by DavidSpratt | Dec 13, 2016 | ICT
After a busy year trying to make sense of the changing ICT landscape I’m winding down for Christmas by attending as many customer and supplier events as possible. The prospect of free wine and food, stimulating conversations and standard speeches by sales managers delivers a mix of pleasure and pain.
I’ve also delighted in compiling my 2016 awards list of companies and individuals that have taken on the IT challenge and made a difference, one way or another.
The IT challenge awards go to:
(more…)
by chris | Nov 7, 2016 | Energy
Unfair contract terms provisions were introduced in March 2015 as part of changes to the Fair Trading Act. The provisions are designed to protect consumers from contract terms that create a significant imbalance of rights or obligations between the company and the consumer.
Energy Contracts in New Zealand
The Commerce Commission has now completed its review of retail energy contracts (including retailer feedback) to ensure that they meet minimum standards required by the fair trading act. While focused heavily around the consumer market the results of the review will have an impact on commercial customers.
This is mainly in the area of liability and automatic renewals with opt out clauses along with contract termination fees that are applied to auto renewed contract terms. A review of these clauses has been long overdue, as an adviser and consultant this is an area that we have always held a negative view and retailers have been at times very stubborn when proposed changes are requested. For our customers, clauses such as this have always been highlighted and further contextual information requested especially around liability.
Commissioner Anna Rawlings said,
The majority of the nine energy companies included in the review had made real efforts to comply with the provisions before they were introduced. However, we did identify 59 terms that we considered potentially unfair. Many of the terms were common across the contracts, particularly those that limited the liability of the company, allowed the company to unilaterally vary the contract or automatically renewed fixed term contracts unless the customer opted out.
The commission ruled on these areas as follows:
- Liability needs to be balanced between the retailer, customer and distribution provider.
- “Opt Out” contract renewals are not unfair per se but the commission does not look fondly on them.
- Termination fees cannot be charged on auto renewal agreements given that the customers have not signed a new contract term.
Of the retailers that had auto renewal terms in their small commercial contracts, some have dispensed with opt out renewals completely whereas others have agreed not charge termination fees.
Regarding the wider terms that were highlighted, in some instances the companies were able to provide information to the Commission to show that the term was necessary to protect the legitimate business interests of the company. In all other cases, the companies accepted the Commission view and have amended or agreed to amend the terms concerned.
Rawlings further commented,
We are pleased that the energy retail companies constructively engaged with us and were receptive to our concerns, avoiding the need for the Commission to consider court action. Most New Zealanders have a standard form consumer contract with an energy retail company or live in a house that is covered by one. Our review covered 90% of the energy retail market in New Zealand and New Zealanders can now be more confident about the fairness of those contracts, which is a great outcome.
With the review of telecommunication contracts in February and energy contracts now complete, the commission is now investigating gym membership and credit contracts.
Total Utilities reviews all contract terms and conditions prior to submission of recommended contracts to customers, this includes comments where applicable around required quantities, assignment, termination and force majeure along with project-specific needs.
by chris | Oct 25, 2016 | Energy
The MBIE has released their latest update of the Electricity Demand and Generation Scenarios (EDGS) which suggests that prices may remain lower for longer.
New Zealand Electricity Demand and Generation Scenarios
Under the Mixed Renewables projection – which is the base case for the 2016 update – the market would not see average wholesale power prices climb above $100/MWh, measured in 2013 dollars until about 2032. They wouldn’t get above $105 until after 2045. This differs from the 2015 update which projected $100/MW by 2021 and $110/MW after 2035.
Tiwai Turning Off?
Of the most interesting is the “Tiwai off” scenario assuming that the smelter closes at the beginning of 2018 and assuming that oil remains below USD $80/barrel until 2037. The drop in demand would see older thermal based generation such as the TCC and old Huntly units close within 12 months. Some gas-fired peakers would be built in their stead but no further wind capacity would be needed until 2027.
Assuming low GDP growth and demand averages an increase of 0.4% per year, the market would see wholesale prices average $93/MW in 2013 dollars to 2047. In this scenario pre Tiwai off national demand would not recover until 2032.
What you should know about New Zealand Energy Predictions
Other notable projections are:
- 1.35 TWh per year in 2050 coming from the transport sector.
