What's ahead
The same investment bankers who created the oil majors could well be the folks who trim the ranks of U.S. investor-owned electric utilities to single digits. Though they may not have any skin in the game after the deal is completed, the bankers still will have to convince their clients that "bigger is better" actually benefits utility shareholders. To do so, they will undoubtedly point to the returns that shareholders of the oil companies have reaped and emphasize that the models on which those mergers were based are valid across the entire energy-industry spectrum.
Also look for this trend: plant managers partnering with management and IT consultants for state-of-the-art technology and outsourcing platforms through which plants can access and leverage knowledge and best practices from other industries. This will achieve two goals:
- Making outsourcing even more effective. Few utilities have systems as capable as those of BPO providers at executing enterprise resource planning, billing, customer care, IT management, and supply chain management. By outsourcing these functions to a BPO provider, a generation portfolio can be run at maximum efficiency while minimizing the culture clashes between the acquiring and acquired companies. This also offloads from fleet and plant managers the responsibility for migrating their IT systems to a best-in-class platform.
- Making asset optimization a core competency of merged utilities. Investors in a mega-utility deal will want to know that the savings realized will be sufficient to fuel the operations of every plant within a fleet environment. This will require leveraging ISCM capability to optimize shared resources and services. The integration of business processes and technologies with predictive asset optimization technologies will raze the information silos that prevent many large organizations from achieving their full profit potential today.
Innovation unleashed
In the electric power industry, plant management is where the rubber meets the road. Without a doubt, day-to-day O&M practices have the greatest bearing on a plant's ability to generate electricity and revenue. Given their leadership role in this process, it shouldn't be surprising that plant managers have been responsible for conceiving and field-testing many of the innovations that have made the U.S. generation industry the envy of the world for its reliability.
Yet the traditionally close regulation of the utility industry has occasionally served to restrict plant managers' ability to bring innovative ideas to the table. Bound by PUHCA and other legislative handcuffs, utility and plant managers have been forced to play on what is, at times, a tilted playing field, where the resources enjoyed by one company are either denied to or unattainable by another.
Those days appear to be numbered. The new regulatory environment—one that is expected to bring about an unprecedented level of M&A activity—promises to unleash an equally unprecedented level of innovation in the industry. Although it's not yet clear whether the promised benefits of the mega-utility mergers will pan out, it's easy to predict who'll continue to lead the way in innovation—plant managers.
—Paul Halpin is a senior manager at Capgemini; he can be reached at 713-213-2708 or paul.halpin@capgemini.com. Amin Bishara is a vice president of the firm; he can be reached at 972-556-7189 or amin.bishara@capgemini.com.
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