini, Europe's largest IT services company, in a deliberate attempt to avoid unnecessary duplication. "It's a welcome example of the electricity industry pulling together," says David Ingram, London-based director of Cap Gemini's electricity industry division.
Overall, reckons Ingram, the costs of preparing for deregulation have been massive; he estimates them at "between ¡ê10 million and ¡ê20 million [$6.2 and $12.4 million] per company, although it's hard to determine where to draw the line between what's related to deregulation and what isn't." For the utilities, it's an important distinction. The U.K. regulatory authority can set maximum price levels to constrain profits to acceptable levels after allowing for permissible expenses; while the costs of preparing for deregulation are regarded as permissible, the costs of installing fancier-than-necessary systems definitely are not.
It seems as though the costs and complexities of preparing for deregulation have for the time being deterred the major supermarkets-once regarded as the nonutilities most likely to enter the electricity business-from plunging into the market in the immediate future. "Safeway and Asda did have talks with the regulator but went no further," says Katherine Moore, electric industry editor at Utility Week, a specialized U.K. journal based in London. Nevertheless, she says some of the big retailers are simply biding their time, pointing to widespread industry speculation that grocery retail chains such as J Sainsbury PLC will at some point find the prospect of exploiting the massive investments they have made in data warehouses and frequent-shopper cards too difficult to resist.
According to Jones, who figures deregulation will cost his company ¡ê20 million ($12.4 million) in systems changes, ScottishPower sees the free market as a massive opportunity that will allow it to sell both power and new services to a customer base many times the size of its historic natural market in central and southern Scotland, and to do so without having to pony up billions to acquire competitors. Take new services: Work is well advanced, Jones says, on what he describes as "the fifth utility"-smart home information and management systems that he regards as a natural addition to the company's existing product portfolio.
For example, because electricity prices change throughout the day, the company is developing a technology to switch on home appliances such as washing machines automatically in the middle of the night, when power is the least costly, by transmitting the "on" command via the power-line carrier. Consumers will load the machines with clothes and detergent, press a "stand-by" switch and wake up in the morning to a completed wash. "The customer won't know when the machine was switched on-but they will know that it was switched on when electricity was at the cheapest rate," Jones says. Appliance manufacturers are already working on incorporating the appropriate switching devices, and Jones is optimistic that the technology will be available across the United Kingdom by 2002.
First, however, the company must survive the onset of deregulation. As one of just two utilities in the U.K. electric industry that generate electricity as well as sell it to consumers, ScottishPower is clearly well placed to exploit economies of scale through vertical integration. Customer profiling and segmentation techniques will certainly help market the power, although perhaps not to the extent that might be expected.
"In the utility industry, we're told that we've got to understand our customers better," says Jones, noting that pundits have predicted utilities will need to start assembling the same gargantuan customer segmentation databases that retailers and airlines have developed. He is skeptical. "Product differentiation? Our electricity is the same as everybody else's. Buying patterns? People either buy our electricity or they don't. Consultants will tell you that customer information is vital, but it's a myth."
Accordingly, ScottishPower has eschewed building a customer marketing database and opted instead to buy from a specialist agency the information it needs as it needs it. Says Jones, "Why spend between ¡ê5 million and ¡ê10 million gathering information that others already hold?" This strategy also removes the need to comply with the United Kingdom's burdensome data protection regulations, which force computer users to register with a government agency any information they hold on private individuals. Figuring that slick service and innovative new products will ultimately count for more in consumers' eyes, Jones prefers to stress the role that the call center and the home management services will play in differentiating ScottishPower from other utilities.
Indeed, the call center has already generated some very positive customer feedback. Whereas previously only 60 percent of callers' queries could be dealt with on the spot, without involving back office staff in checking records and so forth, now the figure is 90 percent, according to Customer Service Manager Walter Russell. "Deregulation gives us an opportunity to leverage that ability across the whole country," Russell says.