- EV fleet to reach 1.77million by 2040 with 3200GWh of charging demand off set by 1600GWh of solar PV generation.
- 580,000 household solar systems installed by 2050. 66% of systems are likely to have batteries by 2040, by which time solar PV costs are expected to be down to $3.16/W for a 3 kW system, while battery costs are down to $167/kWh.
- A high uptake of solar and EV’s may drive average wholesale prices above $109/MW by 2035.
Further reading can be done here.
by chris | Oct 7, 2016 | Energy
Following a recent article on energy advisors published on LinkedIn by Energy Action CEO Scott Wooldridge, similar considerations apply to the New Zealand Market.
Correlations between the Australian and New Zealand energy markets
Similar to Australia, for a number of years now energy retail margins have been squeezed significantly due to increased market participation and retail options, increased fluidity in the ASX market and subdued energy demand leading to a lack of requirement for more generation capacity. Since late 2012 when over the counter retail prices dropped by around 20% to almost the same level as long term average wholesale Spot pricing, 3 year fixed price variable volume (FPVV) contracts have largely been priced at similar levels year on year.
With a large number of new entrant energy retail brands (some with or without ownership of generation assets) competition continues to increase which has assisted in keeping pricing down and keeping the big 5 honest. As energy consultants and advisors it is our job to ensure that customers get visibility of all available and reputable retail options and provide safety in the knowledge that pricing and contract terms / conditions are independently vetted before being accepted.
The energy retail space is not the only part of the market that is facing competition. In New Zealand there are over 30 companies offering procurement services for electricity and gas. The consultant and adviser industry for energy is not regulated, effectively anyone can put up a shingle and start a business that offers procurement services.
Questions to ask potential energy advisors
The quality of service and outcomes varies drastically. If it were my business, there are only a small handful of organisations I would consider using in New Zealand to obtain an energy contracts on my behalf. The following are few questions I would ask before engaging a professional services company to act on my behalf:
1. Does the company you are working with have certification with the Financial Markets Authority.
Post global financial crisis, New Zealand made a number of changes to the Financial Securities Act, this extended to any company offering trading or advisory services around energy futures, derivatives and wholesale market products. To comply with the act, companies must hold accreditation under section 38 as this ensures companies have a high standard of conduct and expertise when advising customers of their options.
2. Does your adviser or Consultant review the entire market?
There are currently 29 energy retail brands in New Zealand, however only around 15 or so can supply business and not all of these can supply all regions in NZ. A smaller number again can supply natural gas and LPG however, many consultants only obtain pricing from favoured retailers meaning customers may only see pricing from 4 or 5 companies. In cases like this the customer may be missing out on the best available pricing and contract terms from reputable retailers due to sub-par market evaluations.
3. So you get a report that only outlines the price of contestable energy…
Around 35% of electricity costs and around 40% of natural gas costs relate to third party charges such as transmission and distribution. While these costs are not contestable charges there may be opportunities to reduce the impact of these charges i.e. aligning capacity so it better matches peak demand or required throughput. Some networks also have the option for customers to move load groups to better suit their energy profile; this can also lead to annual savings. Are these charges being reviewed as part of the procurement process by your consultant or adviser?
4. Energy market intel – what’s happening?
The rate of change in both energy markets is only increasing. While we can’t necessarily predict what will happen, it is still important to keep your finger on the pulse. Does your adviser or consultant track wholesale pricing, the forward ASX curve, industry developments? Do you get regular updates in these areas? Knowing when to go to market and timing it right can have a massive impact on pricing obtained, it should not be a matter of waiting until the end of your contract term before looking at pricing as in most cases this will limit your options as you have to take what the market is offering or risk default business prices.
5. Contractual terms and conditions
While the Commerce Commission recently cleaned up anti-competitive clauses in energy contract, such as automatic renewals, right of renewals and right to match terms, there are still a few gotcha clauses to look out for, such as maximum and minimum quantities, assignment and conditions of force majeure. Does your consultant outline these issues in their procurement process and how they may impact you as a customer in the long term?
6. Large Energy Consultant or Adviser versus small Consultant or Adviser, does it matter?
A better question would be how many procurement exercises does the company you are looking to engage with conduct a year? The energy market is highly dynamic, energy retailers are entering and leaving the market at unprecedented rates and pricing models and practices are changing daily. If the consultant or adviser is not pricing in the market on a regular basis, then you and they are likely to be caught out by the market changes. Look for companies conducting over 100 procurement exercises per year, Total Utilities as an example conducts over 500 procurement exercises per year.
