A New Paradigm for Customer Care and Service in a Deregulated Energy Market


Utilities have no experience with competition or strategies for winning
customers when primarily dealing with a product like electricity or natural
gas. Competing utilities must be customer-oriented, study consumer behavior
and purchasing habits of customers, and operate creatively regarding their
product offerings. Consequently, they must overcome their traditionally
civil service mentality.

Significant price differences no longer exist between regulated and deregulated
energy. Free commerce in energy is valuable to customers with considerable
energy needs. However, with the inclusion of the small, private consumer,
low profits oppose the high investments required to organize and optimize
complex business processes in a deregulated energy market.

Deregulation significantly impacts the customer service departments of
utility companies. On the one hand, these departments are able to offer
consumers an easily understood and attractive energy product with a punchy
name, such as EnergyPLUS, YELLO, or GreenPower. On the other hand, deregulation
complicates the sale of energy, making it a complex transaction for both
administration and accounting.

The revolutionary changes brought about by deregulation become most evident
in an examination of customer information systems (CIS). A utility can
hardly survive if it continues to use a standard CIS. To develop a CIS
that complies with the new requirements, complex projects are necessary,
which often operate against the background of provisional deregulation
policies that IT departments can only convert into systems with great
difficulty.

By collaborating with many utility companies throughout the world, SAP
has developed a CIS that responds to the new paradigm of such systems
in a competitively-oriented, open energy market. In the first 20 months
since its release, more than 170 companies in more than 30 countries,
typically with advanced deregulation policies, have adopted the industry
solution, mySAP Utilities Customer Care & Service (IS-U/CCS). The experience
gained during development of the system and its implementation at customer
sites forms the basis of this article.

The following sections discuss the changed frameworks of the deregulated
utility market and resultant CIS requirements. The last section sketches
the architecture of the optimum CIS for the deregulated energy market,
using the example of mySAP Utilities IS-U/CCS.

The Effects of Unbundling

The unbundling of utility companies means that there is a bilateral relationship
between customers and their local suppliers. What once existed in a regulated
market has become a multilateral relationship. At minimum, customers have
a contractual relationship with the energy supplier (RetailCo) and a service
relationship (in many cases also a contractual relationship) with the
distribution company (DisCo). Since customers can change their supplier
dependant upon market offerings, further contractual relationships develop.
Commercial and industrial customers can purchase energy from multiple
vendors. Many deregulation models also predict assignment of metering
and reading services, historically a DisCo function, to an additional
type of energy services company, a meter management operator. Here, the
customer enters yet another service relationship.

The coordination of services provided by a RetailCo, DisCo and, in some
cases, a MeterOp to the same customer, and the coordination of the administration
and accounting of these services, demand intensive data exchange. Bilateral
communication or an exchange marketplace occurs between the various customer
information systems of participating energy companies. These types of
collaborative business-process scenarios can include informing a DisCo
about a customer’s transfer of service from one energy supplier to another.
They might also include a meter-reading service sending the results of
a reading to the appropriate DisCo and RetailCo, or transmitting accounting
information from one service provider to another so that they can issue
a single common invoice.

Obviously, the receiving CIS must process this huge amount of incoming
data as quickly as possible without manual intervention. Neither legacy
CIS products, nor the many standard CIS products offered today, meet these
requirements.

Forms of Deregulation

There is no clear definition of deregulation in the utility industry.
Each country, and every state in the U.S., understands and governs deregulation
a bit differently. The reasons for such diversion lie in the infrastructure
of the supply grid, ownership behavior in the energy industry, treaties
between states or countries, currently applicable law and the structure
of the population served. Above all else, however, the regulatory agencies
and the industry associations emphasize their own solutions to deregulation,
rather than a standard solution. The following examples highlight the
diverse forms of deregulation and the consequences of each for a typical
CIS.

The Distribution of Roles Between DisCo and RetailCo

The various deregulation models agree on only one point: the DisCo operates
the grid and distributes energy to household connections, while only the
RetailCo can close competitive energy-supply contracts. In practice, every
possible hybrid exists between these two poles. A DisCo, an independent
MeterOp, or a RetailCo can claim responsibility for operating and reading
meters. According to one variant, the RetailCo (or even the customer)
might own the meter, but only the DisCo or MeterOp can install, remove,
maintain, or read it. In another variant, the DisCo or MeterOp holds responsibility
for the meter and reading, but the consumer requests a meter or reading
service through the RetailCo, which then directs the service request to
the appropriate DisCo (MeterOp). This procedure can even include the reporting
of power outages.

