A UtiliPoint IssueAlert
By Gary M. Vasey

Prior to the collapse of the Merchant energy segment, the North American Trading and Risk Management tradeshow was a vibrant and well attended event but in recent years many of the big tradeshows in that industry space have died off or died out altogether. But not here in Europe! E-World Energy and Water held every year in Essen, Germany has over 500 exhibitors ranging across the industry from large energy companies such as RWE, Vattenfall, CEZ, and the like to small software vendors and data providers. The coverage of the show is both trading & risk management and inside the Utility so covers smart metering, smart grid, CIS and more. Furthermore, the event was absolutely packed.

I have mixed feelings about tradeshows. On the one hand it presents a super opportunity to learn more about industry trends and events as well as to meet new contacts and old friends but it is also tiring and hard on the feet and back. For me however, E-World provided a snapshot of the European energy world and how it has changed! You just need take a look at some of the tag lines used by some of the energy companies to realize this:

"Making Electricity Clean" —Vattenfall

"Pure Energy" —Statkraft who also portray themselves as "The European Leader in Renewable Energy"

"Positive Energy" —EnerCity

"Your Partner in a Dynamic World —E.On

"Economic Sustainability" —Endesa

"All Your Energy Needs from One Reliable Company" —CEZ

In fact, the energy company exhibits included electric cars, solar-powered cars, wind mills and Smart Grid/Meter/Appliances. One could have thought that this was an environmental tradeshow! But it goes to show how the European consumer of energy is concerned about the environment and how they seek providers who are not just reliable but provide energy from renewable sources. Energy in Europe, it seems, has to increasingly be seen as ‘clean’ from the consumer’s perspective.

This year, I observed very few new software vendors at E-World. Instead, there were many new consulting companies and initiatives around green energy, carbon trading and other environmental initiatives. Outside of the energy companies themselves with their huge two story booths, side shows and exhibits, one of the largest booths was Point Carbon, an environmental/energy advisory and consulting firm. The public theme was definitely around clean energy and related topics.

And yet was it? Tradeshows happen for a reason and that is to facilitate business and here it is business between traders. Under the surface of the green theme and posturing one could detect business being done between originators and traders. Almost every exchange in Europe was also present adding to the perception that here in Europe the trading business is still very much about networking and personal contacts. Several larger banks also had booths with private areas for discussion out of sight. These areas were invariably full of suited individuals engaged in deep discussions ostensibly about risk management and trading strategies. To back this up, much of the news reported at the event revolved around market liquidity, new trading instruments and accusations of market manipulation against one large European utility.

Tradeshows are alive and well in Europe and while they present an opportunity to "image make" and message spin about "green energy" the truth is some real business was being done between traders and that is what these events are really about. It is still a people business which requires relationship building and networking and based on what I saw—it is thriving.

I wrote an article last December in which I noted that unconventional sources of natural gas, that is shale, tight sands and coal seam, were the true competitors of imported LNG, in that with finding costs as low as $3.00/mmbtu, these domestic sources would almost always undercut the cost of bringing LNG into the states.

The reality that the US sits atop, and can easily access, one of the largest natural gas reserves in the world is starting to have substantial impacts for non-US producers that had previously seen the US as a lucrative market for their product.

Last week Gazprom, the Russian gas export monopoly and one of the largest gas producers in the world, announced that they have agreed with their partners, Total and Statoil, to delay the development of the giant Shtokman field in Russia’s Arctic region due to “major changes in the global gas markets”. The announcement indicated that that gas delivered by pipe from the field would be delayed from 2013 to 2016, and LNG exports would not start until 2017.

If there was any doubt as to what the company meant by “major changes in the global gas markets”, those doubts were put to rest today when, according to Reuters, Gazprom’s deputy chief executive, Alexander Medvedev, attacked shale gas production in the US, saying of the massive hydraulic fracing used to open-up the shale reservoirs, “This technology endangers drinking water” and noting that the company was “keenly awaiting the results of investigations by the U.S. Environmental Protection Agency into shale gas drilling”. Mr. Medvedev did say, however, that despite the delays at Shtokman and growing gas production in the US, he still felt that LNG could effectively compete with US domestic gas sources and that they remain bullish on this market. What he did not say is whether or not the company still feels they can achieve a 10% share of the US gas market by 2014 as they had indicated last year.

Despite Gazprom’s confidence, and barring EPA or state intervention, US unconventional gas production is going to continue to grow and be a barrier to LNG imports. Whats happening in the coal seam, shale and tight sand gas fields scattered across the US is having, and will continue to have, impacts felt around the world.

A CommodityPoint CommodityAlert
By Patrick Reames

With the aging of the workforce, the energy industry in the United States is facing the loss of the experienced and skilled resources that have developed, deployed and maintained the complex systems that underpin our energy infrastructure and the markets that operate within it. Anticipating the industry’s needs, many universities in the United States have developed programs designed to equip new graduates with a broad understanding of many of the technologies that are required as this industry continues to rapidly evolve in the United States.

The breadth of these educational programs include the traditional engineering courses that focus on the skills necessary to design and maintain the wide ranging systems and infrastructures that delivery energy in its many forms, including recently developed courses focused on “green” energy and smart-grid technologies. Others, like programs offered through the business colleges at the University of Texas, Tulane, and the University of Houston, are focused on the business of energy trading and risk management, acquainting students with the dynamics of the complex energy markets and equipping them with the analytic skills necessary to find employment in the energy trading industry.

One area related to energy that has not been particularly well served by the universities until now, however, is the information technologies and systems that are required by, and specific to, energy trading and risk management.

Energy trading companies have traditionally had to internally develop the skills and knowledge that are required of the IT resources supporting their trading operations. These requisite skills include a solid understanding of the terminology and processes of energy trading, in addition to the technical skills required to install, integrate and support extremely complex commodity trading systems. Once trained, these IT resources become a critical component of the trading floor and, should they leave, the cost to replace them in terms of time and dollars can be very high.

The University of Houston’s Bauer College of Business, having recognized the challenge that these companies face, has designed and launched a first-of-its-kind Energy Trading System Track, covering the issues and complexities of energy trading and risk management (ETRM) software and technologies. This new Energy Trading System Track leverages the schools finance department course in Energy Trading and couples it with a new Management Information Systems (MIS) course for 2010, Energy Trading Systems.

The new program is the brain child of energy industry veteran, Ed Bell, who, through his long association with the university, has marshaled the necessary support to create the program and is serving as the instructor for the first iteration of the course. The Energy Trading Systems course will leverage the school’s existing classroom and lab space, including a dedicated network infrastructure on which students will get hands-on experience in the complexities of installing, integrating and supporting complex ETRM systems.

The university’s course description outlines the objectives for the class: familiarize the MIS/SCM undergraduate students with energy business processes related to risk in trading; provide hands-on exposure to the software and hardware tools used by firms to manage these processes; allow students to develop understanding of how to leverage and use the technology for profit and efficiency; and provide interaction between talented information-technology students and the energy trading community. Mr. Bell notes that his priorities as an instructor are for his students to develop a working knowledge of energy trading practices, terminology and systems concepts; to acquire enough knowledge to evaluate a career as an IT or Supply Chain professional in an energy trading environment; and get substantial hands-on system experience from their lab environment that will mimic a trading floor infrastructure.

According to Mr. Bell, the students, in addition to getting a well-rounded understanding of the working of the energy trading markets, will get valuable hands-on experience installing and implementing a leading commercially available ETRM system, GasPro, donated to the school by Data Management Solutions. That company’s founder and president, Frank Pena, will also play a hands-on role, working with the students to provide an understanding of the software and how to appropriately model within it, the energy markets that it serves. CommodityPoint is also proud to note that one of our “UtiliPoint Expert Series” books, “Selecting and Implementing Energy Trading, Transaction, and Risk Management Software” will be utilized as a supplemental text for the course; and in addition, our organization will be providing a guest lecturer during the semester.

This new course has attracted a significant amount of attention on the U of H campus. Mr. Bell notes that all available seats are taken for the current semester and several students that wished to take the class were unable to sign-up due to space limitations. The school is looking toward expanding the offering next semester to include an additional course in order to meet the current and anticipated demand.

This new course and the skills being taught should come as a welcome development within many of the country’s energy trading shops, particularly those in Houston that recruit heavily on the University of Houston campus. The ability to bring onboard new employees already equipped with many of the critical skills in energy trading IT should provide valuable savings, both in time and dollars, to companies seeking to expand and upgrade their workforce to meet the challenges of a constantly evolving industry.

CommodityPoint is conducting a survey of trading and risk management professionals to determine their views of the value and utility of third party provided forward price curves for gas, power and crude markets. Our research will provide a better understanding of the availability of such products and their usefulness to energy trading organizations. If you are an energy trader or energy risk management professional, we would welcome your confidential reply to our web-based survey.

The survey will take only a few minutes to complete and in return for your valuable time, we will provide you with a executive summary of the results which will provide valuable insights and a better understanding of how your peer group is utilizing such products.

Your participation is greatly appreciated. The survey can be found at www.utilipoint.com/2/pricecurves/.

Many thanks and we look forward to your responses!

I had the opportunity to visit with Peter Armstrong, Triple Point’s president and CEO, a couple of days ago (look for an upcoming CommodityAlert interview with him in the next week or two). During our conversation, he spoke at length about Triple Point’s 2009 results.

Mr. Armstrong noted that for 2009 vs 2008, the company had an increase of 30% in revenues and a 55% increase in profits. He also pointed out that these results follow a year of tremendous growth in 2008, in which the company had increases of 139% in new license sales, 79% in profits, and 63% in revenues. In terms of the outlook for 2010, he said that their sales pipeline for this year is even stronger than in 2009 and he is confident the company will enjoy another record setting year.

Other 2009 highlights he noted during our call: the company closed two significant acquisitions during the year, Softmar and Enerbility Software Gmbh, and completed a total of 22 implementations in 19 countries.

These results are impressive, even more so when one considers the economic climate in 2009, particularly during the first half of the year. Triple Point does appear very well positioned to continue this level of growth. With perhaps the most diverse customer base in the market (both in terms of geographies and commodity coverage) and an expanding menu of functionality achieved in large part through acquisition, they will be able to take advantage of a expanding global economic recovery (if current trends continue), or to weather a downtown in any particular segment should the economy again sputter in 2010.

Solarc announced yesterday that they had closed a new deal with SHV Gas Supply and Risk Management, licensing the company’s RightAngle product to provide integrated trading and risk platform coverage for SHV’s global operations. SHV Gas is a Netherlands based company with supply and risk management operations in Paris, Vienna and Singapore.

According to the press release, “SHV Gas is the largest dedicated global LPG distributor. SHV Gas operates in 27 countries, employs 13,500 people, has a turnover of over EUR 5 billion, and provides LPG to tens of millions of customers. SHV Gas is part of a family owned organisation that has supplied energy to businesses and consumers for over 100 years. SHV is also currently active in developing a variety of renewable energy technologies through its subsidiary, The Clean Energy Company. For more information, please visit www.shvgas.com.”

A CommodityPoint CommodityAlert
By Patrick Reames

The CTRM product landscape has always been somewhat fractionated, with a large number of product vendors servicing component process of the commodity trading value chain, or in some cases, specific processes associated with a single commodity. Others, those generally regarded as the “Big 5″, have gained their market leading positions by providing multi-commodity solutions that, while not addressing all the business processes associated with all commodities, do address a large portion of the functionality required by the largest energy and commodity trading operations around the world. Traditionally, most have focused more on the financial trading side providing straight through processing for paper trades while offering some degree of functionality for the physical trading but perhaps lacking operations and logistical management for physical trading.

Those five (Allegro, Solarc, SunGard Energy and Commodities, Triple Point Technology, and OpenLink Financial) have traditionally fought one another for the largest deals around the globe, the multinational merchants, traders, and producers of energy and non-energy commodities. While each of these vendors offer a somewhat unique blend of functional and commodity coverage, each has been successful selling products that provide physical and financial deal capture, position management, risk management, and settlement/accounting. However, rarely have the products from these large vendors been deployed in isolation. Indeed, in almost all cases, customers who have bought these systems have also licensed additional third-party components to address specific functional gaps that are not addressed in the larger CTRM systems. Many of these gaps are associated with logistical complexities of specific commodities or region/country-specific market requirements.

The large vendors have obviously recognized those functional gaps (and the revenues lost to smaller vendors) and have, at times, attempted to close them through internal development, generally in cooperation with a client or group of clients who could supply commercial support and business expertise to the development process. However, within the last couple of years, many of the “Big 5″, including Solarc, Triple Point, and OLF, have sought to build out their product capabilities via the acquisition of smaller companies whose products provide specific functional capabilities, or coverage of additional commodities. These acquisitions have brought functional products, established clients, and the business and technical expertise that was not readily available in-house. These deals have allowed the vendors to quickly expand their market coverage, increase their revenues, and gain some competitive advantage against the competition.

In fact, this trend toward acquisition has been accelerating, with just this week, two of the “Big 5″ vendors, Triple Point and OpenLink announcing new acquisitions.

Triple Point’s most recent announcement is, in fact, their second in as many weeks. Last week they announced the acquisition of Softmar, a Geneva based developer of solutions for shipping and vessel operations. The new deal announced this week, Enerbility Software GmbH, a Vienna based company, will provide Triple Point’s European Commodity XL clients with improved back office capabilities via Enerbility’s market communications solutions. Additionally, this latest acquisition brings with it additional European market expertise and a client base that includes Alpiq AG, E.ON, Statkraft, Verbund APT, BKW FMB, and Vattenfall Energy Trading Netherlands NV (formerly N.V. Nuon) among others. These two recent acquisitions are the fourth and fifth for Triple Point in the last two years, as they had previously picked up CoralSoft (solutions for precious metal trading), Rome (credit risk management), and Inssinc (hedge accounting).

OpenLink announced this week that they have acquired dbc SMARTsoftware, Inc. (dbc), a global provider of software solutions for the agricultural, biofuel and soft commodity industries. dbc’s product, SMARTsoft, is a “value chain” management software suite for “producers, processors, manufacturers and traders who buy, sell, hedge, warehouse, merchandise, export, and transform commodities into value-added products and by-products for distribution”. According to OpenLink, dbc’s product have “hundreds of installations in sixteen countries”, providing OpenLink the opportunity to sell additional solutions into markets they had not previously served. This is OpenLink’s third acquisition in about two years, with the company having previously acquired European based IRM (generation asset management) and an interest in MCG (North American power market solutions).

CommodityPoint has observed the changes taking place in commodity markets; trading a more diverse portfolio of commodities, new and changing relationships amongst commodities and the growing desire to assess the profitability and risks of a trade through its entire value chain including such things as cost of storage, transport, credit exposure and so on. These trends in the industry have been incorporated into the buying criteria of those seeking CTRM software and the vendors have had to and will continue to need to respond.

CommodityPoint has been consistent in our belief that this consolidation of vendors will continue, with the largest vendors in the market acquiring smaller players in order to expand their product capabilities and their market reach. Given the more than 80 vendors that we’ve identified (and listed in our online directory of CTRM vendors at www.trmdirectory.com) that service some or all of the commodity wholesale supply chain, the larger vendors can be selective in pursuing the right acquisition targets, finding those “specialty” vendors that can provide a quick return and whose products dovetail with their own, allowing them to create a solution that provides not just those functions and capabilities needed by the majority of the market place, but can also address the unique needs, particularly around logistics, that are required to address the entirety of value chain of each individual commodity.

Despite the obvious appeal of acquiring additional functionality, these deals do come with a significant burden and risk for the acquiring company - each new acquisition must be successfully integrated, in terms of technology, organizations and clients, into the acquiring company’s business. In the end, the real determinate of success is not who can buy the most companies and sell the most functionality, it’s about who can buy the right companies and can effectively manage the integration of those acquisitions in order to create the greatest value for the market and in turn, the acquiring company and its shareholders.

The landscape of CTRM vendors is changing rapidly. Within minutes of each other this morning, Triple Point and OpenLink both announced new acquisitions that expand their functionality and product footprints. A quick overview of each…

Triple Point, following their acquisition of Softmar last week, just announced that it has acquired Enerbility Software GmbH. According to Triple Point’s new release, “the acquisition extends Triple Point's straight-through processing capability to connect European energy traders with suppliers and customers from trade execution to cash settlement.” Enerbility was founded in 2004 and is focused on automating what are primarily back-office processes in the energy trading industry. Enerbility, based in Vienna Austria, brings with it a number of high-profile clients including Alpiq AG, E.ON, Statkraft, Verbund APT, BKW FMB, and Vattenfall Energy Trading Netherlands NV (formerly N.V. Nuon).

Within minutes of the Triple Point announcment, OpenLink announced their acquisition of dbc SMARTsoftware, Inc., (”dbc”), a global provider of software solutions for the agricultural, biofuel and soft commodity industries.

With this acquisition, Open Link expands their capabilities in the agricultural commodity and products space, in addition to chemicals, softs and fuels, as dbc develops and markets SMARTsoft, a software solution suite for producers, processors, manufacturers and traders who buy, sell, hedge, warehouse, merchandise, export, and transform commodities into value-added products and by-products for distribution. According to the company’s press release, the dbc brings “hundreds of installations in sixteen countries”.

