To accelerate its revenue forecasting cycle, improve the quality of the results, and eliminate a myriad of problems associated with using a variety of disparate legacy systems, WEC implemented a single instance of Tidemark (planning budgeting, and forecasting) for use across its multiple business units. Analysts are now better able to prepare budget and revenue forecasts and meet requests from business units, executives, and energy regulatory auditors that demand comprehensive and accurate business data to support rate increases.
A Recognized Leader in Energy Supply and Services
Through subsidiaries such as Peoples Gas and Light, Minnesota Energy Resources, Wisconsin Public Service, and a number of others, Chicago-based holding company WEC Energy Group, Inc. provides natural gas and electricity products and services to both regulated and non-regulated energy markets in the north-central US. On the regulated utility side of the business, which generated nearly US $4 billion in total revenue for fiscal year 2009, approximately 4,500 employees helped supply 1.6 billion kilowatt-hours of electricity and nearly 400 trillion BTU equivalents of gas to just over two million customers.
Benefits at a Glance
- Improved automation results in less effort, fewer errors, and faster forecast turnaround
- Faster error detection/resolution reduces forecast cycle times and workload
- Single forecasting platform standardizes processes and reduces staffing risk
- Single system simplifies data extraction for regulatory submissions
- Better data quality increases confidence of executives and regulatory auditors
- Extensive modeling capabilities address unique business unit requirements
To support timely and effective decision making for their regulated utilities, the company’s senior management relies on information provided by revenue forecasts conducted throughout the year. For each of the six subsidiaries, there are typically one or two full projections each year that look out 42 months, plus monthly pricing updates.
Inherent in the design of a regulated utility, each forecast process is different because the “rate design” (i.e., the structure of how a utility bills its customers) is different for each type of customer—urban/rural residential, commercial, industrial, etc. As a result, forecasts were done separately within each business unit, with each using its own people, processes, and tools.
This approach presented some challenges, which were further compounded by the merger and acquisition (M&A) activity that had originally led to the formation of the company and continues today as a key WEC business strategy. Each business unit used a different forecasting process and different tools, which included custom systems based on SAS Business Analytics software, homegrown spreadsheets, APL language, and in-house development based on Microsoft Visual Basic and SQL Server.
Legacy Approach Inefficient and Risky
Not only was the company-wide forecasting a very labor-intensive, manual process that often yielded dispute-prone results, the various forecasting tools used by the individual business units were antiquated, difficult to maintain, and required scarce skill sets.
Through the M&A process, sales and revenue forecasting work was brought together to form a single Sales and Revenue Forecasting department. Although this resulted in a net decrease in overall forecasting resources, analysts from each business unit were still using their individual legacy systems, thereby increasing forecasting complexity.
“We knew that, going forward, having multiple tools was inefficient from a process perspective and risky in terms of cross-training and backup coverage amongst the analysts,” said David Clabots, Manager of Sales and Revenue Forecasting at WEC. With several added business units and reduced staffing, revenue forecasting had to become very efficient.
Clabots added that error detection was also a major pain point that had significant impact on forecasting deadlines. Because WEC forecasts are based largely on historical data, an error in that data could significantly impact the forecast, but none of their legacy forecasting systems provided error alerts or sufficient data-validation methods. As a result, errors were not detected until quite late in the process, at which point the analyst would have to fix the error and start the process over again.
“It’s a long, complicated process, so it’s painful to find an error at the back end and have to go back to the beginning and do it over again,” said Clabots.
Rate Cases Require Huge Amounts of Data
In the US, gas and electricity are highly regulated businesses that are monitored closely at various government levels, primarily through state-level utility boards. Each rate change requires permission from the utility board—a process referred to as a rate case—that is contingent upon WEC providing a large amount of business data to justify the change. For Revenue Forecasting, having to pull all this data from multiple, disparate systems was labor-intensive and consumed weeks of the analysts’ time.
