Competition from “digital disruptors”, prolonged economic uncertainty and the move to greener energy sources all make it extremely tough to be an energy utility today. So when Ofgem introduced price controls through its RIIO regulatory framework (in 2013 for electricity and gas transmission and gas distribution, and 2015 for electricity distribution), many saw it as a headache they could have done without.
RIIO, however, looks likely here to stay. The regulator’s public promises to rein in energy profits are popular with today’s pound-stretched consumers. RIIO2, which affects gas and energy prices from 2021, is set to place even more pressure on network companies to streamline costs and improve productivity than its predecessor.
RIIO2 states that network companies must submit eight-year business plans out to autumn 2019, which may seem a long way off. However, as many discovered with RIIO, the amount of data that must be collected, aggregated and analysed means planning can easily take more than a year.
CPM to the rescue
Legacy enterprise resource planning (ERP) systems and spreadsheets on their own do not have robust enough reporting tools to support RIIO2 or any other regulatory compliance planning. However, they can be augmented with modern corporate performance management (CPM) systems, which can slash planning times by consolidating financial data held in multiple systems and automating some of the more tedious and error prone manual tasks.
A key RIIO challenge is that it forces energy providers to think and plan systemically. This means network companies have to be able see the big picture, and also how all the moving parts are interconnected. CPM systems can bring all those moving parts together without forcing companies to abandon their existing systems.
What to look for in CPM systems
• Hooks to SAP and other ERP systems. Look for systems with connectors to your ERP system so you can automatically ingest all relevant data – such as asset registers, workforce planning, financial data – then aggregate and analyse it for business planning.
One of our customers shared with us an all too familiar scenario. It used to spend a full month producing monthly resource utilisation reports on exported SAP data in Excel pivot tables. The reporting delay made it difficult to troubleshoot resource issues.
Using CPM, the company now runs resource allocation reports every Monday on the previous week’s activity. It addresses resource allocation concerns as they surface in order to give the best possible service. Reliable data enables the company to build up its RIIO2 business plan job by job and identify and track initiatives for service improvement.
• Graphical workflow. Typically when companies start business planning, people in different departments go off to work on their plans independently. At the end, someone has to pull all the information together. Without a standardised approach, chaos ensues in the form of inconsistency, version control and quality problems. It is not unusual for this consolidation exercise to occupy 80 per cent of senior management’s time over more than 12 months.
A modern CPM tool can manage the workflow to graphically show which teams have completed their parts of their business plan and which are in various states of progress. The importance of this capability in delivering planning quality and efficiency cannot be overemphasised.
• Integration with Microsoft Office. Similarly, before sending in a massive pack to Ofgem in Excel with numerical data, you first must submit a business plan in Word. As before, it’s not uncommon to have 50 senior managers working at the same time, trying to collate a massive Word document. Look for a CPM tool that lets multiple users collaborate in Word and other Office products, with different sections allocated to different people.
• Bridges management and regulatory reporting. The way companies traditionally report does not align with regulatory reporting frameworks. Regulators want, for example, IT to be broken down by network-related IT and business IT (ERP systems, etc). Look for software with an allocation engine that allows you to crank all those allocations through automatically.
One customer had been previously making these allocations in Excel once at the end of every year, which took a whopping six months. This meant that even though the company could see immediately how well it performed against its management budget, it and its shareholders only know six months later how it performed against its regulatory budget.
There’s no denying that for energy companies, RIIO2 reporting is a headache that could be done without. However, introducing a modern CPM system to support compliance will also provide visibility to help drive better day-to-day decision-making, improve negotiating power and even react more efficiently to unplanned events, such as storms.
Most importantly, if you have been proactive in preparing for and complying with RIIO2 this alone will help you to face down digital disruptors, innovate and adapt to the new energy economy.