CommodityPoint will be examining the impact of these acquisitions on the broader CTRM markets in the coming weeks. However, at first blush, we believe these types of announcements will continue throughout the year. The leading vendors in this space are well funded and are seeking market advantage, particularly in Europe and the emerging markets in the Asia-Pac region, as the commodity markets begin their recovery from the disastrous period of late 2008 and early 2009.

As of this coming Monday, Mr. Mark Tredway joins CommodityPoint based in our Brno, Czech Republic office as Director of Business Development. Mark is a native of South Africa but now lives in Brno with his Czech-born wife. Mark's role will be to help us in business development and client management globally. We welcome him and look forward to working with him.

Triple Point announced this morning that they have acquired the software arm of Softmar, a Switzerland based software house that specializes in solutions for commercial chartering and vessel operations. According to the press release, Softmar currently has 60 customers, many of which are also customers of Triple Point.

This deal is a clear continuation of Triple Point’s growth strategy, that of increasing their client base and market reach by expanding their solution capabilities to encompass functionality that many of their competitors view as “ancillary” to their core CTRM offerings. Triple Point has done a tremendous job of finding the right acquisition opportunities to date, having seen great success in selling new products and functionality derived from the Rome and Inssinc acquisitions. Its this track record of successfully executing on their strategy that gives one confidence that this new acquisition will be similarly successful for the company.

We’ll be speaking with Triple Point soon about this acquisition and will update you after that.

Note: This is a reprint of CommodityPoint’s first CommodityAlert newsletter which is being issued today…

A CommodityPoint CommodityAlert
By Gary Vasey and Patrick Reames

Happy New Year and welcome to the new CommodityPoint CommodityAlert newsletter! CommodityAlert will be issued weekly and will be written by CommodityPoint analysts on a variety of topics around commodity markets and the technologies that support them. We trust that you will find CommodityAlert a useful and valued source for news and analysis related to those issues that impact you and your business.

CommodityPoint Initiatives for 2010

This new newsletter is only one of a variety of new CommodityPoint initiatives for 2010.

First, we are expanding and will be adding key new staff throughout the year both in Europe and North America, beginning with Mark Tredway who will help us with account management. Mark will be located in the Brno, Czech Republic office and, being a native of South Africa, adds additional multi-national experience to CommodityPoint. We will also be adding an additional analyst in the Houston office and expanding our staff of researchers in Brno over the year.

Towards the end of the first quarter, CommodityPoint will commence with a series of webinars on a variety of topics, each supported by our industry leading, proprietary research. Included in our 2010 research calendar are a variety of topics including an examination of non-energy commodity CTRM and the market for Saas or ASP delivered CTRM products. In a significant change for CommodityPoint, the resultant reports from our research will now be made available free of charge, ensuring the widest distribution possible. The first report we intend to issue in the New Year will be what we believe to be the most comprehensive directory of CTRM vendors and their products ever published, a report that we anticipate will become the “source book” for those companies seeking to procure CTRM software.

CommodityPoint will also be leveraging UtiliPoint’s relationship with both The Abraham Group and Forbes Connect. We expect to partner with The Abraham Group to deliver a thought provoking live and video conference on GHG regulatory and market developments towards the beginning of Q2 which will be titled "Live from Washington—The Issues as We See Them." CommodityPoint will also prepare thought leadership articles for the Forbes Connect website during the year.

Another new development is the launch of the CTRM Blog, primarily authored by Gary Vasey, which will be a companion site to the highly successful ETRM Community Blog authored by Patrick Reames. The two blogs will provide not only each of our primary analysts take on the developments in the global commodity markets, they will also cover the regional issues and activities in their respective geographies. We take pride in having become the market’s most innovative provider of information to the buyers and sellers of CTRM/ETRM technologies, having developed such tools as the online CTRM Software and Services Directory, and we anticipate that CommodityPoint will continue to be the leading source of information, analysis and opinion for the CTRM marketplace in 2010.

Your Feedback is Important

Meanwhile, back to CommodityAlert. This newsletter will be published every Thursday. Should you know of anyone who you think would benefit from receiving CommodityAlert and is not currently subscribed, please direct them to www.utilipoint.com to sign up. And finally, we relish feedback, so do please send your thoughts and comments on our material back to us and feel free to suggest areas of content to us.

We look forward to a great year and we wish you a great and profitable 2010.

By Gary Vasey…

We have a full research calendar for 2010 and we are about to commence the first two research studies for 2010. These two studies are the Non-Energy Vendor Perception Study and the Non-traditional Delivery Models for CTRM - SaaS and Hosted Solutions Study.

Non-traditional Delivery Models for CTRM - SaaS and Hosted Solutions Study

Recent CommodityPoint research and vendor and end user briefings suggests that alternative delivery models for CTRM seem to be catching on as a trend in the industry - specifically SaaS and hosted models. This study will be designed to look into these trends and establish some benchmark data around SaaS, hosted and other deliver models including;

o Industry appetite for alternative delivery models,
o Types of alternative delivery models such as SaaS, hosted and leasing models,
o Perceived advantages and disadvantages of these delivery models versus traditional licensing,
o Business and industry drivers creating a market for these alternative delivery models,
o Estimate on share of market for these delivery models if possible by industry segment and tier,
o Perceptions of vendor and product market leadership in these delivery model areas as well as brand awareness of those vendors,
o An assessment of which 'traditional' vendors are offering or moving to offer such delivery models and their capabilities in doing so,
o An assessment of the issues around SaaS, hosted or leased delivery including an examination of service level agreements, security issues etc.,

The objective will be to define the trend, the leading players and products benefiting from the trend, the likelihood of competition from more traditional vendors and an understanding of how to compare traditional licensing with non-traditional delivery model costs and benefits.

Non-Energy Commodities CTRM Vendor Perception and Benchmarking Study

CommodityPoint produces a CTRM vendor perception report every two years that seeks to understand industry perceptions of market leadership and brand strength of the various vendors offering CTRM software. The study also provides statistics on procurement rates, buying criteria and a number of other important metrics. However, these studies have been focused more on the energy trading segment in the past. We now propose to undertake a vendor perception study that is solely focused on the non-energy commodity trading world in order to specifically benchmark the vendor landscape, procurement rates and criteria in the metals, agricultural and other non-energy commodity area. The study will target companies across all industry segments, from producers to end users, for these commodities and will be global in nature. We believe it will be the first study of its kind to examine this market place. The resulting report will focus on the following areas;

o The brand recognition, both prompted and unprompted, of the software vendors offering products in the space,
o Perceived CTRM vendor market leadership; both overall and by different end user segments and for different commodity groups,
o Software buying rates and procurement drivers, and
o Information about how prospective buyers undertake their pre-procurement vendor and product research.
The result of the research will be a report that defines the vendor and product landscape for non-energy commodity trading and risk management providing a benchmark for future comparisons as well as addressing market maturity and procurement rates.

If you or your firm are interested in sponsoring or advertising in the final FREE study reports which will enjoy broad distribution, please contact us at gvasey@utillipoint.com or preames@utilipoint.com.

What was once the UtiliPointEuropeBlog has now become the CTRMBlog, a name/location that better reflects the focus of its primary author, Gary Vasey and the organization that he leads and represents as the Managing Director, Europe and Asia Pac for CommodityPoint. Be sure to check out the new site and stay up to date with Gary and the broader commodity and technology markets. Again, that address is www.ctrmblog.com.

For you holiday viewing enjoyment…

It’s Jack Bauer vs. Santa Claus!

Have a great holiday and stay safe!!!

And, for goodness sakes, stay off Santa’s Naughty List!

Hugo Chavez was, according to the various news outlets, given a standing ovation for his Copenhagen diatribe in which he, 1) denounced (as usual) the US, 2) railed against the entire concept of capitalism, blaming it for murder, AIDS, and every other evil in the world, and 3) continued to smell the sulfurous aroma of the devil surrounding the POTUS, even though its now Obama instead of Bush. The COP15 summit also gave a platform to Zimbabwean dictator Robert Mugabe, a man universally reviled as one of the most evil national leaders in the world (you can read more about him and his demands that we open our “purses” to him here).

Given that the COP15 summit appears to have been a giant love-in for those that hate the US and our economic system, and who, as a group, would appear to welcome our downfall as a country, one has to ask…WHY THE HELL ARE WE EVEN TALKING TO THESE PEOPLE, MUCH LESS NEGOTIATING TO GIVE AWAY OUR COUNTRY’S WEALTH TO THIS GROUP?!?!

And now that it has apparently all wrapped up, after allowing the world to vent their spleens at the evil that is the US, we have this statement from our President, as picked up from National Review…

Obama on enforcement: “The way this agreement is structured, each nation will be putting concrete commitments into an appendix…specifically what each country’s intentions are. Those commitments will then be subject to an international consultation and analysis…similar to what takes place when the WTO is examining progress.” But, “it will not be legally binding.”

“The problem will not be verification…we can actually monitor what takes place through satellite imagery and so forth….I think we’ll have a pretty good sense on what countries are doing.”

On targets: “they will not be by themselves sufficient to get to where we need to get by 2050.”

Obama says “U.S. will not be legally bound by anything that occurred here today.”

On U.S. position at negotiations (and the Bush administration): “In some ways the United States was coming with a somewhat clean slate, because we had been on the sidelines in many of these negotiations over several years.” Europe “had a head start over the last few years in doing things like energy efficiency that we care about.”

On Chinese position: “For [China] to be bound by a set of legal obligations could potentially curtail [China’s] ability to develop and that’s not fair.” Chinese had a “legitimate point” but their position created a “fundamental deadlock in perspectives.”

On domestic work leading up to conference: “Quietly we did some pretty good groundwork during the course of this year so that when we got here our position was relatively clear….Whatever commitments we make I want to be sure they are actually commitments we can keep….We tried to be modest in what we could accomplish….”

In other words, here’s what was accomplished after all the hatin’ on the US was over with…

1) They’re going to make a list, or an appendix, of what each country is willing to do (even though there’s nothing legally binding about the list) and then they’ll talk about it some more…later…sometime. Oh yeah, and no matter whats in that appendix, it won’t be enough to stop the world from becoming an Easy Bake Oven if all the doom and gloom of AGW turns out to be right (count me as not worried about that one…) By the way, isn’t the appendix considered a worthless organ?

2) China might make some commitments, but nobody’s gonna hold them to it (because it might hurt THEIR economy) and don’t expect them to allow any of that pesky monitoring of what they’re doing…but that’s okay, because somebody is apparently going to deploy some CO2 sniffing satellites to watch them; and that’s sure to make them happy given the Chinese love of satellites…

and last, but clearly not least…

3) Its Bush’s fault.

Aspect Enterprise Solutions announced today they have closed another license sale (and have apparently already implemented it) to Geneva-based Lemvig Oil Trading SA, which according to the press release, “specializes in trading and transportation of oil and oil-related products in Russia and the countries of the Confederation of Independent States”.

The software is being depolyed initially for real time deal capture, position keeping, physical trade logging and reporting facilities. Aspect indicates that its use will be expanded into back office and inventory management functions at a later date.

Aspect has been knocking down a lot of deals with these smaller crude trading operations lately. Clearly, their ability to quickly and economically deploy their SaaS solution has positioned them well for servicing this niche of the market, particularly in Europe.

Incidentally, CommodityPoint will launch a new study into the development of the SaaS and hosted CTRM solutions market next month. It should prove very interesting given the apparent growing adoption rates of those alternative delivery methods.

SolArc announced yesterday that Sprague Energy has selected SolArc's Solution for Natural Gas to manage that company’s natural gas supply business, including deal capture, nominations, scheduling/logistics, billing and risk management.

According to the press release, Sprague has been a SolArc customer for more than five years, using RightAngle to manage their oil trading, marketing and risk management operations.

I talked with Alan Gunn, Solarc’s managing director of natural gas sales, this afternoon and he indicated that this deal was one of “several” new gas deals they’ve closed in the last few months (including a previously announced deal with Southcross Energy). He also said, “…and the year isn’t over yet”. Stay tuned.

UtiliPoint IssueAlert
By Gary M. Vasey, Ph.D.
Managing Director, Europe and AsiaPac

“Climategate”

One thing that the recent "Climategate" episode may have done is to rightly focus more attention on the science that is really the driving force behind the COP15 meeting currently taking place in Copenhagen. Reading through the hacked e-mails published on various blog sites, it becomes obvious very quickly that the rigor and pure approach of science has been totally overwhelmed and compromised by politics and money.

Science should work on the basis of an open, free debate and a fair peer review process. If that is stifled then what we have is neither science nor reliable. What these e-mails show can be summarized as follows:
o The neutral and unbiased approach necessary in science has been replaced with almost a religious fervor that seeks a particular finding at almost any cost including carefully choosing exactly what data is used,
o The data is a mess with, for example, instances of data from recording stations predating that stations inception and, data of unknown quality and origin,
o Avoiding public scrutiny of the data and assumptions even to the point of destroying it,
o The scientists involved appear determined to use their reputations and any available tool to block the peer review process meaning those with a different opinion cannot get published and are subject to having their reputations questioned.

Science or Politics?
The original hypothesis that carbon and other "green house gas" emissions is causing the Earth to warm began as a scientific endeavor, but now appears to have evolved into a political matter where the science is playing second fiddle to other motives. And the reason why it is political and a mess, frankly, may be found in the root of modern politics--money. One only has to look around at this Summit--full of lobbyists with check books. What is required and long overdue is a full and independent audit of climate science and the models used so that the scientists can once again be confident they are operating with accurate information.

As a trained scientist, the one phrase that upsets me most is "the science is proven." Anyone who has ever practiced scientific method and rigor understands the sheer philosophical ridiculousness of this statement. Science is a process and methodology of observing known facts, creating a hypothesis and then allowing that hypothesis to be critiqued or replaced by your peer group. Scientific theories evolve as a result and from time to time an advance occurs that throws accepted scientific theory on its head!

Let’s examine the science just a little. Let’s start by establishing an indisputable fact and, one that is very important: CO2 levels in the atmosphere have gone up in the last few decades from an upper limit over the last 400,000 years of 300 parts per million (ppm) to 370ppm or thereabouts. Much of this increase is down to man’s activities as it has increased steadily trough time. We are "filling" our atmosphere with CO2.

However, the basis for COP15 and other past climate agreements is based on the assertion that CO2 in the atmosphere causes warming and that we are at, or already have, passed the point of no return such that atmospheric levels of CO2 will cause considerable warming with all the attendant problems--sea level rise, weather changes etc. Actually, I would argue that while evidence indicates this hypothesis could be true, it is still far from unequivocally proven. Furthermore, the archeological and geological evidence data suggests something quite different--that the changes in climate being observed today are quite normal variations in climate and that CO2 has little, if anything, to do with those variations in climate. It is worth noting that climate science actually amounts to developing and estimating climate models. Temperature data is collected and projected into the future with various assumptions about CO2 and temperature changes to see what may happen to the Earth’s temperatures. The results haven’t actually been very accurate and it is only one of many possible methods for looking at the earth’s climate. For example, tree ring data suggests that the Earth’s atmosphere could be cooling. At other times, the rush to publish has opened the results to ridicule as in the case last year when it turned out that a sudden spike in global temperature was simply due to an error rolling over Russian temperature data.

Climate History and Observation

The Earth’s average temperature changes frequently though time as does the atmospheric CO2 content. In fact, recent observations regarding climate change are still geologically well within the bounds of very normal for our planet. But perhaps even stranger is the historical relationship between CO2 and temperature where you may be surprised to learn that temperature rises and falls actually precede CO2 increases and decreases. The observable evidence tends to suggest that historically much of the geological climate change has little to do with CO2 content of the atmosphere. Consider that 460 million years ago, CO2 concentrations where 4,400 ppm while temperatures then were about the same as they are today. Ice core data show that both temperatures, and with around an 800 year lag time, CO2, have been increasing for the last 18,000 years--long before man was around to have any influence. It’s strange but climate change advocates continue to use this ice core data suggesting that it shows that CO2 is causing temperature rises when this was long ago shown to be false.

Another aspect of the inability to debate the science is the lack of understanding of time. "But, I see it with my own eyes--the glaciers are melting," said the Greenpeace demonstrator I met outside of COP15. The problem is that the Earth and its processes are very complex and that one must look at these things in geological time, not a decade or single human life span! This planet has had no polar ice on many occasions and the Earth’s temperature and CO2 levels today have simply reached levels similar to a previous interglacial cycle of 120,000 - 140,000 years ago. We have been here before in the geologically recent past and man wasn’t there at the time to be held responsible.

Summary

Does any of this prove the argument for or against? In my view, not yet--more research is required and that research needs to be open and subject to scrutiny and debate. In the meantime, COP15 moves on and this week approaches the difficult task of reaching actual agreement. It may be that discussing the science is irrelevant now so far as COP15 is concerned. Public opinion has shifted to one of demanding action, and while this may be a case of "if you tell the people often enough something is so, they will believe it." I would like to see that full and independent audit and debate around the science.

As for COP15? Well, if we take the view that CO2 is a pollutant and that the Earth has finite resources, then shifting our paradigm to a greener and less polluted future isn’t such a bad thing.

Triple Point Technology announced yesterday that they have licensed their Commodity XL(TM) for Hedge Accounting, Fair Value Disclosure and FAS 161 to Chiquita Brands International Inc. As noted in the press release, “Chiquita is a leading international marketer and distributor of high-quality fresh and value-added food products including bananas, fruits and green salads. With annual revenues of nearly $4 billion, Chiquita has operations in more than 80 countries worldwide”.