7. Insured or not?
For companies providing professional services, they should hold public liability insurance and professional indemnity insurance of more than $2 million dollars.
So are energy advisors friends or foes?
Energy advisors and consultants should develop a relationship with their customers built on trust. This trust is based on significant market knowledge and intellectual property, creative business problem solving and transparent processes while upholding strong business ethics to ensure sustainable business and commercial outcomes.
This is achieved by market wide reviews, in-depth reports and financial analysis to ensure that all angles are covered and customers get the best possible information to make strategic business decisions.
by DavidSpratt | Aug 1, 2016 | ICT
We talk to dozens of small and large companies around the country to help them modernise and streamline their ICT needs. We frequently hear about an issue that’s important to managers everywhere: a supposed lack of control over the growth of these as-needed costs. In many cases, the concern isn’t a technical issue, it’s a management one. It is also one that can be modelled and controlled.
You can always spend more money on cloud services, but you shouldn’t be surprised by your monthly bill. In an ICT/cloud infrastructure model there are three basic levers that need to be managed in order to control costs and consumption. Let’s take a look at each of them.
1. Establishing proper authority to buy services
Picture a junior technical person happily sitting at their desk with ideas running freely through their inexperienced but giant brain. “Eureka!” they cry, “I can solve my technical problem by using loads of storage on a huge server”.
Reaching for the department’s username and password, our intrepid techo accesses a public cloud service provider, nails up the required infrastructure and sets to work.
Our junior techo never actually switched off the environment they created; in fact it was so useful that it became the test bed for the whole department. Nor did they even have the delegated financial authority to spend the money.
Two months later a finance person, waving an eye-wateringly large invoice, arrives in the IT manager’s office. The company was committed and the money spent before you could say “breach of process”.
2. Controlling storage and backup growth
For the past 20 years organisations have grown their storage at around 70 per cent each year on average, as shown in the diagram below.
The diagram shows you were able to negotiate a 20 per cent price reduction every year for six years while backing up 70 per cent more data annually. Monthly backup charges have grown from $200 per month to a whopping $930, despite aggressive price reductions.
3. Monitoring the proliferation of server infrastructure
Our intrepid junior techo has moved to an organisation with more “flexible” IT policies (that means no policies, in case you needed clarification). Techo’s new boss has just turned up waving an unexpectedly large invoice and demanding a reduction in the number of servers.
We can’t do that! says our techo, These servers are all essential to the running of the business.
Flummoxed, the IT manager storms off, wondering just how to handle the inevitable conversation with Ms Money, the chief financial officer. Ringing in his ears are the words: “Don’t give me problems – I want solutions”.
How to manage each cost contributor
Authority to buy services
A good thing about most cloud service providers is they offer some form of budget control solution, however, organisations need to understand the spending risk and put in place internal policies around just how and when cloud services are consumed.
Storage and backups
I have yet to find a multinational backup software provider that seeks to reduce the amount of data their users back up – hardly surprising as they charge by the Gigabyte.
To get on top of this problem, measure performance against agreed limits on storage and backups, and ensure technical people apply tools like deduplication (ie, only backing up one cat video shared on email), aging non-critical data, and long term archiving.
Measuring performance requires active monitoring by those in senior positions. I use a tool that reports in real time. and used properly incentivises the IT team to actively manage the challenge, and delivers the satisfaction of real financial results for their efforts.
Server infrastructure
Just as with backup software suppliers, server support providers are hardly incentivised to shut down servers when they charge a fee for every server they manage.
The answer for managing costs is the same as for storage and backups: agree overall targets, and drive to these.
Remember, although some servers are actually mission critical, not all are. Switching off a system just to hit an arbitrary target could be catastrophic, so key stakeholder input is as important when switching them off, as it is when switching them on. Monitoring server utilisation can quickly identify significant savings opportunities, and places the onus on the technical folk to justify why a server can’t be switched off in the low season.
Baseline what you have, analyse the projected and actual costs, and monitor the inevitable ebbs and flows of a dynamic IT cloud infrastructure. The rewards will be huge, the savings real and the risk negligible when you get this right.