Many deregulation models foresee that the DisCo will continue to supply
energy to customers who have not yet decided to change to a free (independent)
RetailCo. Other models plan a transfer of all energy contacts to a RetailCo
in the same corporate group on a cutoff date, so that as of that date,
the DisCo must operate with strict neutrality. It must handle communication
with the related RetailCo exactly as it does with any other RetailCo.

With this in mind, the CIS must support and maintain an open assignment
of company type (DisCo, MeterOp, and RetailCo) and process type (such
as meter management, meter reading, contract billing, and accounting or
work management). This assignment is determined when configuring the system.

Defining the Point of Consumption

The unbundling of utility companies and the distribution of customer
relationships between DisCos and RetailCos force a redefinition of the
point of consumption. The previously used meter number no longer suffices;
it does not remain unique with regard to service areas of several DisCos.
The utility industry has been unable to determine a standard, unique identifier
for a point of consumption. Additionally, almost every country understands
this term differently in regards to its technical aspects and data format.
Therefore, the CIS must maintain compatibility with every conceivable
identifier for a point of delivery.

Customer Enrollment

In principle, customers can choose when and how to accept an offering
on the free energy market. However, the procedure for making that choice
remains one of the most discussed topics of local deregulation agencies.

Some deregulation plans leave DisCo system customers as somewhat full-service
customers until they freely choose their first RetailCo. Other plans require
the forced assignment of customers to a RetailCo. The first plan offers
the advantage of an evolutionary – and more manageable – migration into
deregulation. The second plan brings a DisCo into the competitive neutrality
intended by the principles of deregulation.

The type of contractual relationship that a customer has with a utility
company depends upon the policies of deregulation in force. In the event
of multiple contracts, customers keep the contract covering their connection
to the supply grid with the DisCo; they execute a second contract for
energy delivery with the RetailCo. In the event of a single contract,
the contract between the customer and the DisCo becomes obsolete; only
the new contract with the RetailCo remains.

Country-specific deregulation policies differ in determining who informs
whom about customer enrollment and the preconditions that both customers
and the RetailCo must fulfill. Diverse approaches also apply to the enrollment
periods, procurement of meter reading services, the behavior of customers
in the event of outstanding payments, the response to slamming of customers,
and the transfer of customer data from the DisCo to the RetailCo.

Standardization of Data Exchange

As noted above, data exchange between the RetailCo and the DisCo calls
for standardization. Although European utilities can use the EDIFACT standard
of the United Nations, and North American utilities can use the EDI standard
X.12 of ANSI, a great deal of diversity still exists within the standard,
even though it has long been used in electronic commerce. Consideration
of the diversity of country-specific dialects demands a great deal of
investment and time for a RetailCo. The different approaches to deregulation
are the basis of the requirement for diverse dialects.

For the manufacturer of a CIS, the realization of a standard solution
is particularly difficult. As a generic tool the required Transaction
Exchange Engine must provide the following:

  • It must offer a compatible interface for all data-exchange formats.

  • It must interpret the received messages with a scenario-specific
    script and use its CIS open method-interfaces to process the messages
    automatically in the background.

  • It must have functions to generate outgoing messages over defined
    user-exits and assemble them in their final form according to scripts
    that follow the scenario in use.

  • It must develop the scripts in a meta-language so that users can
    develop scripts themselves and, if needed, change them on short notice,
    without having to wait for a new release from the manufacturer.

SAP has developed such a transaction exchange engine as a subcomponent
of IS-U/CCS. The engine has proven itself and has been operating successfully
for more than a year. A large utility company in Pennsylvania, a completely
deregulated state, serves as one example.

Figure 1
The IS-U/CCS

Figure 1

Invoices

An invoice and the processing of its payment are usually the one regular
contact that utility companies have with their customers. They represent
a type of business card. Utilities should rightly have a concern about
issuing a clear and easily understood invoice. Deregulation makes this
goal more difficult because utilities must observe several new rules.
An invoice also serves as a marketing instrument – it should contain additional,
useful information for consumers and inform them of additional services.