The press release provides some interesting discussion of Chiquita’s bunker fuel usage and market exposure that would result if they did not hedge (and also the necessity of proper hedge accounting to fully realize the benefits of those activities), including a note that Chiquita’s ship fleet burn more than 300,000 metric tons of bunker fuel every year (I know there is a banana boat joke somewhere in there!).

Triple Point also notes several new non-energy clients that they have signed recently (including a couple that have not been previously announced) covering the consumer products, agricultural and manufacturing industries. These new clients include Unilever, The Campbell Soup Company, Gavilon (formerly ConAgra Trade Group) and Incitec Pivot Ltd. Based on those results, it would be hard for anyone to argue that Triple Point is not leading the market in non-energy commodity license sales.

Morningstar, Inc. and Logical Information Machines announced this morning that LIM will be purchased by Morningstar for $51.5 million, a 2.5 multiple of LIM’s approximately $20 million in annual revenue.

Its been rumored for several weeks that LIM has been seeking a buyer, and Morningstar would appear to be a good fit. As noted in the press release, “Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 325,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 20 countries and minority ownership positions in companies based in two other countries.”

Tony Kolton, LIM’s president and co-founder will leave his role (although stay on as an advisor) and will be replaced by Kishore Gangwani, who is currently senior vice president, corporate sales and business development for Morningstar.

This transaction should be good for LIM and its employees. The company, considered to be the pioneer in the energy data server markets, has been perceived to be in a bit of turmoil lately as some intracompany issues had started filtering into the marketplace. This transaction should allow the company to refocus its efforts and move forward aggressively with the backing of a new owner with a significant market presence.

I had the opportunity to spend some time at the Allegro Summit last month, the company’s annual event that brings together not only their customers, but also industry leaders and partners. For example, the first day of the event included a keynote address by Spencer Abraham (who incidentally recently joined UtiliPoint and our affiliated companies as an advisor), who spoke of the challenges of the current market in his talk, “The Global Energy Race”. The two day event also had speakers from Allegro’s user group and industry partner companies, including a very salient address from Trent Gall with Deloitte on the topic of the continuing use of spreadsheets in ETRM.

Eldon Klaassen, Allegro’s CEO, covered a number of key points in his opening address, including a look at Allegro’s development strategy, which includes a multi-year life cycle for their core offering, Allegro 8, and their strategy of expanding the core product capabilities through extensions, limiting the impact on current users when new functions are deployed. He also talked in some length about the new Allegro University, a new virtual training center that allows users to take more than 100 on-demand courses. This new training structure is also now integrated into their implementation methodology, allowing new customer user teams to have 24 hour access to training or to access refresher lessons - which should be very helpful in decreasing the learning curve for new customers/users.

Mr. Klaassen also talked about their new trading floor environment that they have established in their offices in Dallas. They have essentially recreated an analog of a modern trading floor, complete with running systems and data feeds. I think this a great idea, as it allows not only prospects and new customers to get an idea how their system would integrate into the trading environment, but it also allows Allegro own resources, such as implementation consultants and developers, to better understand the complexities of a real world trading floor and how their efforts can impact, and hopefully improve, the ability of traders to manage their business.

The two day event was well planned and well attended. Though most of these types of events have seen decreases in attendance this year due to economic conditions, from what I saw in the ballroom at the Four Seasons Resort and Club in Dallas, it looked like Allegro was able to fill the house.

The first 8 years that I lived in Houston - no snow, not even a suggestion of anything frozen falling from the sky other than the occasional hail storm. The last 7 years in Houston, it has snowed 3 out of those 7 years, including this freakish weather taking place outside my window right now….

I’m certainly glad they changed “Global Warming” to “Global Climate Change”, otherwise I would have to suggest that they might have been wrong…glad I don’t have to do that, cause now it all makes sense.

EDIT: By the way, I’ve been silent on the whole “climategate” thing, mostly because I’ve been so busy that I haven’t had time to really put anything coherent together on the topic…now I don’t need to, because I ran across this video from Rex Murphy with the CBC…

By Patrick Reames
Managing Director, The Americas
CommodityPoint, A Division of UtiliPoint International, Inc.

Italy’s Statoil and Russia’s Gazprom announced this week that they have entered into a preliminary agreement that will see additional volumes of LNG (liquefied natural gas) hitting the U.S. markets in the coming years. Under the agreement, Gazprom will receive up to 200MMBtu/day of LNG regasification capacity from Statoil at the Cove Point terminal on the shores of Chesapeake Bay for up to 20 years; Statoil will buy an additional 200MMBtu/day of LNG from Gazprom which will also go to Cove Point; and Statoil will sell non-LNG supplies of natural gas to Gazprom at various trading points around the United States for five years. While it does appear to add up to a win-win for both companies--Statoil gets out of under-utilized capacity at Cove Point and Gazprom finds an additional market for their large supply of LNG and increases their marketing presence in the United States--this deal probably should not be viewed as a indicator of a bright future for LNG in the United States.

The reality is that LNG continues to be a fuel source of great potential but little performance in the United States. Of the LNG that has landed in the United States in the last couple of years, 80 - 90 percent has been volumes that have arrived under long-term agreements and have come in at only two ports, Everett in Massachusetts and Elba Island in Georgia. Those long-term agreements are not necessary tied to current market realities, as Everett volumes are brought in under a 40 year agreement that started in 1971 and Elba is covered by a 17 year contract that started in 2002. And while additional volumes have come into Cove Point, and the odd tanker has landed at various Gulf ports over the last year, LNG continues to be a minor player in the U.S. energy markets, comprising less than 2 percent of the total U.S. gas supply.

Despite various rosy forecasts over the last several years touting the potential of LNG in the United States, and despite multiple billions of dollars having been spent to make those forecasts a reality, LNG has yet to find a firm foothold in the U.S. marketplace. In fact, U.S. regasification capacity now stands at around 9.4 Bcfd (representing about 40 percent of the global regas capacity), but only about a 1 Bcfd left those facilities in 2008, and sendout from U.S. LNG facilities has never exceeded 3.2 Bcfd, a volume reached in 2007.

Two factors continue to conspire against LNG in the United States: 1) the competition for LNG from industrialized countries that have little or no domestic natural gas supplies (such as Germany and Japan), and 2) new drilling technologies and completion techniques that have made US non-conventional sources of natural gas more economical.

According to FERC, current global prices for LNG range from more than $6/MMbtu in Japan, to the high $3.00’s along the Gulf Coast of the United States, with European markets trading in the mid to high $4 range. In fact, according to the latest FERC report, dated Nov. 6, 2009, every potential landing point in the United States is priced below the rest of the world. Still, the price differentials are not overwhelming and, depending on the shape of any potential global economic recovery (or potential market upset), U.S. prices could become more competitive in the near future, assuming industrial and weather related demand remains low in Europe and Asia. Unfortunately, given little native gas production in the industrialized countries in these regions, any up-tick in demand in these markets will most likely see the United States on the bottom end of prices in the LNG markets once again.

Over the last several years, another impediment to LNG market growth in the United States has been the growth in production from unconventional sources of natural gas--tight sands, coal seam methane and shale--which now make up more than 60 percent of production in the United States (excluding Alaskan gas production, a portion of which, ironically, is liquefied and shipped to Japan). Despite the relative high cost of developing these sources compared to conventional gas reservoirs, (with development costs from unconventional sources estimated at $3/MMbtu on the low end, to $6/MMbtu on the high end), high gas prices in 2007 and 2008 encouraged significant development, resulting in increased production from these long-lived sources. Even now, with the U.S. drilling rig count down more than 50 percent from its high in September 2008, there remains great potential to mobilize additional rigs should gas prices continue the recovery that we’ve seen in the last couple of months. With gas trading consistently above $4/MMBtu, we have seen rig counts starting to come up; and with those new rigs, new production coming on board. This is of course a self-limiting exercise, as new incremental production, without new demand, will keep gas prices “capped.”

The question is, which source will set the price ceiling, domestic gas from unconventional sources or LNG imports? Over the last couple of years, development costs for unconventional natural gas have, on average, been lower than the global market price for LNG; and despite the global economic crisis which has depressed demand for LNG overseas, unconventional gas continues, at least for now, to be the cheaper alternative.

While Gazprom and Statoil have apparently found a deal that works for them and will result in some additional volumes of LNG coming to the U.S. market, it probably shouldn’t be seen as a harbinger of greater things to come for LNG. Unfortunately for LNG investors, the United States, with potentially up to 2,000 TCF of unconventional natural gas reserves (an almost 100 year supply at current demand), is well positioned to offset current production declines and meet any incremental demand from its own domestic sources for many years to come.

By Patrick Reames
Managing Director, The Americas

We recently had the opportunity to sit down with Eldon Klaassen, CEO of Allegro Development to get his take on a broad range of topics, from recent developments within Allegro to the current state of the ETRM/CTRM market place.
________________________________________

CommodityPoint: Early last year, Allegro, after almost 25 years in business, brought in the company’s first outside investment. Can you elaborate on your decision to bring aboard North Bridge Growth Equity and Tudor Ventures?
Eldon Klaassen: Allegro is a software company that has been profitable for 25 years and has been self-funded. However, we understand we need to be positioned for future growth in a very complex market. Significant investment by institutional investors such as North Bridge and Tudor sends a clear message to our customers, partners, banks and employees. It says that we have a clear vision for profitable growth in this market and that sophisticated investors share that vision. This experience has proven very positive for our company and we feel we have chosen the right partners with this investment.

CommodityPoint: What have been the impacts, both internally to Allegro and to your client base, as a result of the investment?
Mr. Klaassen: Our company has continued to change over time, but it’s not change that has been necessarily a result of the investment. Our investors have confidence in our management team. They understand the issues of this market and, given that confidence, have taken a hands-off approach to the daily operations.

CommodityPoint: We’ve seen a number of your competitors making acquisitions over the last couple of years, buying or investing in companies that have helped them expand their product capabilities and market footprint. Allegro, however, has avoided following a similar strategy, instead building similar capabilities in-house. What has been the advantage to Allegro with this strategy?
Mr. Klaassen: Our strategy is not limited to organic growth. We are always looking to expand our market reach--how we gain access to those markets is the real question. So far, we have grown our presence in those markets organically, because, after examining the available options, we felt it was the best choice for us. We also consider growth through partnering with quality companies, such as our partnership with Indra in Spain. Every new market is a build, buy or partner decision.

We, like our competitors, had a look at the companies that have been acquired over the last several years and made the determination that the prices weren’t right for us.

CommodityPoint: Clearly, a few of Allegro’s competitors are, or have been, targeting a public stock offering. In fact OLF has gone so far as to issue their S-1, only to have recently withdrawn it. Do you see an opportunity for Allegro or any of your competitors to go public within the next year or two?
Mr. Klaassen: We’re patient--an IPO is unlikely for us in the near future, and certainly not until the IPO markets open up. OpenLink’s withdrawal of their S-1 is clearly not a reflection of the quality of the company; it’s a reflection of the state of the IPO markets.

CommodityPoint: Do you believe there is “room” in the public markets for more than 1 or 2 pure ETRM/CTRM technology companies?
Mr. Klaassen: It will depend on a number of factors. Defining what the ETRM market is can be somewhat elusive. If a more liberal interpretation is used, I think certainly the market could support three, four, or even more companies. I think the biggest challenge in going public is one of scale. If you assume a market cap at $500 million--large for this space, but is relatively small for a public company - It’s going to be hard for an offering that size to gain the attention of the equity markets. Twenty-five years ago, $500 million was a good sized valuation; unfortunately, today, it may limit access to analyst coverage and larger institutional investors.

CommodityPoint: With the collapse in the commodity markets last year, the market for new ETRM systems, particularly in NAM, fell off significantly, with most vendors indicating that the last half of 2008 was particularly difficult. How has the market been in 2009 for Allegro?
Mr. Klaassen: We’ve definitely seen an uptick. This market, despite whatever economic issues arise, will always have inherent needs, such as the ability to manage positions and perform risk management. Despite capital expenditures going on vacation for six months, those underlying needs have still been there, and we’re seeing that the market is coming on strong. It reminds me of the Enron period--the market was very strong in 2000 and 2001. Then Enron happened and everyone was trying to get out of trading. It wasn’t until 2004 that the market came back, but it came back very strong. We’ve been able to successfully weather these periods for two reasons; one, we have a large, diverse install base and with that install base you can survive almost any downturn, and two, we have a strong balance sheet.

CommodityPoint: At CommodityPoint, we believe that even though North America will continue to be a reliable market for ETRM solutions, the real growth in the future will be global, including Europe, Asia, South America and Africa. How do you see these markets in terms of growth potential for Allegro’s products?
Mr. Klaassen: Europe is a big market, second only to the US and our metrics show strong continued growth for us there. Asia is a market requires patience. Six months is not an unusual deal cycle in North America--from RFI to deal closing. In the Asia market, you have to build relationships, with the hope that eventually those relationships will lead to a sales opportunity. We established our Singapore office in 2004 for that reason, to build relationships in the region and look for the opportunities that might grow from those relationships.

CommodityPoint: What capabilities are selling systems these days - what are potential clients pointing to most often as their critical need in a new ETRM system?
Mr. Klaassen: Several things--but really they are all about growing or scaling their business in complex markets. Our prospects, and current customers, are seeking to add suppliers and customers, entering into more complex pricing arrangements, developing new markets. They need a system that can scale with an ever-increasingly complex business environment. They’re also focused on improving their ability to understand the impact of their operations on their capital structure, and subsequently their credit facilities. CFOs are asking “how does this impact the elements of my capital structure--including debt, equity, and cash flows. Will these transactions bring about future funding requirements?” We feel we are able to answer these questions better than anyone else.

CommodityPoint: There been much talk recently about greater government/regulatory oversight and involvement in the financial and commodity markets. If this comes to pass, what do you believe will be the impacts on the systems and technology providers in this space?
Mr. Klaassen: It’s really hard to forecast. So far, it’s all been a lot of rhetoric, with little or nothing in the way of concrete legislation. Indications are that if anything ultimately happens, it’s going to take a long while and it probably won’t be very invasive.

CommodityPoint: Cap and trade has been receiving lots of press this last year and legislation is pending in congress, though it’s increasingly clear that legislation won’t happen this year. Is the prospect of Cap and Trade driving any sales and/or delivery activities for Allegro?
Mr. Klaassen: Many of our customers have been using our system for some time to manage their business in the emissions and renewable markets. However, the issues surrounding cap and trade continue to be unsettled. Until there is more clarity from the government, industry will continue to be unsure of how to respond. Certainly some form of legislation is coming, whether cap and trade, or some other form of tax, and when we start to see clarity about what’s going to happen, we will work with our customers to ensure they are prepared for the outcome.

CommodityPoint: What’s your and your company’s greatest challenge these days?
Mr. Klaassen: Continuing to evolve as an organization. We view maintaining a responsive organization as an ongoing process, and an ongoing opportunity to always provide incremental value to our clients.

Triple Point recently announced a couple of new license sales: one to help manage commodity procurement at Unilever, one of the largest consumer products companies in the world; and the other to the Tennessee Valley Authority (TVA) for management of their portfolio of fuels acquisition and power sales.

According the Unilever press release, Peter Armstrong, Triple Point’s CEO and president, indicates Unilever is the third consumer products company that Triple Point has added in the last 45 days. Triple Point licensed their SAP related product, Commodity SL “to optimize commodity management across agricultural raw materials and business units”; another win for Triple Point in their ongoing SAP relationship. So, next time you’re sitting at Ben and Jerry’s enjoying a bit of ice cream, you can thank Triple Point for helping that company (a sub of Unilever) ensure that they acquired the necessary ingredients profitably in order to keep the “Cherry Garcia” and “Chunky Monkey” coming your way.

I met up with John Fosdick, DMS’s Director of Marketing, a few days ago to discuss the latest developments with the company and get their view of the marketplace. As you may know, DMS (Data Management Systems) is a Houston based ETRM vendor that provides a gas specific system, GasPro. Given their market focus on gas only, the company doesn’t pursue a lot of deals the larger ETRM vendors go after. Despite that, John was quick to point out that doesn’t mean they don’t land deals with big companies. In fact, according to Mr. Fosdick, DMS is having a record year due, in part, to a recent deal they closed and implemented with one of the largest global players. He was also quick to point out that this transaction went from deal closing to live-use in only six weeks.

In terms of new developments around their product, John tells me this and another of this year’s new clients have provided the company an opportunity to add what he calls “a new dimension of Risk features” to what had previously been, with a few exceptions, a physical gas only system.

John also confirmed what we at CommodityPoint have been seeing - that, despite very low gas prices, the demand for gas specific functionality in ETRM remains fairly robust. He says they are continuing to see a steady flow of RFI/RFP activity and feel that they will have the potential to close multiple deals by the end of the year.

It was announced yesterday that private equity firm The Carlyle Group has agreed to purchase OpenLink from TA Associates.

According to the press release, Kevin Hesselbirg, OpenLink’s CEO, says “…Carlyle’s technology expertise and financial know-how will serve us well, particularly as we expand internationally and through acquisitions.” Not necessary a surprise statement, but it does show that we can expect OpenLink to add to their own portfolio of acquisitions which, right now, includes IRM and MCG.

