Mastering Change with an Upgrade

The liberalized energy market is good news for consumers. It ensures fair competition and is achieved through the forced separation of energy supply and grid usage. This has long been the situation in the United States and the Netherlands, but in countries like Germany, utility companies held a monopoly until 1998 in their role as both grid operators and energy suppliers. However, since 1996, when the European Union published its first directive on the liberalization of the electricity market, some changes have been made and others are still pending.

When it comes to the supply grids, the grid operators still have a monopoly, but to ensure that they do not exploit this to the detriment of consumers or the advantage or disadvantage of individual energy suppliers, the charges for usage of the grids have been regulated by the state. This new situation represents a huge challenge, particularly for corporate IT.

One of the main tasks for example is the unbundling required at two levels: IT and accounting. A further challenge is the regulation of incentives – which will determine the grid charges as of January 2009 – and the efficiency targets associated with this. Smaller suppliers and municipal utility companies, in particular, fear they may not be able to meet the requirements if they have to measure themselves against the most efficient companies.

Lessons learned from abroad

In view of these changes, the Utilities working group developed a strategic concept – for the first time in the history of the DSAG working groups. The “Handlungsempfehlung Strategie SAP ERP 6.0 for Utilities” (“Action recommendation strategy SAP ERP 6.0 for Utilities”) describes how to react to the situation, and reveals that the companies in Germany and other EU states can benefit from the experiences of other countries.

SAP is not starting from scratch in its work either. “A few key functions that we now need have already been defined by SAP as a result of its international business, and can therefore form the basis for the IT implementation needed for the requirements of today and tomorrow,” says DSAG chairman Willy Maertins. These functions are available in SAP ERP 6.0, the solution investigated in detail in the action recommendations.

The advantages of the SAP solution are clear to Maertins and the spokesman of the Utilities working group, Stefan Helnerus: The requirements relating to the standardized change of supplier and harmonized customer and communication processes are already covered by SAP ERP 6.0. The software meets both the technological and functional prerequisites for allowing companies to meet future requirements. This relates for example to the areas of service enabling. Meter reading, for example, was traditionally an internal function.

Now, though, the task is performed by a service provider, which receives requests from various suppliers, processes these within the agreed time, and returns plausible values. The service provider therefore has its “own market” and must act accordingly. This market is served for example by advanced functions: “intelligent meters” do not just provide meter reading services, they also offer new characteristics such as service restriction and different rates with customer-defined periods.

Made in Germany, applicable for Europe

Around 20 industry companies, including the utility “giants” E-ON, Vattenfall, EnBW and RWE, as well as small and midsize companies such as the municipal utility companies in Munich and Magdeburg and another 20 consulting firms were involved in the “action recommendation strategy SAP ERP 6.0 for Utilities”. Even though there are about 900 electricity suppliers and 600 gas suppliers in Germany alone, Maertins and Helnerus regard the participating companies as a representative cross-section of the industry.

In their opinion, the strategy document is also important on an international scale. “The priorities may be different, because every country has different requirements relating to the timeframe for the liberalization of the energy market. But we can apply the methods to other countries,” says Helnerus.

Helnerus believes one of the major challenges of the coming years will be process efficiency: the EU requirements need to be implemented at the lowest possible cost and the processes in the companies must be highly automated. Many enterprises therefore carry out maintenance of the distribution grids on an individual basis. Depending on their history and number of employees, a wide variety of processes are used.

The specific maintenance costs could be reduced through standardized processes, because efficiency can be increased with non-variable parts, shared warehouses, and the known skills of the employees. 55 percent of municipal utility companies hope that this will give them a competitive edge. In addition, a further concentration of computer centers and the outsourcing of IT tasks is expected in the coming years. 60 percent of municipal utility companies have already outsourced some of their IT tasks, and of these, 60 percent plan further outsourcing.

The separation of the supplier and operator roles is also reflected in communication from these market participants: They previously dealt with internal postings, but now, contracts between suppliers, customers, and grid operators need to be concluded and executed. This is only possible in a cost-effective way through largely automated communication. Ideally, the IT systems would exchange information directly and without manual intervention, but in reality, things are not this far advanced. “It all comes down to the quality of the data,” says Maertins.

The higher cost pressure caused by increased competition will also lead to other developments. For example, the Utilities working group expects that unbundling and outsourcing to process and IT service providers will create new organizations. Other fields of business will also open up based on the utilities core competencies. The roles within the industry will be redefined, and as a result, enterprises will be faced with a significant amount of work, which can only be mastered with suitable IT.

In favor of SAP ERP 6.0

The study presents three action options and looks at whether the specified requirements can be met with them. The market developments among suppliers and grid operators are taken into consideration, along with the potential for companies to achieve optimization or reduce costs.

The first option considered is maintenance of the status quo with IS-U 4.64 and a modified IDEX version. In this case, a company would not be able to carry out a technical or business release upgrade. The new requirements would be met either with enhancements and manual processes or through the integration of external systems. According to the Utilities working group, maintaining the status quo is not advised, as this would not allow industry requirements to be met.

The second option involves a technical release upgrade of SAP R/3 4.6c and IS-U 4.64, with the software configured as a dual contract system for grid operator and supplier. The target technology is SAP ERP 6.0, likewise configured as a dual contract system. This purely technical upgrade does not involve a change to the system functionality, so that while a modification cleanup is possible, no new requirements are implemented.

According to DSAG, this release upgrade is “essential” and should be “carried out immediately.” The reason for this urgency is that the “required modifications in line with market requirements must under no circumstances be impeded by a technical release upgrade at the wrong time.”

The third option is a strategic and business release upgrade, in which new functions from SAP ERP 6.0 are used for process optimization. According to the action recommendation, this upgrade should be planned for the coming years based on an overall strategy and should be independent of the current IT. This can only be done if clear organizational rules exist for the interrelationship between the core segments and the service providers for processes and IT.

However, as the utilities industry is undergoing a period of change, which according to Helnerus will last another three to seven years, the approval of binding conditions for a long-term system architecture will be hard to achieve.

Ultimately, the creators of the study make an unequivocal statement, which Helnerus sums up as follows: “SAP ERP 6.0 will be a must for companies, because otherwise they would be cut off from technological developments.”