How to avoid the utility software money pit

For more than a century, utilities have followed the purchasing model of least cost, most affective. Regulators mandated the approach to protect customers from utilities spending frivolously or “gold plating”—overbuilding their systems to boost revenues.

When it comes to large assets like transmission and distribution lines and power plants, enforcement is straight forward. Typically, these assets have simpler use cases and have a traceable line back to a specific regulatory filing, which details the utility’s purported justification for the investment.

But with today’s grid and especially the one of the future, so much of what maintains system reliability isn’t visible. Utility software applications now manage vast swaths of data, customer billing and power grid operations. To be clear, the transition away from a power grid underpinned by centralized generation and one-way power delivery to one made up of endless distributed energy resources necessitated a new suite of tools. Costs and manpower prevented utilities from developing the applications themselves, so they instead turned to a willing community of technology providers to fill the gap.

Blue chip energy conglomerates and venture capital-backed startups have pounced on the opportunity, lured by multi-million dollar set up fees and recurring software licenses. But solving maybe the greatest challenge to ever face the power grid requires deep expertise for power systems, which the vast majority of vendors lack. As a result, the electric utility market is littered with glossy project announcements that never moved beyond press releases.

A new era of gold plating is taking shape out of the opaqueness of utility software procurement. We should demand better.

The hidden costs of household names

The utility leadership core, especially among investor-owned utilities, is predominately made up of executives with backgrounds in business, marketing and finance. While rank and file engineers are responsible for operations and will make suggestions for technology adoption, it’s the non-technical senior leaders who generally have the final say—and sign the big checks.

An old phrase appropriately captures the state of utility software procurement: Nobody ever got fired for choosing IBM. The utility industry’s aversion to risk has morphed—no longer is reliability risk the chief concern. Optics play a key role, too and utility leaders will generally opt for the safe, name brand. Utilities, just like any organization, want to align with the perceived “industry leaders,” whether or not they present the least-cost, most-effective opportunity to improve safety, reliability, or efficiency.

But unlike other sectors, utilities are responsible for critical infrastructure. Pouring millions into blue chip companies or hot Silicon Valley startups with half-baked (or non-existent) applications risks waste and jeopardizes power system reliability. Open “requests for proposals,” or RFPs, are meant to mitigate this dynamic, but the phenomenon persists, leading to vendor-lock in and countless projects floundering in no man’s land.

Distributed energy resource management systems, or DERMS, is the application du jour of the electric utility industry. DERMS offers utilities a solution for forecasting, controlling and managing DERs in real-time. Some regulators have even pushed the utilities they govern to invest in these platforms, recognizing the role they play in facilitating the energy transition.

DERMS platforms are incredibly difficult to design and even more challenging to implement. It’s for those reason that the vast majority of purported DERMS providers focus only on controlling behind-the-meter devices, not front-of-the-meter, grid-scale resources that require deep integration with legacy utility systems. While most DERMS providers entered the space in the past 3-5 years, OATI first deployed its DERMS in 2010 and has been iterating the platform with customers ever since.

Energy tech conglomerates that aimed to acquire their way to a DERMS in order to expedite that timeline remain years away from deployment. That hasn’t stopped them from signing massive contracts with, primarily, investor-owned utilities, though, that are eager to make a splash. Need proof? Scan through the press releases issued by IOUs announcing DERMS deals over the past five years… Have there been any updates? Surely, these entities would announce their successful implementations to once again capitalize on the news.

Sadly, you won’t find much. These projects go quiet, at least for external audiences. Inside utilities, however, there is growing consternation over DERMS delays, cost overruns and constant change orders. That’s the result of platforms designed to seize the market opportunity, not support power system reliability.

Every company has a different priority stack. For OATI, an organization built and led by engineers, reliability and customer satisfaction have always trumped marketing. We’re often told that our platform wins on price and functionality but sometimes loses when stacked against the IBMs of the space. But these utilities typically come back around, scarred by two, three or four failed DERMS deployments with other vendors, which is the case for several of our investor-owned utility customers who now enjoy a working DERMS solution.

It is past time we asked the question: was the splash worth it? If utilities truly want to adhere to their charter of providing safe, reliable and affordable power to their communities they serve, it’s incumbent upon them, and regulators, to support an open, equitable and accountable process for software procurement.

A path forward

Large IOUs frequently default to familiar vendors, citing long‑standing relationships and perceived reliability. Yet these decisions can incur “vendor lock‑in,” inflated maintenance contracts and suboptimal feature sets that delay critical DER projects. In contrast, a merit‑based RFP process—scored on demonstrated performance metrics and total cost of ownership—uncovers solutions like OATI DERMS that maximizes ROI and accelerates DER integration.

Regulatory bodies have long scrutinized capital investments in poles, wires and generation. It’s time they extend that rigor to software assets. By establishing procurement guidelines that prioritize measurable outcomes (e.g., MW‑hours of DER dispatched, system‑wide peak shaving, customer savings) and cost transparency, regulators can safeguard ratepayer interests and drive market innovation. Such policies level the playing field, compelling all vendors—household names and challengers alike—to compete on merit.

When searching for a DERMS supplier, some simple straight forward requirements proves to be wise including:

1. Define a clear scope: Distinctly written expected results for each use case. Include mandates such as accuracy, scalability, and does the solution provide the functionality today.
2. Require detailed fees for a total cost analyses: Obtaining all fees for deployment and sustainment including initiation fees, licensing, integrations, users, infrastructure, maintenance, upgrades and training will allow you to perform your own lifecycle cost comparisons.
3. Encourage open architectures: Favor solutions built on open standards and APIs to avoid lock‑in and foster interoperability.

At OATI, our webSmartEnergy DERMS exemplifies these principles: it delivers best‑in‑class functionality and a proven track record across diverse utility environments. By shifting procurement toward least‑cost, most‑effective criteria, utilities can unlock the full potential of DER—improving reliability, lowering costs and accelerating decarbonization.