Outsourcing Mandate to BC Hydro Produces More Responsive Utility | Article

light bulbAs the new millennium dawned, troubles were on the horizon for BC Hydro, the primary electricity provider for western Canada and one of the country’s largest utilities. It delivers electricity to 94 percent of British Columbia’s population.

Deregulation in the utility industry was having a trickle-down effect to how even non-regulated utilities were beginning to do business. Greater emphasis on better customer care and the development of better back office services to manage both customer care and other business processes was drawing the interest of the utility’s sole shareholder, The Crown Government of British Columbia.

“We’re also soon to lose our monopoly status,” says Jay Grewal, Director of Business Partnerships for BC Hydro. “In order to remain competitive in what would soon be an open market, the Crown told us we had to outsource all non-essential business operations on par with what deregulated utilities were doing.”

Grewal says the government’s new energy policy fortified the utility’s need to outsource to remain competitive. “Though we’ve been regulated, no one scrutinized our costs, until now,” she explains.

At the same time, the utility was creating a separate transmission company to deliver power to the new electricity retailers that the soon-to-be deregulated utility landscape would create. Through its wholly owned power-marketing subsidiary, BC Hydro is extensively involved in energy trading outside the province.

This was the environment that led to a massive 10-year, $1.45 billion IT, customer care, and BPO outsourcing deal between BC Hydro and Accenture’s Business Services for Utilities (ABSU) unit. The contract touched virtually every area of the utility.

Big Savings and Risk Mitigation

There are two primary reasons why utilities are outsourcing more, according to J. Christopher Perdue, Senior Director of Market Research for UtiliPoint International, Inc. The first is cost savings. He observes that the estimated level of savings in some of the recent business process outsourcing deals is in the hundreds of millions of dollars. “That makes everyone sit up and take notice,” he says.

The other driver is risk mitigation. Utilities are historically risk averse. They see outsourcing as an opportunity to reduce risk of a system implementation process that can be beset by cost overruns and delays. They also see it as a means to avoid adopting technologies that could become quickly obsolete. “Having a partner to help shoulder these risks has strong appeal,” he points out.

BC Hydro had benefited from a consulting relationship with Accenture for many years prior to the beginning of its contract in the spring of 2003. The deal enables BC Hydro to realize cost savings of $250 million over the life of the contract, with potential for an additional $180 million in savings. As part of the deal, 1,564 employees, a third of BC Hydro’s staff, joined Accenture.

The objective through this transfer of employees was to create cultural change within BC Hydro, better leverage its competitive edge, and create an environment conducive to more business development for the utility, according to Grewal. The goal was to create a new business model, she says.

Valuable Changes in Customer Care

The relationship impacted every aspect of BC Hydro’s service areas, including customer care, information technology, back office applications, human resources, finance and administration, supply chain and procurement, and building office services.

But a prominent driver for utility outsourcing is improving overall customer care, according to Utilipoint’s Perdue. “There’s a renewed focus on it,” he says. “Utilities are placing more emphasis on how their business operations interact with the public,” he notes, adding that more efficient customer care helps utilities retain their market share and improves the balance sheet through the dual benefits of higher revenues and lower costs in generating them.

According to Bill Morris, President of ABSU, customers now expect a higher level of service even in deregulated markets. So managing customer care is a sensitive point for any utility. “Everyone wants to reduce cost-per-call, regardless of whether the utility sees customer care as a revenue source or a revenue drain,” he says.

The outsourcing relationship impacted two primary customer care areas, according to Grewal: call center services and IT systems. “To date, about 95 percent of our expenditure has been in those areas,” she says.

One process that has received much attention in the reformatted BC Hydro customer care unit is billing and payment. Both partners are working to reduce these exceptions to the point of approaching what is known as “lights-out billing,” which requires no employee involvement under normal circumstances because it is systems-based. Standardization and simplification of rate structures are necessary, according Morris. “But the benefit of improving customer relationships and lowering per-customer-cost appeals to all the utility companies we’ve presented this program to.”

ABSU’s Morris sees growing interest among utilities for more comprehensive BPO support service offerings. “Outsourced customer care alone for utilities in the North American market represents a revenue potential of $10 billion annually, while other services that support it have annual income potential of $30 billion,” he says.

Single Point-of-Contact Partnership Produces Mutual Gain

Because the model for the future has British Columbia delivering electricity to the public through a variety of sources, BC Hydro’s outsourcing relationship with ABSU is an excellent training ground for learning how outsourcing works from a provider’s perspective, according to Grewal. “We’re applying what we learn to our new power transmission operation,” she says. “One of the important lessons is how outsourcing providers can best work together with their clients.”

As BC Hydro was developing its blueprint for an outsourcing relationship, the way it interacted with its provider was critical. As the plan developed, a single point-of-provider-contact model between the two firms emerged as the best formula.

“We weren’t mature enough for a multi-provider model because we didn’t understand how to effectively manage such relationships,” she says. But even if the utility had been mature enough to support a multi-provider relationship, there was another, more important factor. “Personally, I’ve learned that multi-vendor models work best if you can discretely separate bodies of work. For us, so many of our processes are linked in some fashion. So a single point-of-contact relationship just made the most sense.”

BC Hydro continues to receive service at the levels consistent with, or better than, those received prior to the outsourcing agreement with ABSU, according to a published report by the Canadian Electric Association in the fourth quarter of 2004. It states “all critical service levels have been met and financially the contract is on target. Spending for the first quarter of fiscal 2005 was $2.2 million or six per cent better (less) than planned.”

The report also lauds the fact the relationship was able to meet its fiscal objectives during a period of increased volatility and uncertain prices in the electricity trading market.

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