This acquisition looks like a good fit. The Carlyle Group has a very large portfolio ($86 Billion according to their website) that includes a number energy and technology companies that might provide additional leverage for OpenLink in this deal.

One of the more interesting aspects of the deal is this note in the PR…”Equity capital for this transaction will come from Carlyle Partners V, Carlyle’s flagship $13.7 billion U.S. buyout fund, management, and Founder and Chairman Coleman Fung.” It appears that Mr. Fung has increased his ownership, which according to OpenLink’s now dead S-1, was about 17% of the company after the TA deal. TA owned about 78%. So, its unclear the exact proportion now, but clearly Mr. Fung continues to be a significant owner in the company.

You can read the press release in full here.

Google recently unveiled a new technology called Wave that is essentially a mix of traditional email and instant messenger on steroids. They’ve deemed it to be “a new way to communicate and collaborative in real-time”. Essentially it allows you to communicate via a IM-like environment in real-time - meaning every key stroke can be displayed on the other end of the message as its being typed. Additionally, it allows you to involve multiple parties in the conversation or “wave” and allows simultaneous updates and changes to the message in real-time - you don’t have the message at the bottom of the IM screen that says “joe_blo is typing” - you see the letters as they are typed, and you see everyone that is typing to the message. All the “waves” are kept and listed in what looks very much like an MS Outlook environment…you see a list of all the “waves” with any that have been updated or unread in bold.

And now you say “So what?”

Here’s what I consider to the big deal…Google has built in an API that allows you to embed this technology in other applications. And again, you say “So what?”

I’ve always been a fan, and in someways an advocate, of incorporating communication technologies like instant messenger into ETRM systems. I was very excited about Yellow Jacket’s technology that could scrape IM screens and allow you to load IM based deals directly from IM into your ETRM system. Unfortunately, ICE came along and killed that little bit of potentially threatening technology, seeing that if you could communicate your bids and offers through IM to multiple trading partners and have those trading partners commit to a deal on IM, and then have that deal automatically load into your system…well, it starts looking like a mini-exchange.

Google Wave, even in today’s early incarnation, has the capability to embedded in other systems and appears to have at least rudimentary capabilities to move data in and out of those systems. So, think about it, you could easily, using your ETRM system, post out your bids and offers in a “wave” that you expose to multiple trading partners - 1, 2 or 10. They can view those bids and offers and make counteroffers or commit to the deal live - you’re seeing immediately what they are entering. You can negotiate in real-time with one or more of those counter parties, potentially creating a real-time auction, or you can quickly accept the bids and offers and clear your open positions. You can also bring additional counter parties in at any time to expand your potential trading group. With each “done” deal, you can (potentially in real-time) transfer that deal into your ETRM and instantly see the impact on your position.

The technology is still in its early development and is only available to a limited number of test users and developers. However, Google is going to make the product open source, meaning that anyone (like an ETRM developer) can take the code and create the kind of applications that could, if not revolutionize, at least bring improved efficiencies to trading systems and processes. Open source also means that no one can come in, buy up the technology and throw it on a shelve, never to be seen again.

Former U.S. Energy Secretary to Advise Leading Energy and Utility Advisory Firm

November 2, 2009-New York, N.Y. & Albuquerque, N.M. USA-UtiliPoint International, Inc. announced today that former U.S. Energy Secretary Spencer Abraham will serve as a Senior Advisor to the Company and its parent company, Midas Medici Group Holdings, Inc.

Mr. Abraham served as U.S. Secretary of Energy from 2001 - 2005 and as a U.S. Senator from 1995 - 2001. He will be providing strategic assistance to the Companies through his consulting firm, The Abraham Group.

“I am pleased to join the innovative team at UtiliPoint International. Their reputation and longevity as well as passion for excellence in energy research and reporting, combined with their commitment to overall industry transformation, provides an exciting opportunity for this partnership,” said Mr. Abraham.

In his role as Senior Advisor, Mr. Abraham will become involved in all aspects of UtiliPoint’s strategic planning and research agenda. Mr. Abraham will also work closely with the senior leadership at UtiliPoint and Midas Medici to strengthen and expand senior client relationships as well as enhance international market opportunities.

“We are pleased to have someone of Mr. Abraham’s caliber and experience as a Senior Advisor. I am particularly looking forward to working with him and the experienced team at The Abraham Group to leverage his vast expertise and knowledge of global markets and policy to help our clients in this period of significant change and opportunity in the energy markets,” said Nana Baffour, CEO of UtiliPoint International, Inc. and Executive Chairman of Midas Medici Group Holdings, Inc.

About Spencer Abraham

Spencer Abraham is the former United States Secretary of Energy having been appointed by President Bush as the tenth and longest-serving Energy Secretary in U.S. history. As Secretary, he led a federal department with a $23 billion budget and over 100,000 federal and contractor employees.

Since September 2005, he has been chairman and chief executive officer of The Abraham Group LLC, an international strategic consulting firm based in Washington D.C. In addition, he serves as non-executive chairman of AREVA, Inc. the North American subsidiary of the French-owned nuclear energy company, and on the Board of Directors of Occidental Petroleum (NYSE:OXY).

Prior to being Secretary of Energy, Spencer Abraham served as a U.S. Senator from Michigan for six years. In the Senate, he was a member of the Senate Commerce, Judiciary and Budget Committees and served as chairman of the Senate Immigration Subcommittee and the Senate Commerce Subcommittee on Manufacturing and Competitiveness.

Secretary Abraham is a graduate of Michigan State University and Harvard Law School.

About UtiliPoint International, Inc.

For more than 75 years, UtiliPoint International has been a trusted source of insight into the energy and utilities industry. With more than 500 clients worldwide, we are the leading provider of research and advisory services for the energy sector. Our company is comprised of industry experts from around the world with diverse backgrounds in utility generation, transmission and distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs and international issues. UtiliPoint International, Inc. is headquartered in Albuquerque, New Mexico, USA. For more information, visit http://www.utilipoint.com/

CommodityPoint is moving our Houston area offices. Please note the new address which will be effective Monday, November 2nd.

CommodityPoint, a division of UtiliPoint International Inc.
19901 Southwest Freeway, Suite 121
Sugar Land, TX 77479

Phone: 281-207-5440
Fax: 281-207-5441

Aspect Enterprise Solutions (formally known as OilSpace) announced recently that they’ve signed up African petroleum supplier Cirrus Oil of Ghana. Cirrus Oil will be using Aspect’s SaaS energy trade and risk management (ETRM) system, AspectETRM, to replace an in-house built system of spreadsheets that the company had been using to manage their trading operations.

According to the press release, “With more than 1,000 trades taking place every month, Cirrus is one of Ghana’s leading importers and suppliers of petroleum products to oil marketing companies and other bulk distributors. It owns and operates its own petroleum terminal which can store and load gas oil, gasoline and aviation fuel.”

Houston, TX USA and Brno, Czech Republic—October 22, 2009— CommodityPoint (www.commodity-point), a division of UtiliPoint International, Inc, is launching a new initiative to assess Energy and Commodity Trading and Risk Management software and vendors. CommodityPoint has provided analyst coverage for E/CTRM software for more than a decade and is now established as the leading analyst in the area but it has never before published an assessment of the top vendors and products. This newly developed study, the E/CTRM vendor assessment, will be a unique product in both its scope and content. The final deliverables from the study will allow buyers to more rapidly determine suitable candidates for their procurement activities.

“This new initiative will provide the market with a comprehensive assessment of the E/CTRM vendor and product landscape intended to provide buyers of E/CTRM systems a singular resource to assist in identifying potential products and vendors that can provide solutions to meet their requirements,” said Dr. Gary M. Vasey of CommodityPoint. “CommodityPoint has no doubt that this assessment will become the most widely used, referenced and important resource for prospective buyers and others seeking a comprehensive view of the market place.”

“Given the complexity of the E/CTRM markets, with each commodity having its own unique and complex supply chain, and each coupled to a dynamic and volatile financial market, it’s become more difficult for companies operating in this marketplace to identify the right pool of potential vendor candidates that service their particular market segment and needs. This difficulty increases the costs, both in time and real dollars, as a buyer moves through the acquisition process,” said Patrick Reames of CommodityPoint. “We’ve designed our vendor assessment report to provide a clear view of the universe of vendors and capabilities, enabling rapid identification and reducing the costs of finding the right application for each buyer’s specific needs regardless of the markets in which they operates.”

The vendor assessment study utilizes a new methodology developed by CommodityPoint to characterize the E/CTRM software market and it will also utilize the results of the recently completed vendor perceptions study and other proprietary research. The study is expected to complete by the end of 2009.

About CommodityPoint

CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc <htp://www.utilipoint.com>. CommodityPoint provides Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. Our services bring insight into business issues, trends, processes and technology, to utilities, energy companies, banks, brokers, funds, investors and vendors that enhance their competitive position and support critical business decisions. CommodityPoint has been formed to bring focus and clarity to the broad array of issues surrounding the wholesale trading of commodities. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. Our principal analysts, Dr. Gary Vasey and Patrick Reames, bring years of practical experience to their roles. With offices in Europe and the United States, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace.

Visit our website at href=”http://www.commodity-point.com”>www.commodity-point.com or our blogs at www.etrmcommnity.com and www.utilipointeuropeblog.com, find our research reports at href=”http://www.commoditypointstore.com”>www.commoditypointstore or browse our online directory of TRM software and service providers at www.trmdirectory.com.

About UtiliPoint International, Inc.
For more than 75 years, UtiliPoint International has been a trusted source of insight into the energy and utilities industry. With more than 500 clients worldwide, we are the leading provider of research and advisory services for the energy sector. Our company is comprised of industry experts from around the world with diverse backgrounds in utility generation, transmission and distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs and international issues. UtiliPoint International, Inc. is headquartered in Albuquerque, New Mexico, USA and can be found on the Web at www.utilipoint.com .

New York, NY and Albuquerque, NM--October 12, 2009--Forbes magazine’s Custom Solutions group and UtiliPoint International, Inc. announced today that the two companies have joined forces to launch a series of interviews with today’s leaders who are actively promoting change in today’s rapidly evolving energy industry. The interviews, to be known as the "The Great Transformers" series, will be posted in video and audio format on Forbescustom.com, UtiliPoint.com and iTunes, as well as appear in a special advertising section in the March 15, 2010 issue of Forbes magazine and online at ForbesCustom.com. The series will focus on key transformational issues including: The impact of recent economic conditions, regulatory changes, technology, clean energy and the environment.

"We are excited to partner with UtiliPoint on this important series, as they interview key leaders on pressing topics in the dramatically changing energy industry," said Selden Blommer, Executive Director, Custom Solutions at Forbes magazine. "This is an important milestone for ForbesCustom.com, and in our continued efforts to generate original, thought-provoking content for the site."

Converging Industries
"The Great Transformers" series will engage senior executives, public policy makers, and industry influencers in thought leadership on the forefront of today’s dynamic energy market. UtiliPoint will be expanding its net outside the utilities industry to draw from leaders in transformational markets and government. Some of these industries include communications, education, transportation, and information technology.

Topics to be explored in The Great Transformers series include, but are not limited to:
o The Smart Grid
o Converging Technologies
o The American Recovery and Reinvestment Act of 2009
o Electricity Delivery and Energy Reliability
o Utilities, Transportation, Internet and Communications Convergence
o Clean and Renewable Energy
o Climate Change
o Empowering Consumers
o Energy Efficiency

"We welcome the partnership with Forbes Custom and the Forbes Media organization to bring these innovative insights to the public," says Nana Baffour, Chairman and Chief Executive Officer of UtiliPoint International, Inc. "The Great Transformers series is founded upon the long heritage our organization has established with encouraging provocative dialogue among industry leadership. This new forum is being introduced at a time when our national energy agenda faces unprecedented policy, infrastructure, environmental and economic challenges."

The Great Transformers will be selected by UtiliPoint’s leading industry analysts, and through nominations submitted by the public. For more information about nominating a Great Transformer, visit www.utilipoint.com/GreatTransformers.

About Forbes Media/Forbes Custom Solutions
Forbes Media encompasses Forbes and Forbes.com, the #1 business site on the Web that reaches more than 18 million people monthly. The company publishes Forbes and Forbes Asia, which together reach a worldwide audience of more than 5.5 million readers. It also publishes ForbesLife and ForbesWoman magazines, in addition to licensee editions in China, Croatia, India, Israel, Japan, Korea, Poland, Romania, Russia and Turkey. Other Forbes Media Web sites are: ForbesTraveler.com; Investopedia.com; RealClearPolitics.com; RealClearMarkets.com; RealClearSports.com; and the Forbes.com Business and Finance Blog Network. Together with Forbes.com, these sites reach nearly 40 million business decision makers each month. Forbes Custom Solutions is uniquely qualified to provide custom content targeted to business executives, investors and affluent consumers.

About UtiliPoint® International, Inc.
For more than 75 years, UtiliPoint International has been a trusted source of insight into the energy and utilities industry. With more than 500 clients worldwide, we are the leading provider of research and advisory services for the energy sector. Our company is comprised of industry experts from around the world with diverse backgrounds in utility generation, transmission and distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs and international issues. International, Inc. is headquartered in Albuquerque, New Mexico, USA and can be found on the Web at www.utilipoint.com .

Open Link announced today that Petrobras, the Brazilian integrated energy giant selected OpenLink’s Endur and cMotion solution sets to operate its crude oil and refined products business in Rio de Janeiro, London, Houston and Singapore.

According to the press release…”Petrobras, which owns and operates oil exploration, production, marketing and transportation, both in Brazil and abroad will utilize Endur in support of its Oil and Refined Product trading business lines and will deploy OpenLink’s ground breaking cMotion suite for their crude oil logistics and refined products business lines.”

SolArc announced this week that they have closed a new deal with “Gazprom Neft Trading GmbH, an international marketing and trading company based in Vienna, Austria, to implement SolArc's RightAngle integrated application suite for its crude and refined products trading, operations, accounting and risk management requirements.”

You can see the press release in its entirety here.

Triple Point issued a new press release in the the last few weeks…

They signed up Peabody coal for “Triple Point’s Commodity XL(TM) for Hedge Accounting and Fair Value Disclosure. Peabody will use Commodity XL to assist in meeting the regulatory requirements related to FAS 133, FAS 157 and FAS 161 for its hedging activities across Foreign Exchange (FX), Interest Rates (IR) and Energy Commodities.”

In addition to this announced deal, Triple Point also has a bit of new flash on their website that indicates Gavalon, formally known has ConAgra, has picked up some software, although there is no announcement in their new releases. Also, I’ve heard that they recently sold their hedge accounting solution to a Northeast gas utility…

If you’ve tried registering to the ETRMCommunity recently, but haven’t received your confirmation email, you might try again, or send me an email at preames@utilipoint.com. We seem to have a bit of an issue with approving new members. I’ll get our tech folks working on it.

Sorry and Thanks!

A UtiliPoint IssueAlert
Patrick Reames - VP, CommodityPoint

I recently had the opportunity to participate in an industry panel discussion exploring various issues in the energy trading and risk management space. While the questions poised to the panel varied, the majority kept returning to issues surrounding managing the flood of data and information pouring into the trading floor; and more specifically sorting, analyzing, and being able to present it in a more consumable form to those on the floor that needed the information in order to more effectively do their jobs.

On today’s trading floors, information is arriving in greater quantities, from more sources, and at greater velocity. Trading floors are now receiving real-time or near real-time data in the form of price feeds, trading exchange feeds, and operational data from production facilities, pipelines, transmission operators, shipping companies, and even data aggregators, such as Bentek. Wholesale trading in this environment is no longer a function of “dialing for dollars” - making a whole lot of calls and trying to find the best price - it’s about being able to quickly sort through all that data, make a judgment as to what it all means, develop a strategy to take advantage of that judgment, and executing on that strategy with the appropriate counterparties.

This increased availability of data, now within the reach of virtually all traders, is one of (if not THE) biggest changes in wholesale energy trading over the last decade. This increased visibility into market conditions has fundamentally changed the nature of the business in that arbitrage opportunities are smaller in magnitude and last for a fraction of the time that they did in the past. The daily battle is now won or lost based upon how quickly an individual or desk can sort through and consume all that data arriving from the multitude of channels and, ultimately, turn it to their advantage.

New Technologies, but Limitations Continue
On today’s trading floors, the energy trading and risk management (ETRM) systems have become the nexus of all that information, with the leading systems having evolved from simply capturing and sorting deals and transactions after the fact, to being a hub of information necessary to facilitate decision making. Today’s modern ETRM systems are capable of connecting to price feeds, on-line exchanges and energy markets; however, merely connecting to, and capturing, that data is insufficient. Despite the advanced service oriented architectures (SOA) offered by many of the modern ETRM systems, the ability of these systems to make full use of the relevant data and to present it in an easily consumable manner has still not advanced to fully meet the needs of today’s fast paced trading environments.

Despite advances in technology over the last decade, it has proven very difficult for ETRM vendors to blaze new trails in advanced simulations and data visualization. While the hardware available is much more capable, with fast multi-processor computers now standard to all trading shops, the software has lagged behind in taking advantage of those capabilities. ETRM vendor business models do not support revolutionary advances, as most clients demand incremental changes to the software in order to provide manageable upgrade paths from one version to the next, so rather than starting from scratch with an entirely new architecture that better facilities faster processing times and a flexible and rich presentation of information, software developers must generally operate within the constraints of architectures designed to model complex transactions and business processes, and to ensure transactional integrity.

