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Finding the Utility's Core

Where should outsourcing end—and the real utility begin?

Fortnightly Magazine - September 2005

make outsourcing gains, union transition, and workforce retirement mutually beneficial.

Creative Approaches

Outsourcing is of concern to utility employees. This sensitive customer-service issue requires open and honest involvement from all parties—the union, utility, outsourcer, and regulators—to be successful. However, there is a middle ground. Utility managements are taking many creative approaches to ensure union job continuity, where applicable, and retraining and relocation when possible.

For utilities in jeopardy of losing valuable employee skills to workforce retirement, BPO may be a viable safety net. Leading providers have deep experience in utility processes, practices, and platforms. They can fill application integration and project management gaps, manage revenue-cycle (meter-to-cash) process requirements, and provide scale for fluctuating call center and IT demand. In a time of dwindling resources, this support allows utility employees to focus on more high-value activities.

For unions concerned with employee displacement, many business process outsourcers offer the ability to re-badge utility personnel as vendor employees. Both Puget Sound Energy and TXU chose employee transfer as part of their billing, customer care, and enterprise outsourcing agreements. As members of the outsourcing team, many of these utility employees gain training in new technologies and process improvement practices that may advance their skill sets, career options, and job satisfaction.

For union members that remain with the utility, their knowledge of customer service practices and legacy processes is valuable during the outsourcing transition period in terms of contract governance, project management, and business continuity.

Business Process Outsourcing and Rate Cases

After years of little activity, many utilities are facing their first rate filing in a decade. However, the rate-case landscape has changed dramatically from the mid-1990s, when many regulatory commissions allowed electric and gas utilities to recover stranded costs required by retail wheeling. On average, electric utilities have seen their allowed return on equity decline every year since 2000, capturing just enough in rate increases to ensure earnings stability. While low interest rates may be a factor, this decrease in equity return is putting a pinch on many utilities facing deferred capital expenditures and increasing health care, pension, and system reliability costs.

The Role of Business Process  Outsourcing in Rate Recovery

Today, cost of service and rate design aren't the only factors driving rate recovery. In regulatory environments where prudent expenditures are of increasing concern, there is reason to believe that BPO may enhance the success of rate case allowances by demonstrating to regulators that escalating service costs are better handled by providers whose efficient operations directly benefit rate payers.

For example, many regulators are concerned with the escalating cost of utility customer information systems (CIS)—due to the perception that billing and customer care system upgrades or replacements are not yielding true efficiency, improved service, or value for the money. Because of this, some regulators are evaluating BPO for its ability to protect rate payer interests through:

  • Guaranteed cost certainty;
  • Guaranteed service levels;
  • Continuous process improvements that provide sustainable cost savings;
  • Expertise, skills, technology tools that supplement the utility's aging workforce; and
  • Assurance of compliance with Sarbanes Oxley and SAS 70 requirements.

These outsourcing gains directly