Q&A with Direct Energy’s Kumud Kalia: When Technology Drives Innovation

Recently, Computer World magazine named Direct Energy to its “Premier 100 Best in Class” list. The company’s selection was based largely on Kumud Kalia, its CIO and Executive Vice President of Customer Operations—someone the magazine refers to as an “IT Champion”—and his team’s Project Northstar “load forecasting” software. Developed completely in house, using a combination of off-the-shelf and home-grown products, Northstar brings together some 100 inputs, including weather conditions, history, geographic characteristics and more, to build its predictions. In Texas, the system accurately forecasts customer usage at 17 million megawatt-hours of electricity usage within a target error rate of 3%, and is now predicting energy consumption rates into 2012.

Kalia, whose background includes building technological solutions for the business customers of phone giant Qwest Communications and working in investment banking on Wall Street, spoke with us about his work at Direct Energy, the focus of Project Northstar and how technology works to lead innovation throughout the organization.

Directions: Tell us about what you do at Direct Energy.

Kumud Kalia: The ‘EVP’ in my title just tells you that I sit on the Executive Committee. Customer operations means that I have some responsibility for shaping and defining the business processes we use and how those then operate in terms of our technology and data systems. In general, I’m responsible for all the IT functions in the company. That includes our infrastructure, like e-mail and networks, and all the applications we use for our key business processes, such as billing. In part, my team’s job is to constantly examine and automate business processes wherever possible. The customer operations part is about driving our Six Sigma expertise [a process derived from manufacturing systems to improve operations and drive costs out] as it relates to our business efficiency.

Directions: You also recently took on the short-term role as head of operations for Direct Energy Business. What will you be doing in that capacity?

KK: Rob Comstock, the previous incumbent, is moving on to lead the integration of the Strategic Energy acquisition (see “Direct Energy Acquires Strategic Energy,” page 4), so I’ve been backfilling the role. Right now, I’ve been meeting with the team, really to learn. Once I get a handle on what they do, we’ll work to keep things running smoothly during the integration.

Directions: Can you tell us about Project Northstar?

KK: Energy companies make their money—especially retailers that procure and don’t produce—by knowing roughly how much to buy based on what will be consumed. We chose the Texas marketplace to test our ability to improve forecasting. We started by looking at customers’ consumption histories and weather patterns. With a ‘normal’ weather pattern, we know how much someone’s AC or heat will get cranked. Taking that data into account, along with fluctuating pricing characteristics, if we get the calculation right regarding how much energy to buy, we can make money. Northstar is designed to manage the process and help us buy based on the most accurate consumer usage statistics we can get.

Directions: To what do you attribute Northstar’s great accuracy thus far?

KK: Although I simplified it above, there are several people and disciplines brought to bear to make Northstar work: energy, finance, weather, IT, salespeople, procurement experts and more. We aggregate all that data and bring all those perspectives in play when trying to understand the market and make our predictions. Taking those inputs and variables—and automating as much as we can—has served to streamline a fairly large system and bring down the margin of error. Even minor improvement can translate into a lot of money.

Directions: What are Northstar’s benefits for customers?

KK: Customers want to buy from a reputable company, one that hasn’t had major losses based on poor judgment. They want to know they’re dealing with a serious player that understands the market. In addition, Northstar allows us to price more competitively for the long term. We’ve worked on this system because we plan to stick around. Energy is not a transactional business for us—it’s about building long-term customer relationships.

Directions: As a growing company, what do you see as the current key challenge for Direct Energy, and how can technology help to answer it?

KK: Customers want to transact more online, and they’re telling us to do more online—whether it’s paying bills, getting details about their usage, learning more about energy efficiency, gaining knowledge about climate change and reducing their personal carbon footprints or other issues that directly affect them. While we can give advice in a static way online, we can’t directly help them without the intervention of technology. Using intelligent thermostats, techniques to subtly interrupt power and save energy, offering green energy options—these are components that can build a compelling energy package based on technology that we can deliver. As a leading energy company, we can use our technological capabilities to take some leadership regarding climate change and the responsible usage of energy.