A NEW MARKET ENTRANT PROVIDES PERSPECTIVE ON ENERGY TRADING AND RISK MANAGEMENT SOLUTIONS
MIKE MUSE, QUORUM BUSINESS SOLUTIONS, HOUSTON
SINCE THE INITIAL DEREGULATION of the energy markets, organizations with energy commodity positions have struggled to find a quality, feature-rich software solution to cost-effectively manage their energy marketing and risk management needs. Horror stories of successively failed upgrades and out-of-control implementation projects litter the segment. What's long been desired is an easy-to-implement, intuitive-to-use, affordable solution from a reliable energy solutions provider.
Prior to deregulation, most organizations managed the marketing function using spreadsheets or by adding or utilizing features present in another existing software solution (e.g. as a module of a production revenue accounting solution, etc.). The need for energy trading and risk management (ETRM) solutions did not materialized until shortly after deregulation.
First-generation ETRM solutions, appearing shortly after deregulation in the mid to late 1990s, generally left much to be desired, leading most companies to build solutions internally.
Second-generation solutions, architected and developed in the late 90s to early 2000s in response to lessons learned from the first generation, were designed to address new industry requirements and the most common complaints made about first-generation ETRM solutions. These solutions pioneered the integration of physical and financial operations into a single solution, addressed multiple energy commodities, and dramatically improved functional flexibility and performance.
As the market matured, a number of shortcomings and deficiencies of these second-generation ETRM software solutions became evident, including:
- Cost Effectiveness: concerns about both the initial and ongoing costs to license, install, and extend ETRM solutions
- Implementation Risk: concerns about the riskiness and complexity of installing and upgrading ETRM solutions
- Technology: concerns about supporting multiple technology stacks for vendors who built their solutions by acquiring and integrating multiple solutions; concerns about proprietary storage and development technologies increasing deployment and integration costs
- Complexity: concerns about the complexity of implementing and extending ETRM solutions; concerns about the cost of specialized contractors, consultants, and staff needed to maintain ETRM solutions; concerns about ETRM solutions utilization of proprietary storage technologies requiring specialized training for resources
- Ease of Use: complaints about the difficulty in using ETRM solutions; complaints about the difficulty in getting meaningful information out ETRM solutions
While several second-generation ETRM software solutions evolved to dominate the market, the cost and effort to deploy and upgrade these solutions created a perception that ETRM solutions were painfully complex to implement and upgrade leading to significant budget and schedule overruns. This intimidated many medium and small tier players limiting them to unproven niche ETRM software solutions, internally developed systems, or worse yet, continued user of spreadsheets.
For a long time many vendors avoided the ETRM market due to the significant uncertainty associated with an unstable and immature market segment. The primary challenge for new or existing vendors was that different market participants had differing definitions of what comprised an ETRM solution.
Fortunately, in the late 2000s, the market saw the emergence of a "next generation" class of ETRM software solutions. Savvy new entrants looking to address the short-comings of the legacy solutions/providers have taken a fresh approach to addressing the market's needs. In short, these next generation ETRM software solutions offer good functional coverage at a far more reasonable total cost of ownership and with far less effort to deploy and maintain. The better third-generation solutions incorporate the latest technologies ensuring intuitive navigation and workflow, while also facilitating access to information for reporting and analytics.
Benefits of "next generation" class of ETRM software solutions include:
- Easy to install: easy to install and configure. While certain tasks will obviously require involvement of the supplier customers should be able to do much of the configuration themselves.
- Technology: developed from scratch using the latest industry-standard technologies and methodologies (SOA, grid computing, etc.). Rather than a collection of legacy solutions bolted together, third-generation solutions are developed as a truly integrated solutions extending the solution's life and simplifying integration and extension.
- Transparency: third-generation solutions address the market's long standing complaint about the difficultly in generating reports and performing analytics from the solutions. Third-generation solutions offer integrated business intelligence tools and integrated custom reporting tools to ensure the solutions meet an organization's reporting needs now and in the future.
- Intuitive: third-generation solutions are intuitive, both in terms of everyday use (e.g. application flow, screen standardization, etc.) and, more importantly, in terms of position reporting. Third-generation solutions are focused on reducing the user learning curve to ease adoption of the solution.
- Peace of mind: several third-generation ETRM providers are trusted, capable and experienced energy software solution providers giving customers confidence the vendor has the staying power to continue to provide support and enhancements.
- Cost-effective: third-generation ETRM solutions offer reasonable licensing costs, reasonable implementation costs, reasonable upgrade costs, and reasonable support costs.
New or existing commodity market participants should familiarize themselves with the features and benefits of different ETRM products and make their buying decisions based on their particular needs.
ABOUT THE AUTHOR
Michael Muse is vice president with Quorum Business Solutions Inc. He has over 17 years of experience providing process and technology services to companies with exposure to energy commodities. He began his career working with energy trading and marketing companies on technology related projects through Arthur Andersen's Financial and Commodity Risk Consulting practice. He left Arthur Andersen in 2000 to be a founding member/principal of Woodlands Technology, a startup developing an Energy Trading and Risk Management (ETRM) solution (Monaco). In January 2004 the assets of Woodlands Technology were sold to a subsidiary of Siemens (subsequently acquired by Ventyx/ABB) where he served in a leadership capacity with direct responsibility for several energy trading related solutions. Muse left Ventyx in 2008 to be a founding member and president of Woodlands Solutions developing a next generation ETRM solution, Phoenix ETRM. In early 2014 Quorum acquired the Phoenix solution and retained Muse to manage its Energy Marketing business. Muse received a bachelor's degree and a master's degree from Louisiana State University.
