[News Item from PRNewswire-FirstCall] DALLAS, - Alliance
Data Systems Corp. (NYSE: ADS), a leading provider of transaction
services, marketing services and credit services, today
announced that it has signed a seven-year agreement with
the Orlando Utilities Commission (OUC), one of the largest
municipal utilities in the United States. Under terms of
the agreement, Alliance Data will provide an outsourced
customer information system (CIS) solution and other related
billing processes, to service OUC's approximately 200,000
regulated residential and commercial electricity accounts
in Florida.
Analysis: Here is yet another municipal
outsourcing customer care. Earlier this summer the Metropolitan
Sewer District of St. Louis (MSD) outsourced customer care
and billing services for 428,000 accounts in the greater
St. Louis area. This announcement by UtiliPoint client Alliance
Data marks yet another municipal outsourcing its customer
care and begins to show the market that the municipal sector
is indeed beginning to view outsourcing as a viable option.
Muni Interest in Outsourcing Increasing
In the most recent UtiliPoint multi-client survey
completed in February of this year, approximately 48 percent
of 304 utility respondents in Canada and the U.S. indicated
that they have either outsourced a function, or that they
were planning to outsource one in the next two years. This
was higher than expected, since data from the previous year
indicated only 28 percent were considering outsourcing a
function of customer care.
Analyzing this same information by company type reveals
that municipal interest in outsourcing has grown at a higher
rate than that of the investor-owned community.
Source: UtiliPoint International, Inc.
Recent conversations with municipal utilities confirm the
fact that infrastructures are aging and in need of replacement.
This applies not only to pipes in the ground and meters,
but also to systems that run the utilities. As municipals
begin to entertain the replacement of the aging infrastructure,
outsourcing of customer care will get more attention than
it has in the past with some functionality getting more
attention than others.
Source: UtiliPoint International, Inc.
OUC falls into the 7 percent of municipals that is outsourcing
the CIS.
OUC
OUC brands itself as “The Reliable One.”
It lives up to its name by providing the best record of
electric reliability in the state of Florida and delivering
high-quality drinking water to its customers.
Per the OUC web-site, its heritage dates back to 1922,
when the city of Orlando bought Orlando Water & Light
Co., a privately held company in operation since 1901. City
leaders issued $975,000 in bonds to purchase and improve
the utility.
In 1923, the state Legislature granted the city a charter
to establish the OUC to operate the system. And after voters
approved $575,000 more in bonds to expand the utility, OUC
built a new, larger plant: the Lake Ivanhoe Power and Water
Plant on North Orange Avenue.
Orlando's initial $1.55 million investment has grown into
an electric and water utility with more than $2 billion
in assets and annual operating revenues in excess of $450
million. Total electric sales have soared from 7 million
kilowatt hours a year to more than 7 trillion kilowatt hours
a year.
OUC is the second-largest municipal utility in Florida
and the 16th largest in the country. It serves more than
200,000 customers in Orlando, St. Cloud and parts of unincorporated
Orange and Osceola counties.
Yesterday I spoke with OUC Chief Information Officer, Tom
Washburn regarding the decision to outsource the CIS to
Alliance Data. According to Washburn, the relationship with
Alliance Data began a little over two years ago when Alliance
came in and did some technical work for OUC in order to
stabilize an SCT Banner system that the utility was running.
The work performed helped to grow trust between the two
companies.
After evaluating four competing vendors, OUC decided in
June of 2002 that it would outsource the operation of its
CIS to Alliance Data. Four competing vendors were brought
in and evaluated. The OUC CFO, John Hearn was intimately
involved and discovered that financials of the deal were
approximately the same for in-house and outsourced operations
of the CIS. “The biggest reason we decided to outsource
the CIS was to share the risk,” said Washburn. Alliance
Data was ultimately chosen as the winner of the bidding
process mainly because of its existing customer base and
the fact that its solution minimized the amount of business
process change. “Along the same lines we felt we should
stick to our core business and information technology (IT)
is not our core business,” added Washburn. “We
feel that by outsourcing to ADS, we will be able to gain
best practices and standardize our utility business processes.”
Other drivers included the avoided cost of upgrades. Previously,
OUC had implemented a packaged solution and found that the
ongoing operational expense was greater that expected. The
mandatory modifications necessary to enable the package
to perform for the utility were sufficient to prevent it
from being able to take advantage of subsequent upgrades
without the large expense of re-implementing for every upgrade.
This is not an uncommon occurrence in the utility customer
care world.
Consequently, OUC found that the advertised benefit of
on-going enhancements never really materialized. With the
license model, there always seemed to be conflicting goals.
Under a service model, those goals and subsequent risks
are shared.
The seven year deal with Alliance Data includes two years
of requirements definition and implementation and then five
years of production.
Alliance Data
Based in Dallas, Alliance Data bills itself as
a leading provider of transaction services, credit services
and marketing services. The company assists retail, petroleum,
utility and financial services clients in managing the critical
interactions between them and its customers. Alliance Data
manages over 72 million consumer relationships for some
of North America's most recognizable companies and operates
and markets the largest coalition loyalty program in Canada.
The company employs approximately 6,500 associates at more
than 20 locations in the United States and Canada.
Looking at the utility services business unit of Alliance
Data, it provides outsourced customer care and transaction
services to clients in the utility industry, some of which
are regulated entities and some of which are unregulated
entities. I recently spent time with Mike Beltz, President
of Utility Services at Alliance Data in the company's Dallas
headquarters. “With Alliance Data, and with outsourcing
in general, there is a shared goal of continual business
process improvement,” stated Beltz. “As a result,
both organizations' business objectives are more appropriately
aligned. Another major benefit of Alliance Data is its size
that facilitates a lower total cost of ownership (TCO) since
operational costs are shared across a greater number of
customers,” added Beltz.
According to Beltz, Alliance Data is putting a strategic
focus on the growth of the Utility Services business unit
which has been communicated to Wall Street as one of its
three company growth engines. It has seen double-digit growth
in the past three years and has prospects that lead it to
believe that it can continue the growth.
Alliance Data has shown extraordinary growth in a sluggish
economy over the past three years. Some key financial metrics
include:
