Lights flicker on electricity IT projects

BY TOM PULLAR-STRECKER
Last updated 05:00 15/02/2010

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Trustpower has blamed former energy minister Max Bradford's electricity industry reforms for delays to information technology projects in the sector, saying complexities introduced into the electricity market in 1999 had come home to roost.

That claim was rejected by Mr Bradford, who accused the electricity retailer of whingeing and using his reforms as a scapegoat for its systems problems.

TrustPower announced to the stock exchange this month that it had suspended work on an $18 million project to replace its billing and customer management systems with Oracle software and would probably have to write off a portion of the $9.5m it had spent on the system to date.

Meridian Energy put a project to install Oracle software on hold in December in similar circumstances. Contact Energy last year raised eyebrows within the industry by budgeting up to $80m to replace its systems with software from Germany's SAP.

Contact would not comment on whether it believed any unnecessary complexities in the electricity market were behind the big bill, or had contributed to a decision by its original implementation partner, IBM, to pull out of the project, but said it was now pressing ahead with the investment.

TrustPower spokesman Graeme Purches says it became clear Oracle's software would need to be extensively changed to meet the demands of the New Zealand market, so TrustPower had decided to review its options.

Oracle had tendered software used in Australia that both companies believed would do the job, but the difficulty of dealing with 28 electricity lines companies that had their own ways of calculating tariffs, reconciliation with the wholesale market, and a variety of metering technologies meant the software would need to be largely rewritten.

"New Zealand is a complex market and it is probably no coincidence that three companies have had to pause projects and they are all in New Zealand."

Oracle was not to blame, he says. "Maybe there was an issue about us not communicating in enough detail what we were expecting."

Mr Purches says Max Bradford's reforms got it "really badly wrong" and the industry was still wearing the impact. "The logical thing to have done, and it is too late now, would have been to nationalise all the lines companies and put them into TransPower – everyone would just have had to deal with one lines company. But you can't undo what Mr Bradford did."

Mr Bradford says TrustPower always opposed his reforms. "It doesn't surprise me [Mr Purches] is continuing to whinge and blame them for TrustPower's problems with Oracle.

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"I suspect what is happening is a lot of companies are pulling back from investments until they see what effect changes [Energy Minister] Gerry Brownlee is making to the industry will have.

"All companies should get used to the notion the split between lines companies and retail-generators is going to stay."

He says Telecom was similarly split, through the operational separation of its retail arm and network division Chorus.

Mr Brownlee introduced a bill in December that contains a raft of measures intended to increase competition in the electricity industry. It would require lines companies to standardise their tariff structures. But it would also introduce some new requirements on electricity retailers that would need to be reflected in their billing systems, such as providing for compensation to consumers during electricity conservation campaigns.

The proposed law changes followed a review that found electricity price rises had been largely justified, but that retail margins for consumers were nevertheless too high.

Mr Purches says that while it would have been stupid to box ahead with the Oracle implementation without considering its options, TrustPower may still decide it is the best vendor. He expected the company would provide an update when it posted its full year results in June.

TrustPower and Meridian will continue to rely for the time being on billing software supplied by Auckland software firm Gentrack, for which the suspended projects represent an opportunity.

Meridian spokesman Alan Seay expected it would know more about the future of its stalled project in a few weeks.

Gentrack marketing manager Aaron Baker says it would be happy to give both retailers the systems they were after. He says there are "many complexities in the market" and big challenges ahead.

"We can deliver a solution in a fraction of the time and a fraction of the cost to help these guys compete." Gentrack, which employs 130 staff, moved into new offices in Ponsonby last week.

In September, it won a contract worth more than 1 million with Britain's Ovo Energy – the first electricity and gas retailer to start up in Britain for more than three years – which bought its "off-the-shelf" billing and customer management software suite GentrackNow.

WARNING FOR TELCOS?

Information systems problems in the electricity industry could be a taste of things to come for telecommunications retailers selling services over fibre laid as a result of the Government's $1.5 billion Ultrafast Broadband (UFB) investment initiative.

Fourteen lines companies have submitted bids to build fibre networks in partnership with UFB investment vehicle Crown Fibre Holdings.

IDC Research analyst Rosalie Nelson is concerned about a "hodge podge" of different pricing models for dark fibre being touted in the sector, that could pose problems for retailers.

Energy Minister Gerry Brownlee says the Government would like to see the number of lines companies fall, but will not intervene to force that change.

"I appreciate the problem of having 28 lines companies across a country the size of New Zealand. The British Isles has four and the industry itself needs to think about whether some rationalisation is necessary."

Mr Brownlee would not comment on the practicalities of consolidation occurring while Crown Fibre Holdings was conducting commercial negotiations with individual lines companies on the UFB initiative.

- The Dominion Post

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