With IBM and other business processing giants weighing in, the energy industry, including the utility sector, increasingly is doing what other industries have been pushing for more than a decade — outsourcing generic business back-office functions with the goal of lowering payrolls and becoming more efficient as companies seek to survive in an ever-tougher business climate.
Although the utilities are still somewhat reluctant, the large E&P and pipeline companies, such as The Williams Cos., are signing up with the likes of IBM for long-term (seven- to 10-year) contracts exceeding more than $1 billion. Providers of the services as well as recipients discussed the growing trend at a Law Seminars International conference in Santa Fe, NM, last week, highlighting the TXU-Cap Gemini deal aimed at creating $140 million of cash savings for TXU, a Kinder Morgan-Alliance Data Systems deal and the IBM-Williams pact.
Further impetus is likely to come if the Pubic Utility Holding Company Act (PUHCA) is repealed as has been pushed in Congress for a number of years, according to Jon T. Brock, UtiliPoint International’s COO, who moderated two panel discussions on the subject at the “Energy in the Southwest” conference. One of the incentives for utility outsourcing is the chance to take equity positions in these endeavors, and PUCHA restricts such action.
“IBM is a global provider to the utility industry and the energy industry as well,” said Frank Lewis, a partner in IBM’s business consulting services, communications sector. “We provide pure consulting services, technology services, or more recently the need for business transformation outsourcing. In the latter, we take a full business process, transfer those employees [to IBM] and reduce the cost. Our most recent contract in that area was [announced last month] with Williams Energy in Tulsa, OK. We won the bid because we provided greater savings than even Williams anticipated from its studies.”
Along with behemoths like IBM, emerging firms like Alliance Data Systems are focused on “meter-to-cash” billing/customer service systems for utilities and others, while large back-office transaction firms, such as FirstData, are just beginning to move their 400-million-transaction capabilities to the utility sector.
Nevertheless, San Jose, CA-based Calpine Corp., the nation’s largest merchant power plant developer, announced Tuesday it was receiving a computer industry award in the “environmental, energy and agriculture” category for its innovative information technology system developed to track its power plant portfolio that grew by 60% in the past five years. The work was completed without outsourcing, according to a Calpine spokesperson.
Utilities and other energy companies still are more receptive than ever to outsourcing, according to Brock of UtiliPoint, which earlier this month issued a white paper on “The Evolution of Outsourcing in the North American Utility Business.” The paper noted that technology and business process outsourcing in particular is getting more serious consideration in the energy/utility space.
IBM’s Lewis said his part of Big Blue’s consulting services concentrates on oil/gas companies and large energy-consuming industrials. In addition, the company’s internal research laboratories are developing energy efficiency systems and processes that IBM has applied in its own manufacturing operations to help support a very ambitious corporate goal of achieving a 4% annual improvement in overall efficiency.
Some of the energy savings products are being readied for commercial availability to the commercial/industrial sector in the near future, Lewis said.
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