Utility executives face volatile energy markets, skyrocketing fuel prices, and changing federal energy policies. How are utilities benefiting from the turnaround in energy trading?
Internet Mavericks: Still Working Out of the Garage?
longest time the supply chains in the utility industry were not forced to be competitive. But that has changed, as states are now deregulating. You can no longer assume that ratepayers will pick up your costs. So, everything is open for scrutiny, every part of your business.
If you look at the percentage of your O&M costs associated with materials and services it tends to be a fairly high percentage. So now one [should say], "What innovative ways can we improve the supply chain of these utilities?"
My experience was that for the last couple of years everybody was saying that it was going to be e-commerce. It was no longer going to be EDI [electronic data interchange], because EDI kind of stalled, because of the effort it takes to connect one buyer with one supplier via EDI. We connect buyers and suppliers over the Internet. The Internet is going to eliminate the rigorous standards of EDI and is going to allow a lot more transactions to take placesimpler and less expensive.
In announcing the auto-exchange last fall by bringing together thousands of suppliers, the three car manufacturers started to put a different twist on e-commerce. Instead of doing business on the Internet with one energy company with one supplier, the idea was that we have the Internet now and we have e-procurement technology that didn't exist three to four years ago. Those combinations allow a marketplace to form. They provide so much more than just e-commerce. You can do a lot of value-added services that energy companies could not create on their own.
By joining an exchange, brick-and-mortar companies can attack their supply chain issues and get e-commerce benefits and a lot of other value-added services just by connecting to this exchange. If there are a couple thousand suppliers hooked to this exchange we can now do business with a thousand suppliers without individually having to call and connect and coordinate with each one of those suppliers. The suppliers now have access to several hundred energy companies that will be hooked to an exchange.
Will the phone and fax disappear?
Routine transactions of calling a supplier to get their current price on a widget, whether the buyer does it or clerical support does it, that doesn't provide a lot of value to us. It also takes time for salesmen to look up the information. The marketplace will have that information available via electronic catalogs. Routine information that you go out and search for will be at people's fingertips. Just by the fact that you have five suppliers who supply widgets and all five of them have their catalogs online and when a buyer goes online to buy, all those catalogs come up and you can compare without going to different Internet sites.
We are not eliminating phone calls. The phone calls in the future will have more value than just, "I am calling to get your price, I don't have your catalog in front of me." Those phone calls don't provide value. But calling somebody to say, "I have a special