IssueAlert Emerging Technologies ~ May, 2003

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Can a Customer Information System Server Regulated and Un-Regulated Environments at the Same Time?
By Jon T. Brock, Chief Operating Officer, UtiliPoint

Customer Information Systems (CIS') have had to change dramatically over the last 7 years to keep up with a changing marketplace in the North American energy industry. The roller-coaster ride from preparing for a nation-wide deregulated market to a full-blown retrenchment to the regulated has had many twists and turns.

As a result, many utilities are caught in the transition between regulation and competition and looking for advanced CIS' to support their immediate regulated needs while gaining the flexibility to support new market requirements and business models in future years. The divide between regulated and competitive CIS' is no longer clear cut leading some CIS vendors to build out their functionality for both regulated and competitive markets. Peace Software is one such vendor that offers a complete CIS solution for all market structures.

Lets take a look at how we got to this point and what deregulation actually means in today's environment.

Going back to1996 in a move that had little impact on CIS', FERC 888 deregulated wholesale electricity. In 1998, California quickly opened its market to retail electric competition. Many analysts and consulting organizations claimed that the utility of the future must be at a minimum of 10 million customers to survive and a flurry of merger and acquisitions began. In 2000, California began to experience severe supply shortages and blackouts. In 2001, California suspended retail choice while FERC proposed a super-regional Rtoplan (four large super-RTOs). FERC did not intervene in California while PG&E went bankrupt from the large gap in the price of wholesale electricity (high) versus what it has to sell it for in its service territory (low). Meanwhile, thirty-one utility CEO/CFOs presented merchant energy/trading as their main strategy at the Deutsche Banc Alex Brown power conference in New York City. Later in the year, Enron declared bankruptcy. In 2002, the Wall Street credit rating agencies begin to downgrade energy companies that were carrying high debt on their balance sheets, typically the Independent Power Producers (IPPs). At the same Deutsche Banc Alex Brown power conference in the summer of 2002 in New York City, the same thirty-one utilities stood up and announced their strategies had shifted to an integrated utility, thereby demonstrating that the utility industry in North America had entered a retrenchment phase.

Given the current situation, UtiliPoint believes that new retail deregulation in North America is "dead" for the next 3-5 years. Why? A pre-requisite for successful retail deregulation tore-emerge is the formation of a standard and stable wholesale market. Many believe that the FERC Standard Market Design (SMD) proposal will bring about this stabilization. However, UtiliPoint feels that the SMD will take time getting support and eventual implementation. Late last year more than 220 parties made filings by the Nov. 15 deadline for comments on the FERC's notice of proposed rulemaking on SMD. Among those filings are joint comments—signed by over 200 parties, including Washington, Oregon, Idaho, California and 18 other states—asking FERC to withdraw its SMD proposal because it overreaches the commission's congressionally delegated authority over wholesale power rates. FERC has since taken a step back to study the issues involved with getting SMD adopted. Hence the wholesale market will take a few years to sort out while retail remains dormant.

Deregulated Requirements
The deregulated chronology in the United States begins on 12/28/98 with decision (D.97-05-039) in California. The California Public Utilities Commission (CPUC) allowed the Energy Service Providers (ESPs) to select one of three billing options for each direct access customer served by an ESP. The options were:

• Utility consolidated billing, in which the utility bills for both the UDC and ESP charges and presents a single bill to the customer;
• ESP consolidated billing, where the ESP bills the customer on a single bill for both the UDC and ESP charges; and
• Separate bills to the customer from the UDC and the ESP.

In Pennsylvania, billing and billing services were competitive. Billing services may be provided by suppliers or by third parties. In January of 1999, licensed Electric Generation Suppliers (EGS) could provide, finance, install, own, maintain, calibrate, and remotely read advanced meters for service to their retail customers. They could also act as agents to Provide a single bill and provide associated billing and collection services to their retail customers.

Subject to the right of a customer to choose to receive separate bills from its electric generation supplier, the electric distribution companies could be responsible for billing customers for all electric services, regardless of the identity of the provider of those services.

In Pennsylvania the electric distribution companies could offer what is known as a "rate ready" and/or a "bill ready" service offering. The choice was up to the UDC whether they will offer "rate-ready" and/or "bill-ready" offerings. This made it difficult on the retailers (EGS) to Bill summary or state-wide accounts. The electric distribution companies actually administered retailer contracts, or would simply receive the retailer's charges and post those charges on the bill. Alberta had a similar billing requirement but did not require the reading of meters every month. This caused problems for billing agents in Alberta as they sometimes received registrations with no meter readings for several months, thereby requiring them to Provide estimated bills for some period of time.