But before ScottishPower can gain a single watt of new business, the company must finish putting in place its internal portion of the clearinghouse and MPRS systems that it will need in the post-deregulation world. The electricity regulatory authority mandated that trials of the new systems had to start in October in order for fine-tuning and debugging to take place ahead of the April 1 deadline, and laggards will be penalized. ScottishPower's systems will be ready on time and will work as promised, Jones says, with a wry grin that betrays a sneaking suspicion that not every utility is in as comfortable a position.
Bravura? Probably not. After joining ScottishPower in 1995, Jones set about "turning a large mainframe shop into a fully distributed environment," a feat that eliminated a lot of the legacy code that is apparently holding back other utilities. Since Jones's arrival, ScottishPower has arranged strategic supplier relationships with IBM Corp., Sun, Novell Inc., 3com Corp. and Microsoft Corp., "which has resulted in some very attractive discounts," Jones says. The company has also driven server utilization upward by combining applications for separate parts of ScottishPower's disparate clutch of businesses on common servers. "Measured in MIPS, we have 42 times the computing power of two years ago but only twice the depreciation-meaning that that we're delivering 21 times as much computer power per pound." Although Jones's role is that of CIO, his managing director title serves to emphasize his mission to ruthlessly market-test his ¡ê17 million ($10.5 million) budget and the efforts of his 320-person staff against the offerings of third-party providers. "We either deliver value or cease to exist," he explains.
Jones's boardroom colleagues have been equally busy. In contrast to sleepy utilities that have found themselves swallowed up by others since privatization, ScottishPower has been doing some of the swallowing-becoming one of just three of the originally privatized 14 companies to remain independent. In October 1995, the company acquired Manweb, an electricity utility operating in northwest England and North Wales. In August 1996, it purchased Southern Water, a utility handling water and waste for 1.7 million consumers in southern England. ScottishTelecom, a fledgling telephone subsidiary, is already dialing up revenues of ¡ê37 million ($23 million).
But ScottishPower's acquisition of another electric utility ranks as a peculiarity in the industry: Most of the electric utilities that have been taken over have been acquired by American companies, which apparently view U.K. deregulation as a test-bed for their own forthcoming market liberalization. Indeed, more than half of the U.K.'s electricity market is now in American hands: Of the 14 electric utilities set up under privatization seven years ago, eight have been acquired by U.S. companies, with at least one further bid-the acquisition of Energy Group by PacifiCorp.-in the pipeline.
The interest U.S. utilities are displaying in the U.K. market is not lost on Jones, who sees ScottishPower's experience and software expertise as a commodity that is increasingly marketable to U.S. utilities not fortunate enough to own a piece of the U.K. market themselves. "I can't believe they'll want to reinvent all this for themselves," he says. Observing a recent article in The Economist that mentioned, "American utility bosses with wives who like to come to London and shop at Harrods," he's clearly figuring that in the future, some of them might come to Glasgow instead. The stores might not be as posh, but transatlantic visitors could return home with something beyond price-the means of survival.
Malcolm Wheatley, a United Kingdom-based freelance writer, can be reached at malcolm_wheatley@compuserve.com.
The View from Home
Pilot programs in the United States suggest that deregulation may have a significant impact on the bottom line
In the United States, deregulation is thus far a statewide phenomenon. Some states, notably California, New Hampshire and Massachusetts, are ahead of the pack, but about 40 others are in the midst of enacting some sort of deregulation legislation.
One outcome could be lower prices-17,000 New Hampshire consumers, for example, enjoyed an 18 percent price reduction over a two-year pilot program. However, optimists looking at the experiences of other countries need to remember that electricity is already cheaper in the United States than in most other places. Many Californians regard their rate of 10 cents per kilowatt hour as expensive, but U.K. rates are ¡ê0.08 per kilowatt hour-or around 13 cents. Overall, analysts expect U.S. prices under interstate competition at least to average out state-to-state differences, which currently vary from around 4 cents per kilowatt hour to about 15 cents.
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