14 June 2004 – With the deadlines for increased retail competition just around the corner, Capgemini’s third annual Global Utilities Survey highlights that significant and immediate attention must be focused on ensuring that processes and systems are as robust as possible to ensure that markets operate effectively and efficiently.
The survey’s respondents – senior utilities executives worldwide – highlighted a number of key problem areas that could hamper the smooth running of truly open markets, including the processes of transferring customers between retailers, capturing and exchanging meter readings data, the implementation of load-profiling systems (where interval metering is not available) and the overall settlement and reconciliation of these consumption datas.
Particular criticism was levelled at the customer switching process, which was felt to fall short of meeting the needs of an open market. Forty per cent of responses were critical of the reliability and speed of the customer switching process, while 50% were critical of the cost of this process.
Customer data quality was also seen as a major issue in a number of markets
and the lack of responsibility or incentives to improve data remains a
major challenge to overcome. This is also compounded by the fragmentation
of roles as a result of complex regulatory designs for the market.
The respondents pointed to the need for collaborative customer information
hubs, that provide centralized data repositories, simplified and automated
processes and lower customer switch transactions costs
Two thirds of the responses indicated that retail competition had a major
impact on prices and almost half of them saw an important impact on customer
services levels. To meet these challenges, utilities have to modify their
business model as TXU did recently in North America by entering into a
partnership with Capgemini to form a new business service company for
utilities enabling them to improve their customer service and enhance their
Security of supply is also an increasing concern for electricity and gas
companies. The black outs of last summer in several European countries were
a wake up call on the potential shortages of electricity in the medium term.
Moreover the survey highlights a lack of clarity on the responsibility for
securing electricity supply. For example 55% of responses from generators
said that it was not clear who had responsibility for deciding on new
requirements for generation capacities investments.
Colette Lewiner, Global Energy Utilities and Chemicals leader for Capgemini
commented: “Deregulation is not by itself a comprehensive energy policy, and
markets provide only short term price signals that are not adequate for
taking long term investment decisions. Moreover the climate for investing
in the new needed generation plants remains complex and difficult with a lot
of uncertainty over market rules and environmental legislation. Even if the
political authorities in Europe are aware of these critical issues, there is
not yet a clear vision on the solutions”.
Further findings of the report show that:
* Environmental issues are becoming ever more important. Obligation
to renewables targets is driving the growth of green electricity, which in
turn, is having an impact on electricity grid management. Commitment to the
Kyoto agreement is also impacting asset values and investment decisions,
particularly as the EU Emission Trading Schemes come into effect from the
1st January 2005.
* Survey respondents felt that the electricity and gas utilities
market remains an incumbent’s game. Almost 85% of responses indicated that
there had been fewer new entrants than expected, with many comments centring
on two common themes: advantages of incumbents in competitive markets
(historical relationships, scale and market knowledge) and the significance
of the risks around bulk energy purchasing in volatile markets.
A common vision for the future industry structure is one that will be vertically
integrated and oligopolistic. Almost 60% of the responses saw a model of
four to six major retail players in their markets in just two years time,
almost all of whom would be vertically integrated. Looking further ahead,
the tendency towards concentration is expected to continue with 30% of
responses predicting three or fewer major per regional markets players in
just five years time.
Overall confidence on deregulation remained broadly unchanged and positive,
with no calls for deregulation to be reversed. Common themes amongst those
respondents who remained less positive about deregulation centred around
expectations of deregulation not being met (which typically meant that
prices had not fallen); frustration at the pace of change and discomfort
with regulatory approaches, with one respondent commenting “Deregulation is
a fiction – we have far more regulation now”. From those who were “more
positive”, favourable comments were made from the growing evidence that
wholesale markets were starting to work, with additional capacity having
been made available following price increases.
Jayesh Parmar, Utilities Market Restructuring Centre of Excellence leader
commented “The events of 2003 reawakened concerns about deregulation, its
challenges and benefits. This year’s survey shows that there are some
important questions to consider around meeting the delivery of and
sustaining deregulated markets. However, the industry is in no doubt that
deregulation is here to stay; not one single respondent has suggested that
the whole process of deregulation should be reversed, and respondents remain
optimistic about the industry’s outlook as we approach full retail