Market restructuring to drive higher energy IT spending

Although IT spending in the energy industry is expected to contract by 5 percent this year as companies cut back on infrastructure and enterprise applications spending, market restructuring is expected to generate an upside in lines of businesses such as transmission and distribution, according to a new study by Meta Group Inc.

For instance, an initiative that's aimed at creating a more competitive national wholesale electricity market should help lead utilities and other transmission companies to invest more heavily in areas such as electronic metering and energy management systems, said Zarko Sumic, vice president of energy information strategies at Stamford, Conn.-based Meta Group. That effort, called Standard Market Design, is being driven by the US Federal Energy Regulatory Commission.

The demand for those types of technologies should lead transmission groups to double their IT spending this year from 4 percent of their total IT expenses to 8 percent, said Sumic.

Meanwhile, state initiatives aimed at freezing power rates for extended periods will force power distributors to become even more efficient in order to maximize profits, said Sumic.

Under the current model, most public utilities set their own power rates to guarantee a rate of return. But that doesn't offer an incentive for their distribution units to be as efficient as possible, said Sumic.

Once some states begin freezing rates -- a move that's likely to begin in the Northeast -- many distribution groups are expected to make short-term investments in work and asset management systems, mobile computing and workforce management systems, and decision-support systems, to help drive organizational efficiencies, he added.

Several energy industry IT managers attending the conference said Sumic's predictions map pretty closely with their own plans.

For instance, while Snohomish County Public Utility District No. 1 has not yet seen a rise in line-of-business IT spending, "we're hoping to convince business managers on the transmission side to invest in preventive maintenance detection systems for some of our substations," said Angela Druckman, a business analyst at the Everett, Wash.-based public utility.

Her group is also hoping to invest more in IT systems that it can share with public agencies. Early last year, Snohomish implemented a new land-based geographic information system (GIS). Once some of the state's public agencies found out about the system, they wanted to know if they could access it for their own needs, said Druckman. "That helped us recoup quite a bit of our GIS investment," she added.

Others are feeling the brunt of market restructuring on the other side of the world. For instance, South Africa is in the process of deregulating its power industry, thus forcing the country's biggest utility -- Eskom International -- to "break off pieces of our business and become more customer-centric," said Pieter Steyn, manager of e-business development at Eskom Enterprises Pty., a division of Eskom International in Midrand, South Africa.

As such, Eskom is planning on investing more in the customer relationship management portion of its SAP enterprise resource planning system, said Steyn.

While line-of-business IT spending might be on the rise at some energy companies, others are still feeling the pinch across the board. "All parts of our organization are under pressure to reduce IT costs and spending, even in our transmission group," said an IT manager for a large West Coast utility who requested anonymity.

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