This article is about applications of business intelligence (BI) in the energy sector. My goal is to provide perspective on the industry for readers who are not familiar with it, communicate how BI is used in the various segments of the industry and provide my opinion on the opportunities for BI. A brief summary is difficult because of the scope of the industry, the large number of companies in it and the different ways in which BI can be applied. Figure 1 presents a typical breakdown of the industry and its key business issues.
The energy industry, like most others, is beginning to use business intelligence (BI) technology to aid management analysis and decision making. Accurate, usable and timely information is becoming recognized as an important factor in managing business operations. We will look at the business environment, the industry application of BI and a summary of BI opportunities for public utilities, oil and gas, and energy services industry segments.
Business Environment: Regulatory requirements have the most impact on the business environment for public utilities. Deregulation has slowed following the California energy crisis, Enron's collapse and recent disclosures of manipulation by energy traders; however, it continues to be a business uncertainty in states where it is being considered but not yet implemented.
Environmental impact is also a critical factor. Environmental impact affects emissions control at power stations, new construction and waste management for coal ash and nuclear waste. All of these add capital and operating expense to the generation and distribution of electricity and natural gas.
Industry Application of BI: There are several applications of BI in public utilities today. The most common are operations-focused support of finance, customer service and enterprise reporting. For the most part, utility companies are using BI to deliver information that shortens reporting times, consolidates data across the business, improves customer service and assists overall business operations.
A few utilities are applying more advanced BI capabilities used in other industries. According to Brad Davids, vice president of Primen, Inc., a subsidiary of EPRI (Electric Power Research Institute), some companies "integrate customers' energy patterns with consumer buying behaviors, analyze data patterns and determine likely buyers for value-added, non- commodity products and services" such as green (environmentally friendly) energy and whole-house surge protection. Using customer data enrichment and analysis processes at the Salt River Project identified customers two to four times more likely to buy "green" energy than the utility's customer base as a whole.
Another advanced use of BI is demand management. Public utilities such as Keyspan monitor actual and forecasted natural gas usage on a near real-time basis and post the results. This allows natural gas providers to adjust the volumes of natural gas they put into the system. In the electricity part of the business, this type of demand analysis is being performed in system operations or network control centers based upon real-time load analysis. However, industrial customers continue to look at lowering their energy costs through cogeneration and other options. Surveys have indicated that these customers would be willing to have such capacities dispatched by the utility. In this situation, demand analysis will become information that affects power generation.
Rates analysis (pricing in the deregulated environment) is another application of BI. Regulatory agencies look for information and analysis to justify changes in rates. The approval process for rate changes is filled with regulators' requests for new information and ad hoc analyses. BI is a natural application for this kind of environment. One utility used data from their customer data warehouse to substantiate their rate request with data and analyses that documented the impact on service quality. Combining service data, operational data, financial data and predictive analysis is the natural focus of rates analysis.
Summary of BI Opportunities: Overall, while there are several examples of BI applications, BI is used on a very limited basis in public utilities. Few utilities seem to use BI tools and technology on their own, and those that use it do so to create operational reports and standard queries. In general, while some companies are using BI diligently, there are significant opportunities to apply BI in the utility industry today. Using BI to understand business operations, control costs, and manage rates and pricing are applications that can provide value to any public utility.
Figure 1: Key Business Issues in the Energy Industry
Key Business Issues: The energy industry consists of finding, producing and delivering energy in all its forms: oil and gas; electricity; coal and uranium. The industry is capital-intensive - it takes a lot of money to find the raw materials, produce and distribute energy products. Energy products are commodities: oil, natural gas and electricity. The net result is that optimizing production and maximizing return on invested capital are critical to the industry as a whole.
Oil and Gas
Business Environment: Mergers and acquisitions have dominated the oil and gas industry over the past several years. The large oil and gas companies such as ExxonMobil, Royal Dutch/Shell and BP have global operations, broad business operations from exploration and production to distribution and retail sales, and the challenge of integrating their multinational operations. The business is divided into two categories: upstream, which includes exploration and production, and downstream, the refining and distribution of oil and gas products.
Oil and gas products are commodities and are, therefore, competitive based on price. This makes the industry cost-conscious and highly dependent upon the price of crude oil, the basic business driver in the industry and the raw material for production.
The one basic business factor that drives management is cost containment. Operationally, the refining and distribution processes are at the heart of the business; accordingly, there has been a great deal of attention placed on enterprise resource planning (ERP) and supply chain management (SCM) systems, especially in the challenge of integrating them operationally in a multinational business. This attention is due to two complementary factors: consolidation as a result of mergers and acquisitions, and efforts to minimize costs.