Data servers, a relatively new category of software that sits between many of the data services and an ETRM system, have gained popularity in recent years as traders have become more aware of their capabilities. These systems, from vendors such as ZEMA and Logical Information Machines, provide the ability to compile data from multiple sources (like price feeds, ISOs, and exchanges), create unique pricing curves, and analyze data visually. However, while these systems can provide a sieve for much of the data arriving on the trading floor, making that data more accessible and consumable to traders, and interfacing to ETRM systems in order to pass that information into the system, they are not considered tools for visualizing the impacts of market or price movements on a portfolio of trades, something that can practically be accomplished only within the ETRM system itself. However, experience has shown that ETRM systems are generally not great simulation engines, with stochastic analytics, such as Monte Carlo VAR, requiring several hours to calculate.

CommodityPoint research indicates that more and more traders are starting to look toward these stochastic analytic methods. However, our experience is that traditional ETRM architectures are limited in their ability to perform the massive numbers of calculations necessary--for example, it’s not uncommon for a Monte Carlo VAR calculation to run tens, if not hundreds, of millions of calculations on a multi-year portfolio comprised of thousands of trades; certainly not an unusual trading book in this market. Some ETRM vendors, including Allegro, Triple Point and OpenLink, have turned to grid-computing to help distribute the computation load across the many machines connected to the network. Others, who have recently entered the marketplace, have developed their systems around the ability to rapidly perform portfolio simulations; however, these recently released systems, such as those from Abacus or HyperRig, don’t provide the breadth of operational functionality, such as scheduling and accounting, as do the larger vendors.

Most of the commercial ETRM systems provide some data visualization capability, similar to that available in an Excel spreadsheet, allowing price curve, volumetric information or some standard analytics, such as value at risk (VAR) to be graphically displayed. However, with the exception of these limited capabilities, today’s ETRM systems provide the vast majority of their data compiled in tabular form and displayed in rows and columns, much like a spreadsheet.

What Will the Future Look Like?
Many of the system vendors are constantly working to improve their ability to run multi-variable portfolio simulations, having recognized this area as a solid competitive advantage in the marketplace; and those new market entrants whose systems are built around simulation capabilities are working to strengthen their offerings in terms of operational functionality. Still, addressing the complex issues surrounding data management, data analysis and data visualization, while simultaneously providing “system of record” capabilities, will probably require additional technologies that are not yet in those vendors’ toolkits.

In the area of data simulation, the SOA architectures in place do provide part of the longer term solution in that they are well suited to passing data in and out of the application. However, as previously noted, for calculative intensive operations, they are not ideal. The most likely scenario for enabling real-time or near real-time stochastic analytics will probably involve data marts, smaller databases constantly updated via the primary ETRM system, and containing only the necessary deal data and pricing necessary to perform complex analytics. The computational engines will sit outside the primary ETRM system, running on dedicated high performance machines, architecturally optimized for intensive calculations.

Improvements in data visualization will also play a large role part in facilitating better and more rapid decision making. Humans consume information better when presented in an analog form--that is we are quicker to identify changes in shapes, shades and colors--as opposed to reading columns of numbers. After all, how many of the readers of this article still wear those digital-only watches that were the rage in the 70’s and 80’s, or still drive a car with the speedometer displaying numbers instead of a moving hand? Being able to understand how the value of a complex portfolio of multiple commodities changes under various price or operational assumptions is best accomplished via a graphical view, not by reading through a large matrix of numbers.

At Solarc’s recent ASCENT conference, the company spent a significant amount of time demonstrating some of the research they have underway in the area of data visualization, including a relatively new technology called Surface Computing (from Microsoft), incorporating “multi-touch” capabilities (essentially a giant I-Pod Touch-like device)--allowing multiple users to directly interact with a single screen, manipulating data and documents. While the technology is currently more oriented to the consumer/commercial markets, Solarc did display some prototype capabilities in the area of workflow enablement, including document management.

Scheduling is an area ripe with potential for improved workflow and optimization facilitated by improved data visualization; and this is another area that Solarc displayed some new innovation, using a GIS system overlaid with a pipeline network which, once in full production, would allow schedulers to more quickly balance their services agreements and identify transportation opportunities. This ability to visually display a network of pipelines or transmission lines with additional information, including volumetric (available capacity, interruptions, pool balances, scheduled volumes, demand forecasts, etc.) and pricing data, could allow schedulers or dealmakers to quickly optimize their daily physical portfolios for price or transportation optionality. However, while advances in visualizing this type of data have been made, the technology is still in its infancy. Currently many vendors do provide a schematic view of pipeline or transmission networks; however, they are primarily used to ensure nominations are in balance and are limited in their utility in terms of optimization.

For these types of interfaces to advance and provide the true decision support and optimization capabilities that are required in a real-time environment, a new paradigm in visualization is required. That new paradigm will require equal parts of investment and imagination--investment on the part of the systems vendors and active participation by the market in helping to identify the appropriate data points and envisioning new ways of consuming the mass of information that is currently available in the data flood.

The technology to improve data analysis and visualization does exists now; after all, if we have the ability to model global climate one hundred years into the future, surely we should be able to quickly calculate a multi-variable portfolio simulation five years into the future.

When I was a kid, my brother and I would spend countless hours making big fireworks from little fireworks. We’d buy as many “blackcats” as our allowances would bear, and then meticulously pull out the fuses and roll the firecrackers between our fingers, coaxing out the black powder. We would then roll the blackpowder up in heavy paper, all in order to make a bigger firecracker with a bigger bang - the kind that would rend fingers from hands. Great fun.

This gentleman should know better. He’s older and given the formula he uses, particularly the magnesium component, he should know the potential of what he’s built. Unfortunately, he doesn’t, at least not until the end when he says “I might have used too much magnesium”…

Kinda reminds me a Loney Toons cartoon, the ones where Bugs Bunny sticks his finger in the barrel of Elmer’s shotgun…

Solarc announced this week that it had signed Tauber Oil, the Houston based marketer of petroleum and petrochem products. According to the press release, Solarc’s full suite of products will be “utilized for physical marketing and risk management across all of Tauber’s business lines including Natural Gas Liquids, Intermediate and Heavy Feedstocks, Petrochemicals, Blending Components, Carbon Black Feedstocks, Residual Fuels, Natural Gas…”

You can see the full release here.

As I had previously mentioned, I had the opportunity to attend and take part in a panel discussion at Solarc’s Ascent conference at Lake Conroe this week. As usual, Solarc put on a well produced, well attended event. Some interesting stuff coming out of the event…

- Solarc is making strong progress toward converting RightAngle to a full .Net architecture, with the front office, scheduling, valuation and much of the infrastructure services converted to .Net in their upcoming S11 release (currently in beta testing)

- Rolled out new partnerships/integration points - the list now includes such companies as Platts, OPIS, LIM, SAP, Zytax and Oracle

- Solarc has really moved to a full and complete adoption of Microsoft infrastructure and application development products and are using those MS products to explore some really interesting stuff, like potentially embedding GIS functionality in the RightAngle products for scheduling and balancing.

- They also showed off Microsoft’s Surface Computing technology, which if you haven’t seen it, is like a giant IPod, only a lot more sophisticated. Cynthia Haynie, Solarc’s CTO, demoed some potential uses of the technology, such as its value in facilitating work-flow; but, according to Cynthia, they’ve just really started to look at the technology and ways it might add value to the company’s product family. Personally, I’m struggling a bit to see how it could be adopted to a trading floor, but it is cool stuff and fun to play with...Here’s a video showing Surface Computing in action, and no, this is not from Solarc or the Ascent conference….

Just passed to me by a fellow UtiliPointer…

The meaning of success…

At age 4 success is . . . not piddling in your pants.
At age 12 success is . . . having friends.
At age 17 success is . . having a driver’s license.
At age 35 success is . . . .having money.
At age 50 success is . . having money.
At age 70 success is . . . having a drivers license.
At age 75 success is . . . having friends.
At age 80 success is . . . not piddling in your pants.

Solarc is holding their annual Ascent conference at La Torretta Del Lago Resort on Lake Conroe next week. I’ll be participating in an industry expert panel discussion, answering questions from the audiance. Show-up and see if you can stump me!

If you would like to find out more about the conference, you can go here.

And just announced today, Solarc has signed a new client for their natural gas solution, Southcross Energy. According to the press release, “Southcross will leverage the SolArc Natural Gas Solution for producer services, managing gathering facility nominations and accounting, plant processing allocations, and to support the physical gas marketing group in position management, scheduling and accounting.”

For more on this announcement, you can check it out here.

Question: What happens to the world’s shipping fleet when there is a global recession and international trade slows?
Answer: A very big chunk of that fleet goes to a watery parking lot…

A very powerful picture of the impact of the global recession from the DailyMail

OpenLink has officially withdrawn their S-1 in a filing with the SEC in the last day or so. Not a surprise given the state of the equity markets. However, it appears they may be pursuing a different path to an end game…rumors are flying like tin roofs in a tornado…

Last Friday, SunGard rolled-out a reorganization and restructuring of their SunGard Energy and Kiodex divisions. According to an announcement sent out to their clients earlier this week, the company has now combined the two groups into a new organization called SunGard Energy and Commodities. Ben Jackson, formally President of Kiodex, will lead the new combined organization as Senior Executive Vice President, with Matt Mandalinci having resigned his role of President of SunGard Energy and left the company. Ben, who has an extensive background in commodities trading, banking and technology, had taken over leadership of Kiodex in 2006 when Raj Mahajan, the founder of Kiodex, was promoted to president of SunGard Trading. Ben will continue to report directly to Raj within the SunGard organization.

While not always obvious to the outside, I have heard that SunGard Energy has had a sometimes strained relationship with their sister SunGard company, Kiodex. While the two products families have ostensibly served different markets (ASP vs. installed, physical/financial vs. financial, etc), they have found themselves bumping into each others’ territories at times, creating some internal concerns and a level of confusion in the market.

Still, Kiodex has become the leading ASP delivered risk management solution for financial institutions involved in energy and commodity trading and SunGard Energy, with possibly the largest install base in ETRM, has made solid strides in rationalizing their product family with the recent release of Aligne. At CommodityPoint, we think this new organization (which will now house Kiodex, Fame, and Aligne under the same roof) is a clear step in the right direction and will allow the company to better leverage internal skills, better coordinate sales and marketing activities, and better serve the few joint customers that the two, previously separate groups, had in common.

I recently had a conversation with Michael Schwartz, Triple Point’s VP of marketing, to talk about the state of the ETRM market and get a better sense of how the company has been doing this year.

We’ve seen a number of new client announcements from the company in recent months, covering the entirety of their product family from Commodity XL to Credit to Hedge Accounting. And, while the number of press releases is in itself impressive, with announced wins at Hellenic Petroleum, Bruce Power, Evonik, and Scotiabank for Commodity XL (or SL, the SAP integrated solution, at Evonik), and other new customers, like PPL, for their credit risk products, Mr. Schwartz indicates that there have been many other deals done that they have not yet issued press releases on.

While he couldn’t provide much detail around deals that have not been publically announced, he did indicate that the company has closed more than a dozen new clients year to date, and that Triple Point will undoubtedly meet or exceed all their financial goals for 2009, as he sees no slowing in terms of their sales opportunities in the coming months.

As we’ve previously noted, Triple Point’s acquisitions of INSSINC and Rome last year have clearly paid off, with a number of the wins this year attributable to those products. However, even without the addition of those products, the performance of the company’s flagship product, Commodity XL, would have been more than enough to position them at or near the top of ETRM vendors in terms of new business in 2009.

Matt Simmons, CEO of Simmons and Company International and prominent peak oil advocate, pointed out this last week that there may be an implosion coming in the exchange traded funds (ETF) natural gas contract. His concern is a company called UNG (United States Natural Gas Fund, LLC), an ETF fund that allows investors, including everyone from individuals to institutions, to gain exposure to the natural gas futures contract without having to buy or sell the contract directly. As Mr. Simmons points out, this once small fund has exploded in size recently, including having captured the attention of the CTFC, and is poised for a big fall…

How on earth can a tiny firm amass 30% of nat. gas contracts, with funding jumping from $727 million to $4.5 billion in three months as nat. gas prices tank? Why would so many little investors plunge into buying natural gas contract exposure when every new article over past three months predicted gas gluts and prices soon to plunge to $1 to $2 dollars?

Despite Mr. Simmons reputation for the dramatic (again think peak oil), his point here is more than valid and the effects of a fall could be dramatic. If natural gas tanks, many of UNG’s investors are going to lose their shirts, and the ETF market, and possibly the natural gas contract by extension, are going to going to get hit with a big black eye.

Had a brief discussion with Kevin Gerold, president of Paragon Consulting…it seems they have just signed their second customer for their Vanguard Credit Risk system. This new customer, who must, for now, remain nameless, is a large LDC type in the northeast. As readers may remember they landed their first customer a couple of months ago when they signed a Midwest utility (again un-named). Given the highly competitive nature of the credit risk space these days, these two wins, occurring in relatively short order, bode well for the company’s future success.

I’ve been hearing around the market that Solarc has been notching some fairly impressive wins this year, but in my regular perusal of their press releases, I haven’t seen any announcements of any those wins. I approached Eric Johnson, Solarc’s VP of marketing and asked him about what I’ve heard, specifically that they have closed a couple of significant bank deals in Europe and the US and several natural gas deals in the US.

Unfortunately, Eric said he was not at liberty to discuss any deals that are not publically announced, but he did say that Solarc has seen a solid increase in activity as the year has progressed and that they are very pleased with their results so far, despite the global economic climate. He also indicated that the natural gas segment has provided some good wins for them, in addition to the crude and crude products markets.

UtiliPoint IssueAlert
By Patrick Reames

The term “risk management” is broadly used to describe the practice of identifying, measuring, and mitigating any number of unforeseen events that may negatively impact an organization. These events can relate to virtually anything, from natural disasters, malicious acts, market changes, accidents, and equipment failure, to just plain old acts of stupidity by an employee.

Risk management is practiced in some form by virtually every business enterprise and is, in many cases, specialized in its application to suit a particular business unit, function, or exposure - operational risk management focuses on preventing or mitigating equipment or employee failures; financial risk management looks at those risks that might impact an enterprise’s finances, including credit, interest rates, and currency exposures; environmental risk management focuses on preventing or limiting a business’s negative impact on the air, ground, water or people; and the list of specialization could go on and on.

One area of risk management that has received increasing attention over the last several years, primarily due to high profile failures that impacted potentially millions of people, is information technology or IT risk management. We’ve all seen the numerous news stories of IT security breaches have exposed millions of consumers to potential theft of valuable financial and personal data. It’s these events that have really crystallized the practice of IT risk management and have brought increased attention to the position and its role in the identification of potential risks to the security of electronic data and information related to the enterprise and its clients.

Probably most familiar, or at least most interesting to many readers of UtiliPoint’s IssueAlert is the practice of commodity or energy trading risk management. As the name explicitly denotes, risk management in this context refers to the specialized and structured approach of identifying, evaluating and managing commercial exposures, including and primarily future price movements that might negatively impact the organization’s commodity positions. Most companies of any size that transact in energy commodities practice this form of risk management, either explicitly, with some individual serving in the titled role of Risk Manager, or implicitly, in which the traders practice risk management techniques via price hedging in order to limit their possible downside on a physical trade or position.

A New Role for IT Risk Management?
Information technology groups have, of course, always been an important component of all trading organizations, ensuring the right systems are in place and are properly maintained and available. Less common has been the active involvement of IT risk management in developing policies and procedures that impact the commercial activities of the energy commodity trading organizations. In this role, IT is not merely acquiring, maintaining and securing trading systems; they are, in cooperation with the business unit, actively managing the risks associated with the technology infrastructure utilized by energy traders. While the number of companies that have embraced this level of involvement from their IT organizations is still somewhat limited, at CommodityPoint we are seeing a growing influence by IT risk management within some organizations, particularly in those companies that hold generation assets.

NERC CIP standards around cyber security are forcing generation owners to look closely at their IT infrastructure and ensure that they are in compliance with the various standards mandated by NERC/FERC, as their exposures for non-compliance are huge, with penalties up to $1,000,000/day. Given this level of exposure, these organizations are making significant investments in systems and personnel to ensure compliance. Having made such investments, including in the area of IT risk management, these companies view that investment as an opportunity to leverage those assets across the wider organization, including applying a more formal approach to managing the infrastructure risks within their trading organizations.

Some of the areas we are seeing a more active role on the part of IT risk managers include development of policies around the various trading channels in use, including telephones, on-line exchanges and instant messenger. The involvement of IT risk management in the development of trading policies relate to the security and auditability of the information exchanged in consummating trades - that is, for each of these various channels, is there a mechanism in place to record that transaction and are those records secure, retrievable and auditable? For example, if it’s the corporate policy that all trades must be automatically recorded in some electronic format , the IT risk manager may dictate, in cooperation with trading management, that no deals may be made via cell phone (as a cell conversation cannot be automatically recorded). Or, if a trade is conducted via instant messenger technology, the IT risk manager may dictate which technology or product may be used, as one may be determined to be less secure or less auditable than another.

