IssueAlert Emerging Technologies ~ July, 2003

[News Item from Business Wire] Indus International Inc. (NASDAQ: IINT), a provider of customer and asset management solutions, recently announced that the nation's fifth largest natural gas provider, ONEOK Inc. (NYSE: OKE), has signed an agreement to expand its license for the Indus Advantage Customer Management Suite and services.

Analysis
Spending on customer information systems (CIS) has slowed down considerably over the last two years. Several events in the energy industry have conspired to intensify this slowdown at North American utilities. These events include the Enron debacle, the retreat from retail electricity competition, numerous energy-trading scandals, credit-rating downgrades of many investor-owned utilities, and the fact that many utilities performed replacements for Y2K.

Recently, however, the CIS sector has shown strong signs of rejuvenation through a number of agreements being signed, with the latest being the announcement from Indus regarding ONEOK. This deal marks the first North American agreement that Indus has closed on its Banner Advantage CIS. Banner Advantage was originally a product from the Global Energy and Utility Solutions business unit of Systems & Computer Technology Corporation (SCT), but Indus acquired the business unit in March for $37.8 million. The product is now branded as Indus Banner Advantage.

This agreement marks the third expansion of the original agreement, signed last year between SCT and ONEOK. ONEOK, originally selected a license for the Banner Advantage CIS solution, CRM Essentials and EnerLink BillGen to replace its Customer/1 system, and help improve service levels for its customers. The company is now replacing a second Customer/1 system acquired through the acquisition of Southern Union's Texas Division. ONEOK currently has 1.9 million natural gas customers. The new agreement also includes a three-year agreement for ongoing support.

In another major deal, SPL WorldGroup announced in May that Questar Gas Co. will move approximately 750,000 customer accounts to SPL's CorDaptix customer solution. The system is expected to be operational in mid-2004.

Questar is a natural gas utility that serves residential, commercial, and industrial customers in Utah, Wyoming, and Idaho. The company is replacing a 30-year-old legacy billing system that has become too rigid and inflexible to accommodate the realities of today's natural gas marketplace. As an immediate benefit, Questar expects to better serve customers with faster access to account information and increased flexibility.

A couple of other major deals were announced at the recent CIS Conference in Nashville. Peace Software revealed that the company's CIS for billing and customer care had been selected by Dayton Power & Light (DPL). The utility will deploy the CIS from Peace Software for both its regulated and deregulated businesses that serve over 500,000 electricity customers in West Central Ohio.

Regarding the selection of Peace Software, Steve Wolff, President, Power Production at DPL cited that Peace Software had the systems and people to make this project successful, and most importantly, understood the value of a long-term, strategic partnership. “Peace gives us the flexibility to meet changing market demands and drive efficiencies while improving customer service,” said Wolff.

The other deal that was revealed at the CIS Conference was Intermountain Gas Company's agreement with Conversant. Intermountain Gas is a privately owned natural gas utility headquartered in Boise, Idaho, that serves more than 200,000 customers. For Conversant, Intermountain Gas represents its largest customer since the addition of its first customer, Empire District Electric Company.

Intermountain Gas will be utilizing Conversant's Customer Watch product. According to Conversant, Customer Watch exploits Java technology at both the client and server tiers, offering the developer a single language and a framework-based API toolkit. The company feels that this simplicity and reduction of diverse skills needed by a support staff offers unprecedented productivity and reliability, freeing the developer to concentrate more on business processes instead of application infrastructure issues.

Interest in the outsourcing of CIS also appears to be receiving interest. In June ENMAX Corporation and Accenture (NYSE: ACN) announced the signing of a 10-year agreement under which the two companies will work together to enhance customer care services provided to ENMAX's electricity and natural gas customers and the city of Calgary's water and wastewater customers.

“Today's competitive energy market demands improved customer service capabilities at less cost. This agreement allows ENMAX to meet or exceed customer demands, while reducing the cost of future investment in new technology, " said Bob Nicolay, ENMAX president and chief executive officer. ENMAX is a wholly owned subsidiary of the city of Calgary that provides electricity and natural gas to more than 420,000 residential, commercial, and industrial customers in Alberta.

Under the terms of the agreement between ENMAX and Accenture Business Services for Utilities:

Another encouraging sign regarding the CIS market is that I am hearing many whispers from both CIS vendors and utilities that they are on the verge of closing significant deals. If all of these were to be true, it would suggest that several sizeable deals could be closed in coming months (keeping in mind that utilities are conservative by nature and can delay the closing of deals). I would watch for more action from natural gas distribution, water, and municipal utilities over the next 12 months in both the licensing and outsourcing areas of customer care.

These recent announcements did not occur overnight. Many of them have been in the works for over 12 months. They are in line with recent research conducted by UtiliPoint International however. In a recent survey of over 300 utilities, approximately 10 percent of all respondents indicated that they are currently in the market for a new CIS. This is a promising development considering that UtiliPoint's previous survey indicated that only 5 percent of utilities were in the market, a doubling of interest since last year.

The survey also confirmed that there still has yet to be a CIS provider to achieve significant market share in North America. The top CIS provider according to the survey has a market share of 7.2 percent. Of the possible CIS solutions existing in the North American marketplace, the legacy/in-house solutions owned the market with 34.3 percent of the utilities running a legacy solution. This number is not surprising, but does present an opportunity for CIS vendors. However, instead of using deregulation as a reason to replace the billing solution, the vendors are being forced to prove return on investment or problem-solving capabilities.

It certainly appears that the CIS marketplace is improving, and that the market continues to change at a very rapid pace. As a result, it is hard to predict which vendors will be the first to reach significant market share. One thing remains clear, however. As the complexities of customer billing and management become more intense, the role of CIS providers should take on a greater prominence in this industry.