According to the original idea of deregulation, an invoice from a utility
company should transparently show charges for the individual regulated
and deregulated links in the value-added chain (generation, transmission/distribution
services, sales, and administration), so that customers can actually compare
prices. The laws of each country follow this idea very differently. Some
countries require precise invoices; other countries leave this decision
to the utility. In Germany, for example, retail companies offer consumers
flat-rate prices that not only summarize individual items in the value-added
chain, but also are to some extent independent of the actual consumption.

In line with the original idea of deregulation, it would be very helpful
for a RetailCo, as a competitive and consumer-oriented business unit,
to issue customers a consolidated invoice for all services, regardless
of which firm provided them. That isn’t the case. Retail companies often
turn to the experience and infrastructure available at distribution companies
and let those companies handle settlement of their energy services. Recently
developed deregulation models, such as those used in Texas, require that
the RetailCo handle billing almost exclusively and that their invoices
include the charges of the DisCo. Other models, such as those in Pennsylvania,
let customers decide if they want a consolidated invoice or one from each
service provider.

Settlement for third parties makes sense and follows the basic principle
of offering one face to the customer. As a precondition, of course, the
settling company must have all the billing information for third parties,
from both related and external companies. Sometimes a message can contain
the settlement parameters (quantity, tariffs, prices, and so on), so that
the settling company can prepare an invoice just as it does for its own
services. More frequently, the settling company receives completed billing
line items electronically, over the Internet, which it then incorporates
into the invoice. The rate-ready and bill-ready procedure has several
implications for the following process steps in accounting and consolidation
in the general ledger that cannot be treated here.

Competition and customer orientation add another dimension of complexity
to invoicing. As noted, retailers want to offer attractive energy products,
not simply electricity or gas commodities. Several products or services
from various utility areas and service providers should be shown on one
invoice that also explains the price dependencies between the products.
Additional complications arise when the customer base of a RetailCo resides
in different deregulation areas. In the U.S., for example, customers might
reside in different states, each with its own deregulation laws. The RetailCo
must incorporate different regulations and laws into its invoices. Complexity
increases if a RetailCo offers the consumer-friendly service of Consolidated
Invoices for both electricity and gas with each commodity, which follow
different deregulation rules and time lines.

These scenarios indicate the level of flexibility that a CIS must have
for settlement, billing, printing invoices, contract accounting, as well
as Customer Relationship Management. In addition, mergers and acquisitions
lead to ever-larger energy companies with ever-larger customer bases,
and therefore ever-higher performance requirements. To enable execution
of several hundred thousand settlements in a period of a few hours, batch
processes must run in parallel at any level. The CIS must also be able
to automatically control and reprocess error logs as quickly as possible
with workflow control.

Settling and Cost Comparison

The settlement procedures performed for third parties, described in the
previous section, and those that arise from deregulation require an additional
process step. The revenues collected for third parties must be settled
quickly and accurately. Various procedures apply here. In the simplest
case, the settling company sends all the fees it has collected from customers
directly to the third party, without any consideration for payment settlement.
In the most difficult cases, the settling company performs exact accounting
at the settlement item level of all calculated revenue and received payments.
It considers various settlement priorities in the event of underpayment
by a customer. An accounts payable posting to the third party transfers
the aggregate revenue at a specific time.

Definition of an Energy Product

Americans call both electricity and gas a “commodity,” a basic service
in everyone’s life that contains nothing of competitive interest except
its price. It is left to the marketing creativity of the RetailCo to determine
how to develop an attractive product out of electricity and gas, a product
attractive enough for the consumer to buy, and to therefore change to
a different company.

Those who look for an attractive energy product or for criteria for an
attractive energy supplier have only to ask the consumer the questions
below. From SAP’s experiences with utility companies and customers worldwide,
we believe the customer would respond in the following manner:

  • When considering one-stop shopping, the consumer prefers to receive
    all of his utility needs from one company These should include not
    only electricity and gas, but also other services, such as heat, water,
    sewage, garbage collection, and so on.

  • For questions and preferences about meters and household connections,
    the consumer prefers to turn to his energy supplier instead of having
    several service partners including the DisCo and MeterOp.

  • Consumers demand quick, friendly and uncomplicated service from a
    call center. As an alternative they want Internet self-services (B2C)
    that allow them to handle typical customer processes from home or
    office. And when they use self-service, they expect a better price
    for this efficient form of processing.