Another area in which we are seeing a more active role by IT risk management is in the development of policies and procedures as they relate to the use of energy trading and risk management (ETRM) systems. Increased regulatory reporting requirements such as Sarbanes-Oxley and FERC Order 552, combined with potential new intervention by the CTFC, have and will continue to bring increased scrutiny to the business practices of trading shops. These new regulations implicitly require that trading systems not only capture deals and manage positions, but also be capable of providing full audit trails for all transactions and provide for the complete accounting and reporting of historical and future positions. Other aspects of ETRM system usage impacted include the necessity to ensure access to critical or sensitive information is properly limited; and ensuring that any interfaces to external systems, such as the trading exchanges or price feeds are appropriately managed and secured. IT risk management’s involvement in this environment is to ensure the ETRM systems and the policies governing their use are adequate to minimize the exposures associated with the various regulatory mandates.

Is this a Lasting Trend?
While IT has always played a significant role in trading shops, this new role in setting policy clearly marks a new level of involvement in the trading function. Such a role by IT could not exist without the mandate of senior management and cooperation within the business unit. And while, as previously noted, the trading shops where the IT risk management function is most involved are primarily those with associated generation assets that fall within the purview of NERC/FERC, given the potential exposures associated with the ever increasing use of technology in energy trading shops, it’s certainly plausible that IT risk management’s influence will continue to grow across energy trading organizations, particularly as new trading regulations emerge. Undoubtedly though, that level of involvement will be dependent upon a thorough evaluation of the potential cost of the exposures versus the cost of any limitations that might be subsequently placed on the commercial activities of the trading units.

A UtiliPoint IssueAlert
By Dr. Gary M. Vasey

CommodityPoint's recent study on the issues facing global commodity trading firms quite clearly indicated that credit and counterparty risk was considered to be a serious issue under current market conditions. Indeed, risk management overall was cited as the top issue among the respondents in that study and this has driven much procurement activity over the summer months.

Meanwhile there is also activity in the software vendor community. Last year, Triple Point acquired Rome Corporation and its' credit risk solution while Temenos is now the owner of Rome's biggest competitor - Raft International - via its acquisition of Financial Objects who had acquired Raft some time ago. Additionally, many traditional ETRM vendors have or are beefing up their credit risk functionality; most recently exemplified by Allegro's announcement of its Version 8.1 Credit component. But the energy credit software category is actually rather confusing.

Energy Credit Risk Software Solutions
Software solutions such as Rome (now Triple Point) and Raft (now Temenos) were really designed to serve the needs of the credit department at major energy firms. Many trading firms by necessity actually have multiple trading (ETRM) solutions implemented and these credit solutions were designed to integrate with all the trading systems utilized internally by their users firms. Additionally, the applications are very functionally rich. Other providers have also tackled this side of the market including House of Code, SpectrumPrime and Paragon Consulting for example.

At the same time the issue of credit has gained a more significant profile on the trading and risk management side of the business meaning that ETRM software vendors have also been adding functionality around credit risk management to their solutions. But in reality the two areas (credit and trading/risk management) have slightly differing requirements albeit these may be converging. The acquisition of Rome by Triple Point may also have served to accelerate the movement by ETRM vendors into more comprehensive credit risk functionality as Triple Point now has a fully fledged credit solution that it can sell either on a stand-alone basis or as an incremental add on to its ETRM software platform and other ETRM vendors are seeking to replicate this strategy.

Where Is This Market Headed?
CommodityPoint spoke with Aviv Handler, co-founder of Redshift International Limited, a specialist credit risk consulting company that offers expertise and services for the energy, commodity and investment banking markets, to gain another perspective. "Rome and Raft are targeted more at credit departments with quite heavy credit needs," he told us. "I can't really see the ETRM vendors catching up as they have to face the obstacle that most trading firms have multiple trading systems in place and that trading data needs to get into the credit solutions." In fact, he also sees that most ETRM Vendors credit solutions are aimed primarily at meeting a reduced and different set of requirements in the trading & risk management area.

CommodityPoint agrees with Handler's assessment in that there are two different sets of requirements and two different targets for the software vendors in the credit and trading/risk management areas. But, with credit risk so high a priority at all trading firms there may yet be significant convergence in requirements in our view and Triple Point's acquisition may serve to be the catalyst that accelerates that convergence on the vendor side as well.

In reality, the market for energy credit software is quite complex as like most energy software markets it is horizontally tiered and vertically comprises of many different types of end users (marketers, utilities, oil companies, banks and so on). While many top tier energy companies will have significant credit departments that would primarily procure true energy credit software, many others do not and here the ETRM vendors may find fertile soil offering a smaller footprint credit module extension to their ETRM platform. Over time, as ETRM vendors add more and more functionality they may end up offering complete energy credit solutions. Indeed, this is where Allegro seems to be headed with its new credit component.

At this point in time, CommodityPoint research would seem to suggest that in fact the majority of credit departments in the industry still utilize homegrown, custom or even spreadsheet-based solutions and is something of a virgin market. Triple Point and Temenos (Rome and Raft) have certainly made headway into the market but it is still quite early.

Help CommodityPoint with Our Credit Risk Survey!
In order to try to understand the energy credit risk software market in more detail, CommodityPoint is undertaking a short survey seeking to obtain more data on trends, installations and future plans. We seek your input and in return will offer the management summary of the study to those firms that participate. The survey is being conducted in relatively short order and so if your firm would like to participate, please do so before the end of August. The survey can be found at www.utilipoint.com/2/creditrisk2009/

As quoted from the website of the UK based The Independent newspaper, “The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production…” This is according to “Dr Fatih Birol, the chief economist at the respected International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies by OECD countries.”

In the article, Dr Birol reports that peak oil will hit sometime in 2020, an estimate based on “first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves”.

So that’s it - game over…No more oil for you…Sometime within the next decade or two, you’ll be piloting your Suburban down the interstate on your way home from work, sweating it out as the needle bumps the big E on the left side of your gas gauge, panicked as all you see are shuttered gas stations plastered with crudely crafted signs saying “NO GAS!”. Sure enough, your Chevy will start lurching to a halt as its engine sucks in the last fumes from a now empty gas tank. You’ll walk away from your automobile, knowing that the next time you see it, you’ll be atop your bicycle, peddling past what was once your pride and joy (now joined by hundreds of other cars that have met the same soon-to-be-a-rusting-hulk fate, creating a landscape all too familiar to viewers of any disaster movie), an hour and a half into your now 3 hour commute to your office (which, naturally, will be lit with beeswax candles and whale oil lamps).

Or maybe not. As John Kemp with Reuters points out in this article, “The problem with peak oil is that it is the right answer but to the wrong question. As technology improves, there is plenty of conventional crude to be discovered in formerly inaccessible areas such as the ocean floors and the Arctic. Technology also exists to develop unconventional sources (such as bitumen and kerogen) into oil, and to turn natural gas and coal into liquid fuels that can be used to power cars and aeroplanes. Global hydrocarbon reserves are more than enough to last hundreds of years…”

Despite some popular perceptions, peak oil is not so much about running out of crude based energy resources as it is about price. If production of conventional sources of crude (and the fuel products derived from that crude) does peak in 2020, those fuel products will be sourced from other reserves - potentially including oil shale, tar sands, nat gas, coal, ag products, algae, wood pulp, even old tires. The problem is that these sources will be much more expensive - instead of shouting “NO GAS!”, the signs on the gas stations will be proclaiming “Regular $10.2795″. That will leave a mark - in your wallet. It will also leave a mark on economies around the world. Those countries that hold the biggest pools of the remaining “easy to get to” energy reserves will be the big winners, and those countries that either 1) don’t have reserves or 2) refuse to exploit what they have, will be the biggest losers. This transfer of wealth will increase global tensions and geopolitical boundaries may be redrawn.

So yeah, its not going to be painless when all known conventional sources of crude begin their depletion death spiral, but you’ll probably be able to park your car in your driveway (instead of abandoning it on the side of the road) and have it available for your biannual road trip - even if you do have to swerve around it as you head out in the dark to begin your three hour bike ride to the office. But, on the bright side, you’ll have plenty of time to contemplate all the carbon credits you’ll be accruing as you sweat your way to work.

Rep. John Boehner, R-Ohio, makes a very impassioned argument here…

Despite a somewhat challenging market environment, SunGard Energy appears to be finding new business and converting some existing customers to their new product, Aligne. You may recall Aligne as being their newly released framework that brings together functionality from their various legacy products, such as Zainet, GTM, Aces and others, creating a multi-commodity capable solution.

I recently met with some SunGard folks and they tell me that they have had several “net new” sales for the product and have had existing customers of their various products commit to moving to Aligne. Not bad for a product that was released just 3 months ago. They also indicate that their sales pipeline is looking strong, particularly in the natural gas markets.

Additionally, the company has recently announced the release of Aligne DMT, a set of data management tools that the company describes as “…a flexible and scalable data management framework for processing, analyzing and leveraging energy information across the enterprise. It aggregates energy information from multiple sources, validates the data and presents it within a consistent framework to help companies achieve speed and accuracy in data interpretation and decisioning. Aligne DMT provides a Web-based application to help users of all technical levels navigate, chart and analyze energy market data.” You can find their press release here.

We have launched our new survey on risk management. It is a follow up to our earlier Commodities study which showed that risk management was the clear number 1 critical business issue for energy and commodity trading firms.

If you are a trader or risk manager, please do take the survey by clicking here. You will receive a copy of the management summary when completed and a free copy of our book “Trends in ETRM Software - A Primer” worth $30!

NOTE: Vendor staff - please do not take the survey as your responses will not be included in the final results. Thanks.

I had a conversation with the leadership team of Aspect Enterprise Solutions (formally OilSpace) including Steve Hughes, president, and Amir Kazmi, their SVP of operations, a couple weeks ago. According to Steve, the company has been seeing quite a lot of success for their AspectETRM solution, a product that provides front, mid and back office functionality for wholesale market players in the crude, gas, metals and ag markets. According to Steve, they closed a number of new deals in 2008 and are seeing similar success in 2009. In fact, the company has already achieved their full year targets for new deal signings and profit growth, and they see that momentum continuing through the end of the year.

While the company is, like many of their competitors, constrained in disclosing new client names, Steve let me in on few with the assurance I wouldn’t tell. I can say that their new clients include companies around the globe, transacting in crude, gas and number of other commodities, and include smaller regional players as well as very large, global trading groups and industrial concerns.

The AspectETRM product is part of a family of applications serving the energy trading markets. In addition to their ETRM solution (deployed via a SaaS model), the company also produces a leading price, news and market information portal - AspectDSC (which has been recently expanded to include ag coverage in addition to crude and metals), and a deal capture/position keeping system for small market players called TradeFlo. All told, the company now has more than 500 clients in 65 countries.

If you’d like to find out more about Aspect, you can visit their website at www.aspectenterprise.com.

I had a chance recently to visit with David Leevan, Pioneer Solutions’ VP of Sales about their newly developed and available solution for energy trading and risk management. According to David, the company has now completed, and is near to signing their first clients for TRMTracker, a product designed to meet the needs of the mid-tiers of the power and gas merchant markets, in addition to serving the Euro petroleum markets.

The product joins a family of “Tracker” products, including the company’s RECTracker (designed to manage the life cycle of renewable energy certificates and compliance, including capture, trading, risk management, compliance reporting and back office), FASTracker (for FAS hedge accounting tracking and compliance), and others, including EmissionsTracker, SettlementTracker, and ComplianceTracker.

According to David, the company was able to leverage much of their development of RECTracker, allowing them to build out a fully functional ETRM product quite economically. This leverage has allowed them to be very aggressive in terms of pricing and make available a full ETRM solution to a group of companies that have been typically priced out of the markets.

I haven’t yet had a chance to view the product live. Given the price point and breadth of functionality it appears to have, Pioneer Solutions should find a ready market in the smaller and mid-sized merchant trading shops.

You can find out more about the company and products here.

It’s not too late to sign up for our online seminar - Changes in Commodity Markets: Impacts on Traders and Software held in conjunction with PGSEnergy.

To register and for more information please visit http://www.pgsenergy.com/online/u777.html

UtiliPoint IssueAlert
Patrick Reames

The phrase “Energy Trading and Risk Management” (ETRM) would seem pretty self explanatory. It means, well, the trading of energy and managing the risk associated with the trade or trades. Right? Well, yeah, but not really.

ETRM has been adopted as a label by software vendors in order to readily identify themselves and their products to a marketplace comprised of a very diverse group of companies that transact in energy commodity products. The term first appeared more than a decade ago and was actually intended to be ETTRM - Energy Trading, Transaction, and Risk Management - implying an even broader set of capabilities beyond the trading environment, reaching out to include those systems that tracked and managed transactions that were not based upon the sale or purchase of a commodity, but rather focused on the logistics involved in managing the commodity, such as pipeline nomination systems.

As an analyst covering energy and commodity trading, including the systems and technologies employed to support the trading business, I find myself struggling with term. Because “ETRM” has achieved fairly ubiquitous usage, it’s become the default identifier utilized by many different software development houses that field systems that touch anywhere along the wholesale (and at times, even the retail) energy supply chain. Given the wide variety and complexity of processes involved in the commercial exchange of energy commodities, it’s exceedingly difficult to effectively capture in a single bucket the breadth of tools and applications that are required to meet the needs of today’s market players.

On one end of the ETRM product spectrum, you’ll find specialist systems, such as a web delivered solution that calculates Value at Risk (VaR) for wholesale energy trading books. On the opposite end of the spectrum are systems that are very broad in functionality and encompass capabilities that attempt to cover virtually every aspect of the extremely complex process of energy delivery from “source to sink”, including production management, wholesale trading, commercial marketing, contract management, position management, risk analytics, logistics, operational optimization, financial accounting, and credit and credit risk management.

Some vendors have, appropriately, narrowed the term down to more accurately reflect their competencies by using the term “risk management” system. Even within this category however, you’ll find a wide variety of capabilities. At CommodityPoint, we see the term “risk management system” applied to solutions whose capabilities involve contract management and deal capture for physical and financial products, the ability to consolidate the value of those deals to a single screen or report (position management), and finally, be able to produce fairly complex analytic metrics such as VaR or PaR (Profit at Risk). Then again, on the other extreme, we see software packages that pull in transactions from other systems (instead of direct deal entry), produce a simple position management view or report (but only for financial transactions), and provide little in the way of analytics beyond the financial position management capability and a VaR or Mark to Market (MtM) calculation related to those positions.
Beyond being able to identify a system by its functional footprint, one also needs to understand the complexities poised by commodity coverage. There a several systems available today that can capture a purchase or sales deal for virtually any commodity (either physical or financial), and can, with a fair amount of functional competency, address the unique logistics requirements of those commodities, whether they travel by barge, ship, wire, pipe, truck, plane, or train. Still other systems are available that provide the same types of broad functionality (deal capture, scheduling, position management, accounting, etc), but are more focused on managing the unique needs of a single commodity. These single commodity systems shouldn’t be viewed as less capable; in fact, it could be argued that for their specific coverage, many provide a greater depth of capability, particularly in the area of logistics, than do those systems that cover a wide range of commodities.

So what’s the point of all this? It really boils down to this - it’s very difficult for any potential buyer of “ETRM” software to understand and stay abreast with the ever changing capabilities of all the various vendors that serve this space. Despite what their marketing materials and sales staff may indicate, an ETRM system from Vendor “A” does not equal an ETRM system from Vendor “B”. Each system has evolved in a unique manner, having been developed to meet the needs of the individual vendor’s clients and potential clients in their target market, both of which will change over time. For example, Vendor “A” may have started in the wholesale power markets a number of years ago, supplying tools that allowed wholesale power traders to transact in various ISO’s and RTO’s, and only later built out natural gas capabilities in response to their market’s demands for a system that could also manage fuel procurement; and from there, it was on to wholesale gas trading and risk management. Vendor “B” may have evolved in the opposite direction, initially serving natural gas trading organizations and moving into the wholesale power markets much later. So they both currently serve the same markets, however, it’s likely that the relative strengths of their products will be significantly different, with varying degrees of “maturity” for specific functions or commodities. If you’re a buyer looking for a system to help you manage your business around, for example, the NYISO, which system would be the optimal solution? The answer may be Vendor “C”. Unless you have a gas portfolio, or plan on developing one in the next five years, you might be better off with a system that is focused only on the regional power markets.

If you haven’t had experience with those products and understand their relative strengths, it could be very difficult to discern any differences amongst the multitude of ETRM vendors based upon their sales and marketing materials. Painting the market with a broad “ETRM” brush can produce a lot of confusion for companies seeking software solutions to fit their specific functional needs. As such, it’s certainly in every buyer’s best interest to seek out expert advice and guidance as to which vendors are capable of addressing that buyer’s specific needs, and have done so successfully with similar companies. Unfortunately, many times companies seeking out software solutions will fall back to what they know and have had experience with. While that limited view may produce a “best fit”, the odds are that there is a better solution available for that particular buyer, one that provides either a better functional fit with their assets and strategies, or one that provides higher value in terms of cost vs. functional coverage.

Think of it this way - you need a motor vehicle to take you from point A to point B - on one hand you can hire a cab, on the other extreme you can buy a bus and drive yourself; both will get you there in about the same amount of time, but one is going to be a heck of a lot more expensive; unless of course you travel that route every day, and always travel with thirty of your best friends; or you may only travel the route once a week, but you may be able to pick up a couple of dozen high paying riders along the way; or you might need to carry a lot of cargo with you, or...never mind, its complicated.