Industry Applications of BI: The primary application of BI in oil and gas companies is to help management consolidate operations and cut costs. The basic goals have been to shorten the time required to create reports and analyses, improve the accuracy of information and create a single information repository. The most common application areas for BI have been to provide financial reports and analyses, and support business operations with a special focus on ERP.
Integrated financial reporting and analysis has been a priority for many companies as they work to understand their financial situations and take action. This application of BI has shortened the time required to produce financial reports and provided the ability to perform ad hoc analyses. However, the problem of consolidating financial data from subsidiaries and keeping it consistent and accurate is an ongoing challenge.
This data consolidation problem also exists in integrating information from ERP systems that support an enterprise-wide view of individual subsidiaries. ERP systems support major aspects of business operations; but the implementations of ERP are inconsistent among company subsidiaries, even where the same ERP package is used. Many companies use the BI capabilities provided by their ERP vendor(s) to support business operations with reports and analyses using the data embedded in their ERP system.
Combining ERP and non-ERP data creates a choice: use the proprietary data warehouse structure provided by the ERP vendor or create a data warehouse independent of the ERP vendor designed to meet the company's information needs. Many companies have chosen the first alternative because it is perceived to reduce costs and leverage the company's investment in its ERP system. However, this approach may have constraints due to a set data structure and/or supporting software provided by the vendor. The second alternative is where companies have made major investments in CRM and SCM applications as well. Rather than select one major application as the enterprise-wide data warehouse, a BI approach independent of these major operational applications is used.
Shell Oil took a different approach to this information integration problem. Shell created software that would map meta data for each data warehouse to enterprise-level data definitions and descriptions that were needed for corporate reporting and queries. This meta data mapping allows enterprise-level reporting incorporating data from subsidiaries while subsidiaries use their data warehouse for their own business needs. The technical approach worked so well that the software that performs the information integration was spun off into an independent company, Kalido Ltd.
Summary of BI Opportunities: Oil and gas is a global, cost-competitive business. Technology investment priorities in the industry have been to improve exploration, oil field recovery and refinery operations. BI is a technology that can help management cut costs and consolidate operations effectively, and many oil and gas companies are beginning to take advantage of BI to gain these efficiencies. The challenge is to integrate information across a global business. The opportunities for using BI are to better understand business operations, control costs, manage risks inherent in fluctuating crude oil prices and (for those companies with convenience stores as well as gas stations) use retail analysis by category, shopping basket, inventory turns and customer segment to understand how best to benefit from this part of the business.
Business Environment: Oil field services, engineering and construction provide specialized services, including outsourcing core business processes, to the rest of the energy industry. Although specialized, these firms (including global companies such as Halliburton and Bechtel) can be very large. Companies in this industry segment may specialize in upstream and downstream aspects of the oil and gas business. They compete for projects that are usually put out for bid and are, therefore, focused on cost containment.
Energy trading is also part of energy services. Energy traders perform an important function for large industrial energy users: they help manage the risk associated with fluctuations in energy prices in a deregulated environment. However, the collapse of Enron and media stories of the shenanigans of some energy trading companies have filled the news in recent months, creating a public image problem for the industry. This creates uncertainty for the energy trading business, deferring technology investment plans.
Industry Applications of BI: Oil field services, engineering and construction use BI for financial analysis and control, cost containment and project tracking. It is important for the upstream services part of the business (as it is for oil and gas companies) to analyze field production volumes, production leases, market prices and production expenses. Downstream services (as with oil and gas companies) analyze supply chain performance, work management and capital investment strategies.
These companies deliver services on a project or contract basis. Financial and project tracking are cornerstones of the business, and BI technology is used mostly for financial analysis. Project tracking, work analysis and knowledge management are opportunity areas for BI in the non-trading part of the energy services industry.
For energy trading, the core business concern is managing overall financial risk. Using predictive analysis technology, trading patterns, price fluctuations and market-demand modeling can help determine risk.
Summary of BI Opportunities: The energy services industry, like other segments of the energy business, uses BI on a limited basis. Energy services companies are entrepreneurial, and the challenge for BI advocates is to provide BI solutions that enhance entrepreneurial ability and add value to the bottom line. Industry opportunities for BI applications include project performance and analysis, work analysis, inventory analysis and trading- activity analysis.
The energy industry as a whole is heavy industry at its finest: big money, big facilities and, for the most part, global scope. Information, in general, is not yet widely seen as an essential management tool that adds value to those who run the business. A critical success factor for those undertaking BI initiatives in the energy industry is to implement solutions that provide real payback through cost savings, production optimization and enhanced revenues.
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