Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
CIOs Under Pressure
IT officers are getting more efficient, but guess what keeps them up at night?
Most of the investment a traditional regulated utility makes is based on those being accepted and returned in the ratebase. If you’re going to go out in an R&D model and test technology, the utility commissions typically are not supportive of paying for things that fail. By using our partners’ money on as much as a 12:1 ratio, we’ve significantly reduced our risk to our customers and ratepayers while putting some very impressive potentials in front of the company at a reduced cost of evaluation.
Fortnightly: Did the program hit its goals in 2005 and 2006? What remains to be tested in 2007?
Carlson: We continually put together a slate of things to test. The goals are furthering an expansion of knowledge. If you take the most simplistic of goals —“did you implement the technology?”—you’ll have a good time trying to figure out what constitutes “implementation.” Is it implementation of the original vision? Is it a vision that’s been modified with fact and subsequently invested in and deployed?
We’ve got hard cases where a lot of our mobile technology that we started two years ago was an offshoot of Utility Innovations testing that we started in 2004. Smart Signal is another example; it definitely had a success measure. It’s an impressive company that worked very hard in delivering the proof in how to leverage their technologies. But, in fact, we’ve not implemented it and we don’t have plans to implement it, because the other fact that came out was that although the technology works, the business- and human-factor processes that go with it also have to be considered. We determined it wouldn’t be an effective investment for us.
Fortnightly: Xcel Energy recently had a billing error that affected approximately 200,000 natural-gas customers. How did you handle that?
Carlson: We have new rates coming into play. They were put into our system with an erroneous effective date. Our quality assurance process uncovered the error and corrected it.
It wasn’t a technology error at all. Our billing software did exactly what some well-meaning humans told it to do.
Fortnightly: What’s the trend at Xcel in IT staffing and funding?
Carlson: We’ve continued to reduce costs. In 2006 we reduced costs over the 2005 baseline by about 6 percent, mostly through price inefficiency rather than through staff reduction. When you get into efficiency, there are staff-driven costs—about 65 percent, in my case.
I think we are doing a good job of cost management. The issue for us is always how much discretionary spend we apply to business opportunity. That’s where I go back to stepping up to an EVA measure, where we’re testing and committing to the returns that our discretionary investment should deliver to the company.
We’re going to continue to shave costs of operating IT. There just continues to be better technologies, better methods, and better efficiencies. But my objective right now is to see those offset the things that naturally increase just through cost of living.
Fortnightly: What percentage of spending goes to IT?
Carlson: My operating cost to keep the