CommodityPoint maintains a number of free resources to assist companies as they seek out new “ETRM” systems, including the online TRM Directory (www.trmdirectory.com) which lists all the providers of software in and around the energy and commodity trading, transaction and risk management software space along with service providers and other resources. The ETRM Community website (www.etrmcommunity.com) and blog provides additional information and news on ETRM software. The UtiliPoint Europe Blog (www.utilipointeuropeblog.com) also provides similar information, more focused on European markets.

Apparently it came from France…

I recently caught up with Michael Muse, who many in this space will remember as one of the founders of Woodlands Technology, an ETRM provider that was purchased by Siemens in 2004 and was rolled up into New Energy Associates, which in turn was bought about a year ago by Ventyx. After the acquisition by Siemens, Michael headed up the ETRM products groups with NEA and later Ventyx.

Michael left Ventyx late last year, and along with Steven Wall (serving as the new company’s CTO), started a new venture, Woodlands Solutions. In the short time since the company’s inception, they have completed build-out of their flagship product, Phoenix (which the company describes as a “full-featured, front-to-back office energy trading and risk management solution used by energy companies to manage their trading and marketing operations at a fraction of the cost of other ETRM systems”) and have just announced the signing of their first customer, Coast to Coast Partners, LLC, a Dallas based gas marketer.

I haven’t had a chance to look at their new product yet, but it certainly sounds intriguing and early success speaks for itself. I’m scheduled to meet up with Michael again soon and get a demo - when I do, I’ll let you know what it looks like. Their website is www.woodlandssolutions.com.

Kiodex just announced that Ameren Energy Marketing (AEM), the nonreg marketing and trading arm of St. Louis-based Ameren Corporation, has implemented SunGard's Kiodex Real Time, the recently acquired product formerly known as ICE Risk, a real-time, integrated trade capture, mark-to-market and risk management solution for commodity trading.

According to the press release, “AEM uses Kiodex Real Time, integrated with SunGard's Aligne (formerly Zainet) end-of-day books and records solution, to track intraday positions and profit and loss (P&L), and provide support for traders responsible for executing daily and strategic hedging strategies.”

A good start for Kiodex. Given the company’s proven ability to deliver SaaS solutions, combined with ICE’s ubiquitous reach in the energy markets and the ability for the product to consolidate and manage real-time exchange trades, there’s likely to be more such announcements in the near future.

Despite a rather challenging market environment, Triple Point continues to knock down new business, with a couple of new deals recently announced.

Bruce Power, a Canadian-based nuclear generation company involved in the wholesale and retail power markets in the Ontario region, has licensed Commodity XL(TM) to support the entirety of their generation and marketing operations. In addition to Commodity XL(TM) for Power, they also picked up Hedge Accounting, Fair Value Disclosure, Credit Risk and Credit Analytics, Commodity XL(TM) Xchange, Management Dashboard and Power Scheduling ‘Visual Cockpit’(TM).

A nice win across for the entirety of Triple Point’s product family.

The company also announced that Tullow, one of the largest independent oil and gas exploration companies in Europe, has selected Commodity XL for Hedge Accounting(TM) to ensure compliance with IAS 39 disclosure and reporting for crude oil and natural gas. According to the press release, “Tullow has operations in Africa, Europe, South Asia and South America with current production of 60,000 barrels of oil equivalent per day (boepd). Founded in 1985, Tullow is headquartered in London and employs over 540 people worldwide.”

Even though a significant portion of the global economy is in the dumps, things have been amazingly busy around here the last couple of months. I have a couple of large projects going, been doing quite a lot of traveling and speaking at events, and then there’s the usual trying to keep up with the industry type things. So, as usual, the blog tends to suffer during these periods. I’m going to try to get caught up with some new thoughts/topics in the coming weeks, but unfortunately, this is one of those days that isn’t giving me a lot of time in the margins to do a lot of “deep thoughts” type blogging.

Since that’s the case, I’ll just throw out a few random thoughts and you can discuss amongst yourselves…

1) LNG is going to hit the US gas markets in a few months in a pretty big way (from Qatar, Russia, and others), and could very well establish the price ceiling for a long time. Even if crude runs up to $200/bbl, gas is going to languish below $8 for the foreseeable future.

2) The hedge funds are back. Our CommodityPoint hedge fund expert, Gary Vasey, indicates that more than a dozen commodity hedge funds have appeared in the last few weeks. This is a reversal of a trend that started with the financial meltdown and saw the erosion of that group of market players. Also noted this morning, Bloomberg is reporting that hedge funds had their best month last month, providing larger returns than any time since February of 2000.

3) Arthur Laffer wrote an article in the Wall Street Journal yesterday that should make your hair stand on end. Be sure to check out the graphic. For us grown-ups that remember the Nixon wage and price freeze of the seventies, its not a particularly happy story. You can see it here.

4) Question: If you have a choice, which you do now, of buying either a GM product, designed by members of congress and being put together by what are essentially becoming civil servants, or a Toyota or Ford or BMW or whatever, what would you buy?

Cue the film…

5) I’ve got a bachelor party this weekend for some guy named Andrew. As best man, I’ve decided the theme of the evening will be “Hammer Pants”. Here’s a sneak preview of what the party will entail…

So, there you go. More “deep thoughts” soon.

Patrick Reames
An UtiliPoint IssueAlert

About 10 years ago, vendors of middleware solutions, such as Tibco, gained much attention in the energy trading and risk management (ETRM) space with the promise of allowing companies to seamlessly tie together complex transaction management products from multiple vendors, enabling what could be called the “Best of Breed Phase” in ETRM solutions history. The promise was that through the use of “simple to build adapters” and the magic of the middleware bus, you could take a physical gas transaction system from one vendor, a physical power system from another, a financial transaction and risk management system from yet a third vendor, and a dozen or so on-line exchanges and price feeds and ultimately create the Real-Time Enterprise powered by straight thru processing and providing up-to-the-second, consolidated views of the entirety of your trading operations.

Unfortunately, the promise and expectation did not match up well with experience. Many of the larger commodity trading organizations invested tens of millions of dollars each into the strategy and few could demonstrate much success and certainly little tangible ROI for their efforts. Many mid-sized trading shops started down the road and were forced to turn back, having run out of funds and patience for what turned out to be, in many ways, giant data reconciliation projects.

What was left behind for many of these failed projects were disparate systems, nominally integrated via point-to-point links, providing after the fact and somewhat awkward reports that fell far short of the desired global portfolio management solution capable of providing real-time intelligence. Even these hard fought minor victories were short-lived, for when the various vendors pushed out the dreaded upgrades for the individual systems, the links in the tenuous integration chain broke, requiring additional effort and funds to keep the technology strings attached to the proper tie downs.

Given the large investment in the various commodity or functionally specific systems that comprised the initial best of breed vision, few could, or were willing to make a quick move to the emerging multi-commodity, physical and financial solutions that had begun to appear on the market from a few vendors. Still, even as recently as a couple of years ago, with their investments fully depreciated, many companies were still reluctant to take advantage of the broadening capabilities provided by systems from the cadre of vendors that have made the investment in creating truly multi-commodity, physical and financial solutions.

Compelling Movement toward the Single Vendor Solution
Despite the availability of systems providing the entirety of the functionality required by the multi-commodity shops, it has taken time for many energy trading shops to start to realize the true benefits of a single vendor solution. However, there is little doubt that the movement is clearly away from the days of the costly to maintain and difficult to manage Best of Breed strategy. Somewhat surprisingly, cost may not necessarily be the primary driver; rather it could be the nature of today’s evolving energy commodity markets that are catalyzing many companies to make the move toward the consolidated, single vendor solution.

I recently meet up with Mark Jackson, Solarc’s Director of Risk Management, who offered some interesting insights into the growing willingness of these companies to move toward the single-vendor solution and the advantages of doing so. Solarc is one of the solutions providers that have been evolving their products from being highly capable systems serving the specific needs of discrete industry segments or commodities, to now providing greater breadth of capabilities across a much wider spectrum of physical, financial, functional and industry requirements.

As Mr. Jackson succinctly put it, “More and more companies are really beginning to comprehend not only the cost savings but also the value of faster and more precise risk reporting, streamlined back-office operations and more timely and accurate financial data offered a comprehensive, single vendor solution.”

Market Risks make a Single Vendor Solution more Attractive
Mr. Jackson noted the advent of electronically traded and centrally cleared commodity contract products has created a demand for robust ETRM systems that can handle both physical and financial transactions. “Commercial and trading operations are finding new ways to use these standardized products to procure their raw materials. And, firms are using a combination of cleared products and over-the-counter trades to deliver the commodities they produce.”

“All these new products are quoted, traded and risk-managed like traditional financial derivatives, but they are being used to exchange physical possession of commodities. Managing them requires an ETRM system that not only can meld financial risk reporting and physical/operational reporting but that also can handle all of the logistical, operational and accounting tasks that result from using these instruments.”

While cleared products in the form of futures contracts with their attendant clearinghouse guarantees have existed for many years, the movement toward the wider acceptance of cleared physical products took off first with Enron-On-Line and, after that company’s implosion, the Intercontinental Exchange (ICE) and ClearPort. With the recent credit crisis, however, their use has grown exponentially.

The protection from the collapse of individual trading partners is really starting to reshape the nature of trading in this business. As Mr. Jackson notes, “The collapses of Long-Term Capital Management (LTCM) and the threat of systemic implosion made the headlines for weeks. Yet when Amaranth Energy failed in 2006, it was largely ignored in the mainstream media because its use of ClearPort and NYMEX-cleared trades had prevented any spectacular counterparty collapses. The commodity trading community was quick to recognize the benefits of centralized clearing.”

As Mr. Jackson observes, “In addition to reducing credit risk, electronic trading has increased market transparency, transaction speed and the volume of market data generated. As a result, ETRM systems must be able to interface with exchanges electronically and to handle the increased data loads resulting from multiple fills on different platforms. They must be able to reconcile with brokers, confirm trades and handle all of the traditional clearing functions at a much higher pace than in the past.”

“Cleared products are forcing a redefinition of a trade and are changing the way traders interact with their systems. In the past, traders operated in one or two trading venues with rigidly designed contracts. The characteristics of those contracts drove interface and functional designs of ETRM systems. In the future, traders will decide what to trade and how to clear. The ETRM system will have to be intelligent and abstract enough to choose the appropriate system for execution, handle all the external reporting and verification, and clear and maintain the resulting transactions.”

“Finally, these products are blurring the line between the traditional physical trading world and the financial world, forcing the view of ETRM systems' risk and reporting to be revised. In the past, physical traders concerned themselves with operational and logistical risks peculiar to their markets. Depending on the market, price risk was either ignored or passed on to financial traders.”
“Now, physical traders are being constrained by shrinking credit lines, and they are turning to cleared products as a way of procuring the physical products they need. More liquid markets mean that players who would not traditionally trade physical contracts will do so secure in the knowledge that they can liquidate their positions. The bifurcation of reporting between physical risk and financial risk is being replaced by reporting on price risk and on detailed operational risk.”

The Role of Risk Management
Being on the wrong side of a volatile market has proven to be fatal for a few companies, and near fatal for more. These high profile failures and near-misses have elevated the risk management function in virtually all firms that trade in the energy commodity markets. As Mr. Jackson notes, “Risk management has changed from a part-time accounting function to a full-time specialty with visibility at the highest levels of the firm. An influx of talented risk managers is creating demand for tools that are closer to traditional trading tools than accounting reports.”

“The halo surrounding Value-at-Risk (VaR) as a standalone measure of risk has lost much of its luster. The electric power market’s enormous price moves led to questions about the ability of the underlying pricing models to accurately depict real-world markets. The collapse of Enron pointed to other risks, such as credit risk, that hadn’t been closely monitored at many firms.”

Indeed, in CommodityPoint’s recent study and report, Changes in Commodity Markets, Impacts on Traders and Systems, we observed the growing sophistication of analytics, especially in those shops affiliated with banks, hedge funds and other financially oriented organizations. While VaR continues to be used by virtually every one of these trading concerns, portfolio stress testing and pre-trade, or what-if analysis are increasingly being brought to bear.
According to Mr. Jackson, “Today's risk managers typically use VaR as an early warning indicator of risk rather than a risk number that, by itself, constrains a firm's behavior. These managers back up VaR with detailed reporting on interest rate risk, currency risk, volatility and skew risk, as well as price risk.”

“Risk managers are attuned to the risks that surround them. Risk tools are now expected to be able to quantify and manage risks throughout the enterprise. Implicit options in transportation, storage or purchase agreements are just one example of real options that managers must report on and incorporate into their calculations.”

“The growth in general knowledge about and awareness of risk at the executive level means that risk managers now have a much more diverse audience. With this diversity come differing information needs and understandings of risk. ETRM systems must have highly flexible reporting tools, including data visualization capabilities that allow for quick, customizable information extraction.”

Conclusion
While the best-of-breed approach did provide companies operating in the commodity trading space the opportunity to pick and choose those systems they felt were a best fit for a single commodity or business function, ultimately the strategy has shown its weaknesses - cost, complexity and an inability to provide the actionable information necessary to keep up in a very volatile and evolving marketplace. Still, until recently, many companies have proven reluctant to put all their eggs in one vendor’s basket, feeling that the best of breed approach kept them from being exposed to a potential failure of single vendor system.

However, recent experience has shown that the greater risk in this market is not vendor failure, but failing to keep up with the market itself - relying on incomplete or out dated data in a market that can, and will, run over those companies that don’t stay abreast or ahead by employing the best fully integrated ETRM solutions available.

Allegro has announced the release of their new Allegro Credit 8.1 component. While the name may be somewhat underwhelming, the new functionality appears to be able to match just about anything on the market. I talked with Gary Craze, who headed up the design of the module, and he said that they had purposely set out to ensure that they were able to match any product currently available in terms of features and functionality. He also said that as part of their new development methodology, they ensured that anyone running Allegro 8 could take-on the new capabilities offered within this new set of functionality without impacting their current implementation of version 8.

One of the key features that Gary felt was most important, besides the new analytics, was the ability to integrate with the various credit rating agencies, ensuring the users of Credit 8.1 that they would always be up to date the latest developments from those agencies.

On the credit analytics side, Gary pointed out they now have the following capabilities:
- Market and Credit Event Liquidity Adequacy stress testing
- Credit Value at Risk analysis
- Potential Future Exposure analysis
- Walk Forward analysis

They also built out a lot of collateral analysis and monitoring capabilities:
- Comprehensive collateral status
- Monitoring of collateral obligations
- Documentation of collateral / margin disputes
- Default Risk and Recovery Factor functionality

While I haven’t yet had a demo of the new system, it seems apparent that Allegro took stock of what has been in the market for credit risk and intends to compete heads-up this particular piece of the market.

Even in what almost all consider to be a “challenging” market for ETRM products, OATI is making a major investment in expansion. They recently announced the acquisition and development of what they are calling their OATI Campus.

It’s the site of the former Honeywell Camden Facility in Minniapolis. The facility covers 22 acres and will be the site of their new data center, as the company has reached max capacity on their current facility. The new campus will also house an Executive Briefing Center, Conference Center, Customer Care Center, Training Center, and will have room for up to 500 staff members.

I talked with Jerry Dempsey, OATI’s VP of Sales about the investment in the new facility. He indicates while they, like all vendors, have seen some softening of the market for new systems, their current client base and business model helps to isolate them in from the periodic ups and downs in the market, even one that is mostly down like this current one. Paraphrasing Jerry, he said that if they didn’t sell a single new system for two years (which of course “ain’t gonna happen” as they have closed several new deals recently and are close to several others), their business is diversified enough across the energy markets and structured such that they would have little or no problem sustaining all that they have in place now. Their investment in this new facility (which from what I can tell is the single largest dedicated facility in the energy software space) is certainly proof of that.

Kiodex announced on Monday that they had acquired ICE’s risk management product, ICE Risk. The product, launched in the middle of last year, is a web delivered solution providing real-time integration with ICE and other exchanges, which, in turn, enables real-time position managment and valuation capabilities.

Kiodex, a long time provider of web delivered risk management systems and risk tools, intends to integrate the real-time capabilities of ICE Risk, now rebranded as Kiodex Real Time, into their Risk Workbench product and expand its capabilities to provide real-time calculation of VaR (both historical and Monte Carlo), positions, and valuation across multiple asset classes. Ben Jackson, Kiodex’s President told me yesterday that they also intend to incorporate additional capabilities provided by SunGard’s GL Stream product, expanding the universe of exchanges which can be integrated into the product. He indicated that the initial integration efforts between the newly acquired product and their Risk Workbench is well underway, with new functionality currently being deployed at a couple of customer sites - customers that have been using both products prior to the acquisition.

The combination of Kiodex’s sophisticated analytics and newly acquired real-time position management capabilities and exchange connectivity are going to create a very formidable offering in the risk management side of the CTRM markets.

TradeCapture announced this morning that they are becoming Amphoria, Inc. The company, whose products serve the crude and crude products ETRM markets, has completed an entire restructuring the of their operations over the last couple of years. This restructuring including splitting the company between the ETRM product family (with their flagship product - Symphany) and their exchange tools (TradeCapture OTC). The split was formalized over a year ago and the ETRM products are now fully within Amphora, Inc.

