Alliance Data Systems disclosed today (March 14) that it is seeking a buyer for its utility division and has listed the division as a "discontinued service" for accounting purposes. The move was not unexpected. ADS got into the utility business at the tail end of the deregulation movement and has been having difficulty acquiring new customers since that movement collapsed when California regulators tried to defy economics and gravity by freezing retail prices and letting wholesale prices float.
Had deregulation continued, companies like ADS might have looked very smart to get into the industry. Many other major transaction-intensive industries do outsource a major portion of their customer care activities, especially those involving billing and payments. However, the utility industry always has been a little different.
Since IT is so critical to the operation of complex utility systems on the grid, utilities generally have been reluctant to outsource their entire IT operations. Some have done so, notably Xcel Energy, Entergy and TXU (now Oncor). However, these have been the exception rather than the rule and Xcel Energy executives announced at an EEI (Edison Electric Institute) meeting in Denver in the summer of 2007 that they intend to reverse the process and take more IT functions back in-house.
Despite the reluctance of utilities to outsource their entire departments, or even major systems on an ASP (application service provider) basis, which is a technique that has stalled since about 2001 and which ADS offered, approximately half of them do outsource certain discrete functions. These generally are in what are considered “non-strategic” areas, such as PC maintenance, data storage or off-site backup for disaster recovery. But utilities consider operation of the grid and customer care and billing as core to their businesses and have proven very reluctant to let go of major portions of those operations.
With all the other major issues utilities face right now, outsourcing just isn't high enough on their radar screens, or their business model, to make it a major growth industry, despite the long-term efforts of some utility "analysts" to promote it. ADS is in a high-growth industry in terms of its overall business, but not in the utility industry.
It seems likely the utility division will be spun off and continue to serve existing clients. It just wasn't a big enough growth engine for ADS and the financial analyst briefing March 13 described it as, "Positive EBITDA, but, overall, negative cash flow due to capex."
According to the article "COMPETITION RULES! TALK AMONGST YOURSELVES..." From the Editor's Desk - Martin Rosenberg, the competition virus has come back. See link http://www.energyblogs.com/rosenberg/index.cfm/200...
In addicition, California PUC is also working against the legislative bodies to increase competion, as can be seen in the EWPC articles:
1) "High Leverage Shake-Up in California" (hit the link http://www.energyblogs.com/ewpc/index.cfm/2008/3/1... )
2) "The Good, the Bad and the Ugly" (hit the link )
I would like to hope that California could contribute to solving some of the major problems the industry faces. But given their consistent track record in this arena, I am not optimistic.
Best,
Warren
I understand that California is the leader in energy efficiency in the world.
California has the best opportunity to integrate two key externaties, demand and GHG Suppression, to power system planning, operation and control.
I suggest that GHG Suppression could be handled by developing a new discipline at the WTO by negotiating tariffs, the same way goods import/export trade tariffs are negotiated. GHG emmissions are exports to a global commons that are related to goods production and might be though of as subsidies to companies that export GHGs in excess.
The whole point is that GHG emmissions are global, interrelated with production of goods and California is way ahead in this issue.
Best regards,
José Antonio
I have repeated many times that EWPC is about rational rationing. Don Giegler has been "intrigued" with the idea for quite some time. Yesterday he tried to make fun with it again and wrote "So much for 'generative dialogue'! It must be in the throes of "rational rationing," as a reaction to a post.
This was my response to Don:
On the need of rational rationing that competitive 2GRs will be able handle as they replace the regulated enterprise side of the utilities, Warren Causey wrote that "Here are some examples of customer concerns utilities and their CISs will have to deal with in the future (which they are not able to do, just as it is not possible to teach new tricks to an old dog) : . .. · As electricity becomes more scarce--something that is predicted by virtually everyone knowledgeable about the state of the industry--residential customers are going to have to deal with reduced supplies... As the shortages become more acute as carbon constraints continue to drive out the 50% of U.S. electricity currently generated by coal, demand response likely will have to become mandatory. When it is mandatory, it becomes rationing. . . · As demand response/rationing takes hold, utilities are going to have to know a lot more about the lifestyles of their customers. To see the complete article "Customer care is about to become much more complex for utilities. Current systems can't handle it,"