If you’d like help modelling your ICT management, get in touch with me using the details below.
by DavidSpratt | Jul 12, 2016 | Case Studies, ICT
The year 2013 was tough for Zespri.
The PSA virus was decimating its growers’ high value, gold kiwifruit crops across New Zealand. As well, a major initiative was underway to help growers replace existing cultivars with a more disease- tolerant variety, Sun Gold.
The hope was that this cultivar’s vigorous fruiting qualities would also lead to strong production, that it would be outstandingly successful with consumers, and help sustain the growth of the industry.
The Zespri board and executive had witnessed the devastation of the Christchurch earthquakes and the Japanese tsunami, and recognised a risk to their offices in Mt Maunganui and backup IT services in Tauranga. Zespri operates a global supply chain, and losing its IT services could leave crops unpicked, left in storage or stuck on wharves anywhere in the world.
To compound the challenge, Zespri’s IT infrastructure was approaching end-of-life, and required a substantial capital investment to upgrade and enhance existing services.
In short, the kiwifruit marketing, grower-owned company faced the following risks:
Financial risk
A substantial capital investment is a challenge to any business. The competition for funds is fierce. In this case of an IT upgrade there would be a multi-year burden on the balance sheet as the items depreciated, whilst uncertainty swirled around the business’ long term viability.
Scale risk
If the crop yield grew as hoped, then there was a need to quickly scale up to markets new and existing. If the crop yield fell then the IT investment would be oversized compared to the need going forward, with the burden sitting on the balance sheet. Either way, replicating the current IT environment was not the answer.
Natural disaster risk
Christchurch’s earthquakes and Japan’s tsunami had changed the risk equation for Zespri’s business forever. Natural disasters were now a very real threat to continued IT service in a 24/7/365 global enterprise. Were data centres, even if distributed across the North Island, really a robust answer?
Global reach risk
Offices across the globe required access to IT services, many of which were operated out of Mt Maunganui. These services were delivered via complex, secure VPNs (Virtual Private Networks). Technically this approach worked, but it placed all the business’ eggs in one basket. With a real business need for application access via mobile phones, tablets and roaming devices, VPNs seemed a very complex way to access services. The question came from above:
I get easy access to Facebook and LinkedIn when I am travelling. Why not my business information?
Support risk
How does a New Zealand company deliver acceptable levels of support to cities across the world? What if the network connection goes down in Tokyo during the peak season? Who do you send? What service guarantees are there? Who gets priority in a major crisis?
The solution options
- Keep things as they are: unacceptable.
After the earthquakes and the tsunami, having two data centres within the same region was now seen as just too plain risky.
- Moving to new, geographically separate hosting facilities: marginal.
- Moving equipment and services into a hosted environment didn’t solve the problem of scaling up and down, or offer a financially sensible option. Commercially, Zespri would have to upgrade the IT equipment to have it hosted, or sign up for a fixed term to have a supplier own and operate it on their behalf.
- Shove it all up into the cloud: scary.
But that is exactly what they did.
Growth enabled
Now three years later Zespri is in growth mode. The gold crop is producing record numbers and is in demand across the planet.
The IT systems scale up and down as seasonal and market demands require, consuming services as needed and switching them off when not required.
Costs are no longer tied to capital investment. The IT financial model is consumption-based with close monitoring and management of expenses using a combination of financial analysis, real time online analytics provided by Total Utilities and constant reappraisal of the business’ requirements based on the insights delivered.
Access is via a stable and secure data network, delivered by a world class provider. The supply chain resides in multiple Microsoft Azure data centres globally, ensuring business continuity.
This managed, outsourced Azure environment delivers critical supply chain services globally. Coupled with Office 365, Skype for Business and SharePoint, Zespri is competing for market share on the world stage. It is able to scale with speed, delivering a robust and repeatable IT environment as new offices open and new services emerge and evolve, and all this at a lower cost per tray of kiwifruit than was previously thought possible.
No innovation comes without a new set of risks and challenges though. As with international roaming mobile data services, bill shock can be an issue.
In my next post, I will address managing and monitoring consumption-based IT services locally and in the public cloud.
David Spratt is director of ICT at Total Utilities. Email [email protected]
