Power industry IT spending on the rise

Regulatory compliance efforts and investments in grid reliability and security systems should help fuel a marginal increase in IT...

Regulatory compliance efforts and investments in grid reliability and security systems should help fuel a marginal increase in IT spending among big energy companies this year, according to research released by Meta Group.

The 5% IT spending gains for power companies - calculated as a percentage of revenues - is largely in line with 3% to 5% technology spending increases previously forecast for other industries this year by Meta and other research firms.

The Meta estimates are based on a survey of 37 power companies in North America, the UK and Australia which it conducted at the end of 2003.

The average size of companies surveyed was $4.7bn in annual revenue, said Zarko Sumic, an energy industry analyst at Meta Group.

Despite the moderate IT spending gains forecast by Meta, the emphasis on cost-containment strategies among energy-industry IT departments will continue to linger.

Energy IT departments "will be charged with managing costs and delivering added functionality, while improving system efficiency and reliability", Sumic said.

Efforts by utilities to optimise their IT activities this year further will be driven, in part, by a desire to improve operational and business-process efficiencies between siloed power generation, distribution and retail divisions.

Cost containment should also result in a "significant" increase in IT outsourcing among US utilities, although US power companies will continue to lag behind their peers in Canada, the UK and Australia in terms of the percentage of IT activities outsourced.

That is largely because US utilities have not been as quick to adopt IT asset management models, Sumic said.

US power companies, which have been reluctant to outsource significant chunks of their IT operations, are most likely to begin farming out activities such as infrastructure maintenance and network management, followed by application support.

But while a growing number of companies in industries such as financial services has jumped on the offshore outsourcing bandwagon to reduce technology and labour costs, US power companies face regulatory concerns, said Sumic.

"A lot of the chief information officers I'm talking to have been hands-off on offshoring," said CD Hobbs, a senior vice-president in Meta Group's Executive Directions consulting practice.

Their reluctance is being fuelled by proposed federal and state legislation aimed at restricting offshore-outsourcing activities, particularly when there are security implications of foreign workers who have access to US customer accounts, said Hobbs.

But Roger Gray, chief information officer at PG&E, said US power companies are merely casting homeland security concerns as "the bogeyman" since the nationwide rancour and political turmoil over evaporating US IT jobs "is more of a public-policy issue".

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