  • Consumers want comprehensible price structures and, above all, the
    lowest possible prices.

  • Consumers with a record of on-time payment want a variable and comfortable
    payment system, such as monthly bank transfers of a fixed amount,
    annual accounting for down payments, or payment by credit card. They
    value fair treatment by a utility: payment of interest on overages
    in down payments or premiums for customer loyalty.

  • Consumers regard “KWh and more” services as attractive, combined
    services that include discounts for household appliances, energy consumption
    consultations, alarm and monitoring services, Internet services, and
    much more.

Commercial and industrial customers demand more from an energy product.
They require the following:

  • Point of delivery bundling – They want to combine the energy
    used at all subsidiary points of consumption (in an area or country)
    into one contract at a special, reduced price.

  • Time-of-use or real-time pricing contracts – Here, pricing
    conditions depend upon maintaining or exceeding previously agreed-to
    load profiles and set the expected consumption for each interval (15,
    30, or 60 minutes). This approach can also include an up-to-the-minute
    energy price from an electricity exchange. With these types of contracts,
    the energy supplier can offer consumers very attractive prices. Consumers
    share or take the risk of exceeding the amounts specified in the consumption
    profile.

The definition of such flexible energy contracts or even the bundling
of energy contracts with sales, service, maintenance, and financial services
overwhelms traditional customer information systems. Such instruments
presuppose a flexible data model and software architecture that can define
and settle dependencies between different types of contracts: a model
and architecture found in mySAP Utilities IS-U/CCS.

Customer Relationship Management (CRM)

CRM encomasses all customer-related processes that deal with the marketing
and sales of products, along with the fulfillment of contracts in a competitive
and therefore customer-oriented industry. The significance of CRM has
grown with the change from a supply monopoly into a competitive market.
This observation applies much more to competitive retail companies than
it does to regulated distribution companies.

Here, the idea arises of applying the successful CRM systems of other
industries exclusively to settlement components of a utility-specific
CIS. Some sample projects of deregulated utility companies have shown
this approach to be incorrect – the functional scope of industry-neutral
CRM systems cannot handle the special contractual forms and services that
relate to energy products. A study has shown that the data model for a
CIS for the utility industry conflicts with the data model and functional
scope of a CRM system, particularly in the areas of sales and service.
Both systems claim ownership of certain central business objects such
as customer, contract account, contract, product catalog, prices, conditions,
and so on.

What’s the solution then? It makes the most sense to use the CRM system
to transfer all the transactions it cannot process to the industry-specific
business objects of the CIS. The CIS then executes the transactions and
returns confirmations of their execution to the CRM system. This integrated
use of a front-office CRM system with a back-office CIS presumes open
and flexible software architecture on both sides, as well as strenuous
development work in producing manageable, easily understood and easily
maintained connectors. SAP is currently developing this coupling for mySAP
Utilities CRM and IS-U/CCS components.

Note, however, that given the distributed responsibilities of the CRM
system and the CIS for handling customer processes, both systems must
now consider and process the data-exchange transactions noted above.

Figure 2
CRM independent component of mySAP
See
larger image

Figure 2

Deregulation has also increased the demands made upon the call center
of a utility company. The call center becomes the hinge of Customer Relationship
Management. Calls from customers flow in to a call center, which notifies
the system of grid failures, schedules service appointments, generates
complaints, notifies the system of a move-in/out, and above all, handles
marketing and sales activities. Typical demands made on call centers include
integration with telephone computer systems, interactive voice recognition
systems, and Internet transaction servers to support B2C processes over
the Web. The benefits of a call center system rise and fall with its integration
into the information and processing functions of the CIS. Only this kind
of integration enables rapid identification of the customer or point of
consumption, clear information functions tailored to customers’ questions,
and workflow and script-controlled processes that allow employees to handle
typical contacts quickly, with only a few transactions.

Energy Data Management

Energy data includes information on past and future consumption by customers,
measured in physical consumption units, such as KW or KVA, and influential
factors such as outdoor temperature or calorific value (gas). Utility
companies have always had such information, but a deregulated market makes
this data even more valuable, as illustrated in the following paragraphs.

