Alternating Currents in Utility Regulation Cause Hydro One Deal to Change | Article

changing current - utility outsourcingHydro One, the largest electricity transmission and distribution company in Ontario, Canada had assembled an “aggressive business plan.”

This plan included reducing cost-up to 30 percent in some cases–while still maintaining the same or even better service. The plan also called for a complete business transformation which would be done simultaneously with the cost custting, recalls Jeffrey Smith, Manager, Finance.

The utility worried it could not accomplish its stated goals in the time allotted if it attempted to do this internally. The utility wanted no shocks about its outcome. “We didn’t want to take the risk,” he says.

Instead, Hydro One decided to outsource “to a credible third party who knew they could meet the schedules on our business plan.” In March 2002 Hydro One outsourced finance and accounting, payroll, customer relations management, settlements, supply chain, and IT to Capgemini, an outsourcer that has become a powerhouse in the power industry.

“We knew we could make good on our economic promises because we have a deep understanding of the industry and a long history with the client,” says Stephen Power, Account Executive for Capgemini. The 10-year contract guarantees that Capgemini will cut costs the required 30 percent by the end of the contract period. Smith points out that Hydro One will achieve much of that savings by next year.

Capgemini’s Flexibility in the Face of Change

In the middle of this contract, the provincial government changed the way it governs the electricity industry. Capgemini had to work with Hydro One to make sure the utility’s customers were treated properly according to the new rules. One requisite change: now part of the Hydro One’s systems needed adjustments to properly treat and bill the customer.

“We had to tweak this relationship to improve their services,” says Power. “Capgemini was flexible given our changing needs,” adds Smith.

Under the original assumptions, Capgemini worked on building IT services that addressed the new needs of a deregulated marketplace. Then, it suddenly had to make changes to Hydro One’s rate structure to reflect the reregulation in a very short time frame. “The deadlines were aggressive,” says Power. The Hydro One outsourcing arrangement integrates IT with its underlying BPO processes. Capgemini worked with the utility to make changes to its IT to support business process improvements which contributed to the cost savings required by the contract.

Both parties adopted a collaborative bond from the beginning. “We have developed a solid, open, trustworthy relationship,” says Power. “It’s required because of the complexity and size of the deal.”

Smith says the underlying goal of reducing cost remained the same. Dale Rooney, Contract Manager for Capgemini, predicts Capgemini will be able to reduce the costs even further when the two parties sign the next contract. “We continue to make the deal better every day,” he says.

Seeking Union Backing

One of the risks of business transformation was getting union support for an outsourcing deal, since 926 Hydro One employees were scheduled to join the Capgemini ranks. “We knew we had to support the unions because they were stakeholders. There was no deal without them,” says Rooney.

Smith says one of the reasons it selected Capgemini was that it was running a similar and successful engagement for Ontario Power Generation (OPG) that has the same unions. Rooney says Capgemini built on the good working relationship it had with the unions at OPG to make the Hydro One transition easier. Capgemini guaranteed all union jobs for two years, which helped generate union support.

Smith says one of Hydro One’s biggest fears was that there would be some interruption in their service. Adds Rooney, “Understanding the pace and degree Hydro One was willing to absorb and respecting their comfort level, we knew we could not complete a business transformation overnight, so we went very slowly and deliberately. We started out with high value, low cost and low risk changes.”

The relationship between Hydro One and Capgemini continues to hum like a high-voltage transmission line, remaining ready for the next challenge spike. If the rules change again, the two partners will be ready.

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