IssueAlert Emerging Technologies ~ October, 2003

The CIS industry consists of thousands of utilities organized primarily by services provided and ownership. A utility is identified as one of the following types.

Public Power or Government Owned Utility
These include: Municipally-owned electric systems, Federal agencies, and State projects and Public Power Districts.

Investor Owned
Utilities organized as tax-paying businesses usually financed by the sale of securities in the free market and whose properties are managed by representatives regularly elected by their shareholders. Investor-owned utilities, which may be owned by an individual proprietor or a small group of people, are usually corporations owned by the general public.

There are 3,152 U.S. based electric utilities with 2,009 structured as publicly owned, 894 structured as cooperatives, 240 as investor owned, and 9 as federal power agencies. However, if the number of customers served by utility type is examined, it becomes very clear that although there are only 240 investor owned utilities they serve 73.3 percent or over 92 million end use customers with electricity.

The 2,009 public owned utilities serve 14.8% or 18.6 million end use electric customers. The 894 cooperates serve 11.9% or nearly 15 million end use electric customers. Federal Power Agencies serve 34,648 end use customers.

Public Water / Wastewater Utility
Publicly owned utilities which provide water, wastewater, solid waste, drainage and other services. The utility may be a City, County, Municipal Utility District, etc.

Cooperative Owned
A group of persons who have organized a joint venture for the purpose of supplying electric energy to a specified area. Such ventures are generally exempt from the Federal Income Tax Laws. Most cooperatives have been financed by the Rural Utilities Service.

Retailer / Marketer / Energy Service Provider
An entity which functions as a marketer or broker of power not engaged in the generation, transmission or distribution of electricity. The top 20 power marketers make up 75 percent of sales to retail customers.

CIS Market Activity Levels
In 2003, TMG Consulting believes the market will reflect the following activity.

Investor Owned
Purchase decisions begin to pick-up in late 2003 increasing through the end of 2004. Retail markets will continue to be delayed while the wholesale market gets organized and structured. A 2 year period exists from initial interest through purchase—late in 2003 vendors should see increased activity. Don't plan on significant sales until the utility becomes certain of retail market opening and rules of service, which could be years away. There should be a three year period of significant activity from 2005 through 2007 which will begin to slow in 2008 with market activity continuing at moderate levels as utilities continue to implement extended or phase 2 components. Significant interest in ASP solutions will be tempered by market realities.

Public Owned
The top 100 public utilities will re-evaluate CIS systems with their decision to enter retail markets. Many who “opt-in” to an already opened deregulated market will find their systems will not operate within a deregulated environment and will be forced to enter the market to either buy a new system, additional components, or outsource. Activity between 2005 and 2007 will be moderate. According to industry analysts, public power will lose customers if they enter deregulated retail markets. If true, city councils and boards may sell the utility or at least focus on minimizing costs and maximizing operating efficiency. CIS purchase decisions will occur at very low levels beginning in 2008.

Cooperative Owned
Like the public utility the majority of cooperatives will not enter the deregulated retail markets. However, pent up demand may drive CIS purchase decisions. Moderate levels of activity will continue through 2007. This activity will fall to low levels beginning in 2008.

Energy Marketer
Similar to the investor-owned utility, significant levels of activity will begin in 2005 and continue at a brisk pace for three years ending in 2007. Activity will continue at moderate levels after 2008 as additional core and extended capabilities are implemented. However, due to stalled deregulation, the number of energy marketers in the industry will be low.

Water Utility. The high level of activity occurring within the water industry has already begun to decrease. By the end of 2003 activity levels will decrease as these utilities focus on completing installation work and implementing phase 2 core and extended components. Beginning in 2006 water utilities will revert to the low levels of activity characteristic of the 1980's and 1990's.

CIS Market Potential Sales Revenue
If all of the customers in the utility market were converted to a new CIS, nearly $48 billion would be spent on hardware, software, services, payroll costs, etc. as presented in the following table.

The diagram presents the cost components. Vendors providing a core CIS solution are limited to 21 percent of the total pie excluding hardware at 6 percent. Approximately 45% of the revenue is associated with extended products and services.

TMG Consulting offers the following recommendations.

• Only 5% of potential CIS revenue is associated with software sales. This low percentage is restrictive and should discourage CIS vendors from focusing only on software sales and product management. Instead, software vendors should continue to develop their service business.
• Only a few CIS vendors are reselling hardware. TMG Consutling recommends avoiding the hardware business as many public utilities purchase from state contracts.
• Vendors should focus on assisting utilities with their activities to increase service revenue, e.g. additional training, business process redesign, project management, conversion, data cleansing, etc.
• Vendors should develop extended capabilities and include in the software contract even though the work may occur in subsequent phases.
• Vendors should work deals with third party implementers for a piece of the service fee.

Greg Galluzzi is a Senior Vice President of Five Point Partners with 28 years of experience with CIS solutions for the utility industry. He is the former CEO and founder, TMG Consulting which was aquired by Five Point in January 2009. He is a recognized CIS and utility industry expert and has participated in over 300 customer system initiatives offering comprehensive knowledge of planning, analysis, design, and installation.