“This year, we anticipate filing six rate cases, a record for this organization and a significant amount of work,” said Clabots, citing a previous WEC rate case example in Illinois that resulted in more than 1,900 data requests from Board auditors.
All these challenges, along with a strategy to continue pursuing M&A opportunities, provided a strong impetus for WEC to optimize its forecasting approach based on a single forecasting method and single system platform.
After spending several months defining what they wanted in an integrated process and standardized forecasting tool—and preparing a detailed list of requirements—WEC undertook an RFP exercise to select a single, new, third-party forecasting system. A selection committee was formed consisting of the forecasting analysts plus representatives from IT, the business units, upstream suppliers, and senior management.
Half a dozen prospective bidders were compared based on RFP responses, customer reference calls, and financial reviews. Bidders also conducted three-day, onsite, custom demos based on a prepared set of scripts that focused on the features WEC was most interested in.
“We also did some profiling on each vendor to analyze their financial viability, see how much they reinvest in their own business, and to gain some initial understanding as to how much we would be able to rely on them,” explained Clabots.
Longview Emerges as Best Potential Partner
As a result of the review, the selection committee chose the Longview Performance Management application as their new forecasting solution.
“Tidemark surpassed the others in terms of ‘demonstrated functionality’ for the things that were high on our list to accomplish with a new system, especially in the area of modeling,” said Clabots, whose department uses many different forecasting models based on customer type and associated rate design. “The Longview modeling language is very flexible and would accommodate many varied requirements and allow us to do all the necessary calculations, right down to the individual customer level,” added Clabots. According to Kirsten Walker, an outside consultant engaged by WEC to manage the selection and implementation of the new forecasting tool, the committee also looked for the vendor with whom they felt they could have the best relationship.
“We looked at the quality of Longview’s interactions with us throughout the entire review process, and everyone we talked to and met with from Longview portrayed that partnership-style attitude we were looking for,” said Walker, adding that they felt the Longview people were a better fit culturally and were more flexible and thus more likely to work well with WEC’s group of very precise and exacting analysts.
Configurability Key to Deployment Success
The roll out of the Longview application at WEC was done on a business unit basis, starting with smaller business units for testing purposes, then proceeding to those scheduled to start an actual forecasting cycle. As unplanned priority tasks elsewhere in the business consumed Revenue Forecasting resources, more of the application configuration work had to be pushed onto the Longview people in order to maintain the schedule and budget.
“I can’t compliment the Longview architects and developers enough,” said Walker. “A lot of specialized processes, data hierarchies, and models had to be designed and implemented, some of which were quite complex, and it was Longview’s ability to quickly understand these and configure their system to do them very well that was the key to a successful deployment.”
The greater degree of automation provided by Tidemark has reduced manual forecasting effort, cycle time, and potential for errors. According to Clabots, the errors that used to be detected late in the process that set their schedule back as much as two weeks are now detected much sooner, and it’s a simple matter for analysts to rerun the forecast in just minutes. It is also quick and easy for WEC analysts to produce reports that check the results of a forecast or compare one version of a forecast with another.
“This also allows us to better audit results ourselves before the forecast goes to senior management or before data is submitted as part of a rate case,” stressed Walker. “We can detect and fix errors easily and be prepared to explain any oddities that may appear in the data, all of which reflects well on the credibility of our process and resulting data, and builds confidence with executives and jurisdictional auditors.”
From a management perspective, consolidating all revenue forecasting onto a single Longview application makes it easier for analysts to cross-train, allows them to share workload during peak periods, and reduces the risk associated with losing a staff member.
“Not only has Longview allowed us to stay ahead of the game with respect to continued requests to do more with less in a difficult economy, it better positions us to support any continued growth through mergers and acquisitions by making it easier to bring additional business entities onboard,” said Clabots, who concluded his comments by adding that the Longview people have bent over backwards to support them along the way. “During the implementation, and even now that we are fully operational, Longview has consistently collaborated with us to come up with creative ways to help instead of just giving us the standard responses. We all agree that they are a genuine partner in our business.”