Cap Gemini purchase preps firm for U.S. power market

Cap Gemini Ernst & Young Canada plans to use its acquisition of a joint venture with Ontario Power Generation as a springboard in the lucrative energy market in the United States.


consulting firm this week said its Business Transformation services subsidiary would purchase for an undisclosed sum Ontario Power Generation’s (OPG) 49 per cent stake in New Horizon System Solutions LP (NHSS). Cap and OPG formed NHSS in February 2001. The consultant had to exercise its option to purchase OPG’s share within the first two years of the deal. NHSS’s outsourcing contract with OPG will last nine years and will be worth about $1 billion, the companies said.

OPG has been faced with escalation of IT costs and downsizing as Ontario opens up the electricity market on May 1. It has had to “”decontrol”” a number of plants, which means that based on license requirements, it must give up the operational, bidding and sale control of its product on 4,000 megawatts of generating capacity within the first 42 months of market opening.

“”The intent was always the joint venture to close,”” said Dietmar Reiner, OPG’s CIO. “”The impact for us (of decontrolling) is when you look at a service like information technology, the per-unit cost of IT for a much smaller set of plants starts to go up. You lose economies of scale.””

Approximately 545 OPG employees will move over to Cap Gemini through the agreement. The consulting firm will also handle ongoing maintenance and support for a number of internal projects, like an overhaul of OPG’s supply chain that involved Compaq Canada.

Cap Gemini Ernst & Young Canada Inc. president Eric Morgan said the move was more than a purely Canadian play: the firm wants to become the lead outsourcer for the U.S. energy market as well.

“”Other than infrastructure outsourcing, there aren’t any really big deals, “” he said. “”We are pursuing the broader deals — the deals that include the applications side of the business, the business process, the customer care.””

“”The key components that are critical to us — the strategic decision-making, the design of the technology infrastructure and architecture — remains with OPG,”” Reiner said, adding that his group’s role shifts to more of a business discipline. “”We look more at investments, getting the right return on investments, making sure we set the right direction or OPG.””

Morgan predicted British Columbia will follow the lead of Ontario and Alberta in deregulating the sector, while Quebec will probably take longer. With deregulation, he said, comes a change in attitude.

“”They are thinking like businesses; they are acting like businesses,”” he said. “”The days of government monopoly are long gone, and they realize they’re going to have to compete.””

Reiner agreed. “”It takes some proactive management, for sure,”” he said. “”It isn’t unlike what all of OPG needs to go through as it deregulates. We (in IT) just got started a little earlier.””

OPG had originally awarded the contract to IBM in late 1999, but the initial transaction fell through right around the time Cap Gemini bought Ernst & Young, IBM’s partner for the project, Reiner said.

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