The opening of electricity and gas grids as natural monopolies to carry
energy from suppliers to various addresses demands exact accounting of
the quantities transmitted, so that companies can balance accounts for
the quantities provided by each vendor and used by each consumer. Since
energy prices can reflect significant variations over time, the account
balancing must run as a function of time, normally in intervals between
15 and 60 minutes. Because energy in a deregulated market can come from
almost any source, a forecast account balance must also guarantee the
availability of more energy than will actually be consumed at any time
(or interval). These backward and forward energy balances, therefore,
depend on the actual or forecasted measurements of each point of delivery
or point of supply. Regardless of account balance responsibility or the
availability of up-to-date energy data, companies must first develop a
procedure to obtain the data. Doing so requires the use of meters that
measure energy correctly at each interval. It would hardly be profitable
to outfit all points of consumption, including those of private users,
with interval meters. To determine the load profile of private customers,
extrapolation and differential accounting procedures have been developed
based upon synthetic (means typical) load profiles.

Each utility company must contribute to account balancing by transmitting
its own meter readings and/or prognosis data. Precision is not only a
question of grid stability, but also a precondition for optimal commerce:
the better a RetailCo can forecast its consumption at each interval, the
better than it can control its energy purchases and generation.

In a deregulated energy market, every RetailCo has an interest in influencing
the consumption patterns of its customers so that it can match the quantities
it procures and generates to those patterns as exactly as possible. In
the ideal case, a RetailCo could influence customer consumption dynamically,
depending upon the current price situation in the energy market. The ideal
cannot be realized. However, a RetailCo can transfer the risk of unplanned
higher or lower consumption or the risk of unexpectedly higher prices
to customers within a defined framework.

These kinds of contracts make the most sense for large consumers. Combined
with the metering techniques previously noted, they assume that the RetailCo
maintains measured or forecasted load profiles that it can assign to energy
delivery contracts as conditions. Depending upon the size and energy consumption
of a customer, the RetailCo can develop more or less complicated rules
based upon various known data points such as load profiles, agreed-upon
price profiles, and prices on the energy spot market.

Utilities can also influence the consumption patterns of private or commercial
customers by installing meters that measure consumption according to zones
throughout the day. This approach requires investment in new meter technology,
but the time-of-use contracts that it offers enables customers to save
money by adjusting their energy consumption to periods of the day when
it costs less.

Marketing departments are also interested in energy data. Organizing
energy data by region, energy product (tariff), industry, customer characteristic,
etc., provides valuable information for tariff and price policies and
identifies new target groups for marketing campaigns. Permanent monitoring
of customer consumption patterns also helps recognize changed patterns
early and introduce the appropriate measures on the procurement and sales
side.

Energy data management depends on each customer’s data and individual
energy contracts maintained in the CIS. Moreover, as a direct precondition
for that data, utilities must offer commercial and industrial customers
competitive energy contracts. It is conceivable that within a few years,
all large customers and a large portion of commercial customers will have
real-time-pricing or time-of-use contracts settled with energy data from
interval meters.

SAP has taken advantage of this development and enhanced mySAP Utilities’
CCS component with the Energy Data Management component. The integration
of both components enables utilities to settle both real-time-pricing
and time-of-use contracts and to link them to other forms of settlement.
It also supports and can settle the account balancing processes previously
noted, in the role of an independent system operator, for example.

CIS for the Deregulated Energy Market

The previous sections have attempted to explain the new paradigm of CIS
in a deregulated energy supply market, based upon a description of new
business processes in a deregulated energy market. The remaining task
involves presenting the results as the structure of a CIS for the liberalized
energy market. Figure 3 illustrates the essential components of such a
system.

Figure 3
Structure of deregulation-enabled utility CIS system

Figure 3

Modularity is an important characteristic of the system. It allows a
utility company to implement the system in phases and avoids the creation
of overly large runtime systems and databases for large utility companies.
The system components of the first level can also be used as independent
subsystems in their own runtime environments. Doing so shouldn’t hinder
the integration of the components needed to handle cross-system business
processes.

Meeting this goal requires developing multiple method-interfaces for
the business objects within the components. Connector software can then
provide secure collaboration between the components, even for those of
other manufacturers.

The list in the right section of the illustration clarifies the flexibility
required of the CIS. A lack of flexibility means that the utility company
would have to implement different customer information and settlement
systems dependent upon company roles, types of supply, customer groups
and products.