Wall Street Journal reporter Rebecca Smith has recently offered two stories on how the U.S. recession is affecting domestic utility companies. “Clean Energy Confronts Reality,” her first story on Nov 20, focused on how utilities are pulling back their investments in wind, solar and other renewable energies due to a collapse in demand for power, falling prices for the commodities that produce electricity and other concerns. The second story on Nov. 21, “Surprise Drop in Power Delivers Jolt to Utilities,” focused on the baffling fall in U.S. electricity consumption, for which few have full explanation. Neither weather nor mortgage defaults completely account for the drops.
What’s telling is that utilities are seeking more information about the causes of the drop-off, according to Smith. “Some are asking customers who reduced usage to explain what influenced them. Xcel and other utilities, for example, have been running environmentally focused campaigns to urge consumer to use less energy recently, a message that might be taking hold.”
It will be interesting to learn the results of those finding. Smith doesn’t mention this, but it may also have been that as recently as July gasoline prices in much of the U.S. were above $4 per gallon. Smith notes that the declines occurred in the July-September quarter, when gas prices were still in the $3-4 range. Those prices might have caused people to cut back on other areas where they could. Electricity may have been one. As people have more disposable income because of the collapse in gas prices to $1.80 or less, their demand for electricity may resume. We’ll see.
The difficulty for utilities, as Smith points out, is determining what is the root cause because planning a portfolio of generating assets, to match future demand, is not a minor undertaking. Planning the capital outlays, siting, and engineering requirements of plants yet-to-be built is a difficult task that must make certain assumptions about demand and economic growth. There’s no doubt utilities are scratching their heads about whether conservation is really taking hold or short term price situations caused the decline in electricity consumption.
Whatever the case, it’s important that utilities worldwide keep their focus on the core issue here: utilities need systems that supply them with the best information for making business decisions. U.S. utilities are weighing one quarter’s information about the effectiveness of their conservation/efficiency campaigns against the mitigating factor of pricing and disposable. Utilities in other parts of the world have other factors to weigh in as well, including the state of their nation’s economic development and how quickly an upturn will increase demand. Obviously, a mature economy like the United States’ has fewer factors affecting demand than developing country, whose upward spiral (once the recession is over) may quickly outpace current generating assets’ capabilities.
So, on the one hand, utilities need to understand what is happening now. On the other, they need to be looking past the recession, to a time when demand and the resource shortages recently experienced may resume. They must do this when their own income may be affected, due to the fact that economies are reeling from a meltdown in the financial sector, and cost-cutting is at hand.
In our view, the current environment requires an increased need for Business Intelligence throughout the organization. Now more than ever, organizations need to get the right information to the right people faster so that they can make smarter, more informed decisions in line with corporate strategy and goals, whether those goals are short-term cost-cutting efforts or longer-term build-out decisions. We recommend that utilities focus on achieving five areas of business intelligence that can drive their business in good times and bad. Those areas include:
· Getting Real-Time Information – Let’s you see what’s happening right now.
· Find Profitable Customers – Target the right customers.
· Pivot on a Dime – Forecast and plan based on scenario’s and business conditions.
· Find Inefficiencies – Understand variances and drill to detail to find trends and make changes.
· Save Money – Know your cost structure and take action to ensure you hit the bottom line
Keeping these principles in mind can assist the utility as it struggles through the economic challenges of prosperity and consolidation.
One resource I would recommend for more information is viewing the video from the Microsoft Business Intelligence Conference where Microsoft Business Division President, Stephen Elop, talks about the Role of BI in an Economic Downturn.
Click here to view the video. – Jon Arnold