In the state of Texas, billing is a competitive energy service pursuant to the Texas Restructuring Act. Chapter 25 of the Substantive Rules Applicable to Electric Service Providers, Subchapter B, Customer Services and Protection, sets forth rules on bill payment and adjustments. Texas only requires an itemized bill upon customer request. For the default service, utility customers are sent to the utility's affiliated Retail Electric Provider (REP). Billing is the sole responsibility of the REP. The REP can "outsource" the billing function to their associated UDC. However, if they choose this option, then the UDC must also provide non-discriminatory billing services to all REPs who enter their territory. Due to this requirement, none of the major investor owned utilities (IOUs) in Texas decided to use their UDCs for billing. Instead, they invested in their own CIS' or Application Service Provider models to Provide billing services. This theoretically would keep customer switching minimized as it required any new entrant to have their own billing capabilities.

CIS Interactions
Upon deregulation in California, registrations of new customers were to take place in a variety of manners. The "standard" process (if one can call it standard) was to utilize the Direct Access Service Request (DASR) form. These DASRs could be sent to the local UDCs in the manner the UDC chose to receive them. It would not be uncommon to register new customers with PG&E in one way, SDG&E another, and SCE yet another. This disparity originally caused many programmers to stay awake at night processing enrollments in differing manners based on who the sending or receiving party was.

Pennsylvania took the opportunity to standardize this process by requiring that standard Electronic Data Interchange (EDI) datasets be used. All new customers would be enrolled via what is known as the 814E. This was a tremendous step in the right direction, but Pennsylvania originally allowed the UDCs to interpret the EDI datasets in the manner they chose. Therefore, the retailer's programmers now stay up at night registering new customers in slightly different ways utilizing the same 814E EDI dataset as their guide.

Texas has mandated a "clearinghouse" model for transaction management. All transactions go through the Energy Reliability Council of Texas's (ERCOT) ISO in a standard format. This model change alone can save the utility a tremendous amount of money in architecting an infrastructure that can communicate with multiple parties. Imagine sending and receiving connects, disconnects, meter reads, settlements, and multi-party billing in the same format with one entity as opposed to multiple formats with multiple entities. Now every model has its difficulties and the ERCOT model has certainly not been error-free, but it is a step ion the right direction.

Alberta is currently operating very similar to Pennsylvania with an EDI-like tool known as "DropChute". Like Pennsylvania, interpretations can vary by UDC and interactions with multiple parties are required. Texas has the ideal model by regulating a data clearinghouse that all parties must communicate through. Ontario actually followed suit by constructing one with the joint efforts of TorontoHydro and Ontario Power Gen. Logica has also built a data clearinghouse for American Electric Power (AEP) in Ohio. Subscription to that clearinghouse model has been difficult because participation in it is not mandated by the Ohio Public Utilities Commission.

Can A CIS Operate In Both Environments?
Taking a close look at the functionality one must provide in a regulated versus a deregulated environment, overlap can easily be identified. In fact, in today's world, one could argue that the more recently deregulated states/provinces are looking very similar to the regulated world. The major change is the transaction management that must occur with multiple market participants. A recent visit to the offices of Peace Software in Miami validated this concept.

Peace Software claims to be the world's largest energy CIS software developer. Its browser-based CIS has been selected by regulated and competitive retail energy companies to drive operations and provide customer care for 13 million residential, commercial and industrial customers in 40 markets around the world. Founded in 1984, Peace Software has offices in Australia, Canada, New Zealand, the United Kingdom and the United States.

Peace Software got its start in the deregulating New Zealand market developing a comprehensive CIS package for regulated utilities transitioning to full competition. Its CIS was architected from the start for the broader retail function spanning a spectrum of regulated through transitional through competitive market structures.

Over the years Peace Software has built extended functionality into its system for water, gas, and electric markets and actually houses many regulated features such as the cash management required to perform payment scheduling. The Peace system is supporting 770,000 regulated customers of Terasen Gas (previously BC Gas Utility in British Columbia). Many other CIS' architected solely for deregulated markets lack this breadth of regulated functionality.

In December of last year, Peace Software announced that it had shipped Version 7 of its software to major U.S. utility Xcel Energy. Peace Version 7 incorporates extensive regulated and competitive functionality to Provide energy companies such as Xcel Energy with the strategic options of managing customers in regulated and restructuring retail markets; mass and complex commercial and industrial (C&I) markets; across multiple commodities, products and services.

"Peace Version 7 is a significant release reflecting 18 months of focused development by 300 developers," said Paul Grey, chief technology officer of Peace Software. "It incorporates new, architectural features, the latest browser-user-interface (BUI) usability advances and broad regulated and competitive functionality enhancements gleaned from our production experience in numerous, diverse energy markets. Peace Version 7 is a strategic CIS solution to manage all customer segments across all services in all markets."

Can a CIS run in both a regulated and deregulated environment? The answer is "yes." Can all CIS' run in both environments? Don't count on it. I know of many that have fallen by the way-side attempting it. Peace Software has mastered the concept of running in both environments with regulated and competitive clients supported on a common CIS. The key to success is correctly identifying what is a core CIS functionality requirement and what is not and correctly anticipating problems that will occur in both environments and addressing them aggressively.