From the time Thomas Edison’s Pearl Street Station began generating electricity to light up lamps across 1880s Manhattan, the culture, outlook and strategies of the utility industry have been conservative. Entrusted with delivering the key ingredient that makes modern life possible, utilities and the regulators that oversee them have understandably approached their work with a commitment to minimize risk and ensure reliability, safety and predictability.
While that fundamental foundation and mission remain, nobody would describe the utility landscape today as remotely conservative or predictable. The pace and scope of change buffeting utilities are abundantly familiar at this point, as are the pressures and challenges they present to company leaders. Indeed, a large and ongoing influx of businesses and homeowners generating their own electricity and feeding it onto distribution grids, elevated customer expectations shaped by the personalized and responsive experience consumers have with the likes of Netflix and Amazon, and more frequent and intense regulatory scrutiny are just a few of the seismic changes utilities are navigating.
Of course, all these changes need to be addressed, plus utilities are expected to maintain and invest in their assets with increasingly constrained budgets and rates of return. This dramatically different landscape demands that utilities rethink their traditional tools and approaches for doing just about everything. And it’s already clear that the utilities that embrace and act on the imperative to change course are the ones that will seize real opportunities to bolster customer loyalty, improve transparency with regulators, and elevate the efficiency and effectiveness of their own operations.
“You really can’t do things the way you’ve always done them,” said Maureen Coveney Bolen, managing director, customer experience for Utegration, a full-service SAP consulting company that works exclusively with utilities. “But that’s OK, and what we are seeing is that proactive and innovative utilities are looking at the market and finding ways to make investments that yield higher customer satisfaction and loyalty and also finding ways to generate credibility and trust with regulators by being more transparent and responsive.”
Why going it alone can hold utilities back
One strategy forward-thinking utilities are adopting to take advantage of new opportunities is the use of strategic partnerships. On a purely practical level, this makes sense: With so many new mandates and expectations, it’s simply impractical to believe that budget-constrained utilities have sufficient staff and expertise to skillfully address them all.
Regulatory compliance is an area in which strategic partnerships can deliver significant value. Like so much in the utility industry, regulatory compliance is transforming. Not only are state public utilities commissions increasing the frequency and intensity of their scrutiny, but at least 19 states have debated or implemented some level of performance-based ratemaking. A big shift from the traditional cost-of-service approach, which bases a utility’s rate of return on capital expenses, performance-based ratemaking requires that utilities achieve defined metrics in areas such as system reliability and customer satisfaction to earn a return.
This changing regulatory environment challenges traditional utility approaches to compliance and highlights the importance of responsiveness and transparency. “Utilities keep data for years in case there is a challenge about capital and other expenses as they go through their rate case,” said Henry Bailey, Utegration’s executive vice president and chief strategy officer. “But oftentimes utilities will struggle to access that data quickly because it is stored in a mixture of Excel spreadsheets and third-party systems across the utility.”
The benefits of working in a single system of record
Because trust and transparency with regulators and customers are so important today, many utilities look to tap the expertise of partners that can consolidate and analyze large amounts of data to improve the speed and accuracy of compliance. Many utilities have invested significantly in an SAP ERP system, which naturally means that companies seek partners that can streamline and enhance the use of a utility ERP as a readily accessible single source of truth for all their transactions and investments.
For example, utilities using an SAP ERP still face a cumbersome, slow process of extracting, aggregating and reconciling data before reporting it to regulators. That requires significant work outside the ERP.
Utilities that work with Utegration benefit from its expertise with both SAP and utilities; its leaders and staff come from high-level positions at SAP and utilities. That experience led Utegration to develop tools and software within the SAP framework. This eliminates time and potential errors involved with regulatory reporting because there’s no longer a need for a third-party reconciliation platform. “You’re working in SAP,” Bolen said. “Our software obliterates the need for a third party to actually resolve all of these regulatory issues. Where we used to have to keep a couple of sets of books — one for the regulatory account structure and one for our natural chart of accounts — now there is just one set of books.”
This consolidation into one system of record benefits more than just improved credibility with regulators. Utegration’s solutions also improve automation, which can slice up to 80% off the 40 to 75 days it takes electric utilities to populate the financial information required in the Federal Energy Regulatory Commission’s Form 1. “If you can manage to speed up and improve the accuracy of regulatory compliance, it allows a utility’s staff to focus more time on strategic initiatives that can take advantage of some of the new opportunities in this changing environment,” Bailey said. “That is valuable to the utility, but it’s also a benefit to customers and regulators as well.” And satisfying both customers and regulators is table stakes in the new landscape.