The impact of the restructuring and the renewed focus on the ETRM products has paid off significantly. The company that is now Amphora has recorded significant gains over the last couple of years, with year over year growth from 2007 to 2009 showing more than a 50% increase in both revenue and headcount.

Their new website, www.amphorainc.com, is live and the press release can be seen here.

Houston, Texas and Brno, Czech Republic--April 28th, 2009-- CommodityPoint, A Division of UtiliPoint International, Inc. focused on commodity markets and trading and risk management technologies, has launched an online store as a part of the overall CommodityPoint web presence. The new online store provides a central location to access CommodityPoint thought leadership in the form of free white papers as well as to purchase research reports and books.

"The CommodityPoint Store provides a central and convenient location for our clients to access our research and thought leadership materials quickly and easily," said Dr. Gary M. Vasey, General Manager, Europe.

“As CommodityPoint is the only research and analysis organization focused exclusively on the technologies and trends in the global commodity trading segment, we believe the new store front will prove to be a valuable resource for the companies and individuals operating in these markets,” according to Patrick Reames, Vice President of CommodityPoint North America.

The CommodityPoint Store is an integral part of CommodityPont's web presence that includes;

o The CommodityPoint website (http://www.commodity-point.com),
o The ETRM Community (http://www.etrmcommunity.com),
o UtiliPoint Europe Blog (http://www.utilipointeuropeblog.com) and
o The online directory of trading & risk management software (http://www.trmdirectory.com).

The CommodityPoint online store can be accessed at http://www.commoditypointstore.com.

About CommodityPoint
CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc. CommodityPoint provides Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. Our services bring insight into business issues, trends, processes and technology, to energy companies, utilities, banks, brokers, funds, investors and vendors, enhancing their competitive position and supporting critical business decisions. CommodityPoint has been formed to bring focus and clarity to the broad array of issues surrounding the wholesale trading of commodities. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. Our principal analysts, Dr. Gary Vasey and Patrick Reames, bring years of practical experience to their roles. With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace.

About UtiliPoint® International, Inc.
UtiliPoint is a leader in providing analysis and consulting services to the energy and utility industry. Our 76-year history and over 500 clients worldwide have led us to currently operate as an energy and utility consulting and issues analysis firm. Our staff is comprised of leading utility and energy experts with diverse backgrounds in utility generation, transmission & distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs, and international issues.

When Citibank stepped up the federal window and took away a sack full of money ($45 Billion to be exact), they may have set into motion the death of one of their most profitable businesses, Phibro. TARP money comes with lots of strings, including the biggest one that says that the federal government gets to control whatever they want to control within the recipient company, including compensation for employees. Remember the AIG debacle, which I wrote about here, in which the populist outrage at “executive” bonuses swelled to atmospheric levels?

Now we have a situation where Phibro is scheduled to reward their traders and executives with their previously agreed upon bonuses…the only problem is that since Citibank ingested the poison pill, our new administration gets to decide how much their people make, even if those employees had preexisting contracts under which they were operating in good faith. Clearly, based upon the debacle that was the AIG bonus situation, the Obama administration and the wielder of the TARP lever, Treasury Secretary Tim Geithner, will be more than reluctant to do the unpopular again. They will are not likely to be willing to endure the slings and arrows as the press portrays the traders and execs at Phibro as fat cats getting to step-up to the taxpayers buffet and gorge themselves.

So what’s the outcome? Unless the federal government suddenly decides that Phibro traders are now indentured servants, those traders are going to pack their briefcases and move on to a clean company, one in which the federal government does not yet have its hooks - and then what’s left of Phibro? If those traders leave because the fed decides they make too much money, who’s going to step into the void? You can’t just replace the skill, knowledge and experience of an entire group of top-tier commodity traders and executives by bringing in a group of quasi-civil servants that aren’t skilled enough to compete for “going rate” salaries in the free market and expect a good outcome.

If the leadership and traders of Phibro follow the money (as would anyone of us), what will become of what has been one of the stalwarts of the commodity brokerage space? And, perhaps more importantly, what will be the impact on the wider industry if one of its market makers dies a not-so-slow death from a bad case of federal poisoning?

SunGard Energy publicly announced this morning that they have launched their next generation product suite, called Aligne, bringing together many of their products under a single service-oriented architecture (SOA).

I had the opportunity to attend a private unveiling of Aligne yesterday at the Four Seasons Hotel in Houston. The company’s leadership team provided an overview of the suite, with an in-depth look at the architecture and a live demonstration of Aligne’s capabilities to integrate and consolidate information from what were once disparate systems.

In very broad terms, what they’ve done is bring together Zainet, FAME, GTM, ACES, and Softworx utilizing an integration bus with adapters to the various applications, flowing data to a new centralized database. Additionally, they’ve “plumbed-in” SunGard’s Infinity business process platform to provide work flow capabilities to the full suite. However, they’ve gone past just combining the applications in a single package. They’ve effectively decomposed much of the horizontal functionality in the various products in order to provide a greater degree of integration and enable clients to customize the product (and its licensing) to fit their functional needs.

Additionally, the integration bus can be extended outside the platform, providing broad integration capabilities to not only the Aligne suite, but also amongst other applications not necessarily related to the suite. With the deployment of the integration bus, SunGard described how they can leverage its capabilities to create and deploy a data mart, which users of the suite can leverage for reporting, data cubes, dashboards, and analytics.

In addition to the new architecture, SunGard also unveiled additional functionality for traders, including support for new deal types, enhanced VAR analytics, scenario testing/stress testing capabilities, and improvements in power scheduling.

You can see their press release here.

SunGard has clearly made a significant leap forward in being able to deploy a full featured, multi-commodity, multi-market solution. While there is some clean-up of the user interface still to be accomplished (there are some graphical and layout differences as users move amongst the various “modules”) and a more complete homogenizing of the technologies to be done, what SunGard demonstrated yesterday should position them very well in a highly competitive market.

Ventyx announced late last night that they had acquired the software business of The Structure Group, including their nMarket product and all the resources associated with it, including developers, delivery resources and group management. According to the press release, “nMarket employees and management will be integrated into Ventyx product development and sales organizations, further expanding the company’s industry-leading capability to deliver successful software solutions to energy and utility companies. Structure Principal Amy Zupon and Structure Director David Potts will assume key leadership roles within the Ventyx Energy Portfolio Management group. Ventyx will maintain Structure’s unique approach and commitment to addressing rapid market evolution by deploying market-specific product and market specialists who will operate within Ventyx’s product management function. nMarket product development, implementation services and product support will continue to be based in the current Houston office.”

This is the third acquisition by Ventyx in the ETRM space, following their purchase of Global Energy and New Energy Associates in 2007.

CommodityPoint Analysis: The acquisition of nMarket clearly provides additional capabilities for Ventyx, allowing the company to offer market bidding and settlement solutions to merchant generators and utilities in the various ISO’s/RTO’s in North America. When combined with their existing capabilities in ETRM, asset management, CIS/billing, and infrastructure/operations management, this acquisition allows Ventyx to stake a claim the only true “single vendor” solution set for the utilities market.

The potential concerns are those related to any product acquisition that contains overlapping functionality with existing products - reconciling that functionality and integrating the acquired products into the overall solution. In order for Ventyx to achieve maximum value from this acquisition, they must be able to develop and deliver a “best of breed solution”, one that ultimately eliminates overlapping products while still retaining most, if not all, of their client base. To accomplish this, they must provide their clients, both existing and newly acquired, a clear road map to that ultimate end solution. If not, Ventyx must continue to maintain the infrastructure and resources to support a disparate set of products or risk the loss of clients and value.

Oracle just announced the acquisition of Sun Microsystems for a net $5.6 Billion. According to the press release,

“There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris. Java is one of the computer industry's best-known brands and most widely deployed technologies, and it is the most important software Oracle has ever acquired. Oracle Fusion Middleware, Oracle's fastest growing business, is built on top of Sun's Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

The Sun Solaris operating system is the leading platform for the Oracle database, Oracle's largest business, and has been for a long time. With the acquisition of Sun, Oracle can optimize the Oracle database for some of the unique, high-end features of Solaris. Oracle is as committed as ever to Linux and other open platforms and will continue to support and enhance our strong industry partnerships.”

Oracle is now clearly the direct challenger to MicroSoft for the enterprise market - databases, applications, operating systems and web development platforms - Java vs .Net. Maybe soon we’ll see Larry Ellison take on Bill Gates in Celebrity Boxing…My money would be Ellison - he’s got those crazy eyes.

Smarting Metering (Texas Style)

UtiliPoint Issue Alert
By Larry Gill
Director, Utility Technology Projects

Each day brings more and more attention to the expansion of Smart Grid technology. Not only is it a key driver in the energy portion of the new administration’s energy stimulus plan, its importance has been recognized by the Public Utility Commission of Texas (PUCT). Although many consider California to be at the forefront of Smart Grid policy development, Texas policy requires AMI to be capable of providing customers with real-time access to their electric consumption data. The Public Utility Commission of Texas has paved the way by allowing utilities to file cost recovery for meter deployments.

CenterPoint Energy Roll-Out
After gaining Commission approval in December, CenterPoint Energy is one of the latest utilities to announce the start of full field deployment plans for installation of smart grid technology. Following a successful pilot, CenterPoint Energy has contracted with Itron Inc. to roll-out 2.4 million Itron meters utilizing Itron’s OpenWay networking technology. Initial installations began in March and will continue into early 2014. CenterPoint Energy is using the OpenWay smart metering technology as a first step in moving electric infrastructure into a fully functional Smart Grid. When completed, CenterPoint’s rollout will cover its 5000-square-mile service territory in and around the Houston metropolitan area. CenterPoint will be spending approximately $640 million during the next five years with a recovery period of 12 years. Cost recovery will be accomplished with a monthly surcharge on residential electricity providers that purchase its power for retail to consumers.

Technology is critical in providing communication to other devices, including load control, prepayment systems, and monitoring. The overall systems integration is necessary for collecting and communicating data needed for intelligent monitoring and controlling required for improving the stability and reliability of distribution networks. The OpenWay system provides secure end-to-end messaging from its collection engine to end devices. It also utilizes multiple open standards including IP, SOA, XML, ANSI C12.22, and ZigBee to support a multitude of devices that may be required in the future.

Public Utility Commission of Texas
The Public Utility Commission of Texas is actively educating their consumers on the benefits of Smart Meter technology. In the PUCT March publication, Volume 10 Issue 4, the commission states that new technology “could transform consumers’ relationship with electricity from passive to interactive ... consumers will be able to see the correlation between consumption and price and make educated adjustments, such as turning their air conditioner setting up during hours that they are not at home.”
The 2008 report to the 81st Texas Legislature on Advanced Electric Metering required by House Bill 2129 makes its case for smart metering by stating that “AMI enables customers to have more control over their electric bills ... evidence demonstrates that customers will respond to the appropriate price signal and the right incentive by reducing consumption.” The report continues by referring to a California study that revealed real time pricing with AMI could reduce demand during high times buy 27 percent and by 43 percent for customers with advanced automatically controlled electric consumption systems.

The Texas Legislature had to balance the interest of customers, distribution utilities, and Retail Electric Providers (REP) when established its ruling concerning smart meter functionality requirements and cost recovery surcharge. With Texas being an open retail electricity market, distribution utilities are responsible for delivery and metering of electricity but REPs cover metering costs.

Retail Electric Providers
REPs are customer facing entities responsible for marketing, purchasing, and billing of electric power to their customer base. Meter usage data will be collected every 15 minutes providing consumers with detailed snapshots of their electric consumption. Data collected by new Smart Meters will provide REPs with new ways to offer innovative pricing, packages, and services to their current and prospective customers. This could be expanded to including prepaid, hourly, critical peak, rebate and other time of use rate options. With open communication standards, REPs could also offer services to help consumers control electricity consumption by providing real time interface back to major appliances and equipment such as air conditioners, pool pumps, and electric car charging.

Smart Metering will also allow the Texas REP to better manage the amount of bad debt risk that it assumes. With the ability to perform remote connects and disconnects, not only will REPs be able to provide better service by reconnecting customers quickly that have been disconnected due to non-payment, but they will also be able to pass on reduced costs to customers since truck rolls will no longer be necessary. High risk customers in Texas currently maybe subject to higher rates and deposits, but with the ability to offer prepaid functionality REPs can provide electric service at a more competitive cost since bad debt risk will be greatly reduced.

Conclusion
Even though Texas utilities are moving to large scale smart meter deployment, technology is only one building block needed to take advantage of full Smart Grid benefits. While increased reliability and stability may be an immediate benefit of new technology, transformation to rate plans that reflect peak costs is needed to encourage consumers to manage consumption by providing cost savings incentives. It will be interesting to watch how various players in the Texas market will put together product offerings to consumers.

Allegro marks their 25th anniversary as a company this month. Having been involved in the ETRM space for more an a decade myself and having worked for a couple of different companies that competed directly with Allegro, I believe it’s a remarkable achievement for the company to have not only survived, but to have thrived in what is, more often than not, a very volatile, unpredictable, and extremely competitive market.

We at CommodityPoint and UtiliPoint extend our congratulations to Eldon Klaassen and his team.

Paragon has landed a new client for their Vanguard credit risk solution. I spoke with Paragon’s Kevin Gerold who confirmed the deal, but was not at liberty to name names other than to say that it's a large Midwestern utility. Kevin also said that they are in contract negotiations with another potential new client and could hopefully confirm that new deal within the next couple of weeks. Clearly the company is finding very solid sales traction with their new product.

Utilizing Technology to Improve Trading Profitability and Reduce Risks

This recently published White Paper explores the need for innovative technology in the ever-changing energy trading industry. High volatility and rapidly escalating prices present a variety of challenges in today’s trading organizations. Traders must be able to identify and execute strategies quickly and efficiently, while also managing the associated risk.

The systems and processes of the past are no longer sufficient in this environment. Real-time optimization, instant transparency into portfolios, and advanced analytics for improved decision-making have become necessities in order for companies to be profitable.

Energy trading and risk management (ETRM) solution providers have begun adopting a Service Oriented Architecture and utilizing a Grid Computing environment that enable traders to calculate key metrics and trading strategies rapidly and with confidence.
This paper discusses the various needs and challenges the industry is facing and how, with technology, companies can make efforts to improve their profitability and reduce risks.

To view the entire White Paper, please click here.

I saw this in the New York Times and felt it was worth posting here. The author, Jake DeSantis, who currently heads AIG financial product group, provides some background that I was unaware in this whole AIG debacle, including the fact that he and others were working for months for no pay - only the promise of the much maligned retention bonus. The politicians populist-pandering rage at these guys seems more than a little disingenuous after reading this. I’m posting this in its entirety.

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group's financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

Jake DeSantis

Take care when shopping in Texas…

Got this notice in my email…

Seems a new exchange is starting up.

American Civics Exchange is a web-based exchange for political futures - that is, contracts that pay out depending on whether given political outcomes (e.g. enactment of legislation, regulatory decisions, etc.) take place. The idea is similar to weather derivatives that enable companies that are financially exposed to deviations in temperature (utilities, farms, etc.) to hedge that exposure. Similarly, our contracts enable companies (or or fund managers or speculators) to hedge their financial exposure to things like increased tax rates, enactment of harmful legislation, and adverse regulatory decisions.

Our seven initial contracts are: increase capital gains/dividend income tax rates, elimination of the manufacturers’ tax deduction for oil companies, enactment of “card check”, enactment of “cap and trade”, the EPA granting California’s Clean Air Act waiver, increase in the minimum wage, and taxation of carried interest as regular income.

As they are just starting up, they’re using play money right now, but they say they’re going to real money shortly. This may actually fly…it gives everyone a chance to hedge against a lot of the craziness coming out of Washington and maybe offset some of the massive tax increases (including those insideous ones that aren’t labeled “tax increase”) coming our way.

You can take a look here and see their press release here.

I had mentioned a couple of months back that Data Management Solutions (DMS) was, based upon market feedback, a company to watch in 2009. They’ve been quietly servicing the natural gas trading and marketing space for around 15 years, but for the most part have been intentionally flying under the radar. While I can’t get anyone to offically confirm it, they have apparently landed a significant new customer - Washington Gas Light.

While the deal should be a nice one from a license standpoint, I believe the more significant part is that they beat out a number of the largest ETRM vendors to win the business. Based upon some of what I’ve heard, DMS’s advantage was in their knowledge of the LDC business model, their sole focus on and depth of functionality in the natural gas space, and the ability to get their new customer up and running very quickly on the GasPro application. All in all, a very solid win for DMS.

I’m heading to Atlanta to speak at the LDC Gas Forum Southeast the first full week of April.

Here’s the agenda, and here’s some background…

The LDC Gas Forum is the premier event where the Natural Gas Industry meets and is comprised of 5 regional conferences held annually in Atlanta, Boston, Chicago, Los Angeles Area and Canada (in conjunction with IGUA). The conferences are highly regarded by the industry for their excellent content and also as the premier networking event for bringing together buyers and sellers in the natural gas marketplace. The conferences are attended by more than 500 people and cover issues affecting all aspects of the natural gas marketplace, including sources of supply, utilization of storage, infrastructure projects, LNG opportunities, hedge fund analysis and supply constraints.

Be sure to register today for the LDC Gas Forum SE and maximize your contacts while minimizing your costs!

Triple Point just announced another very solid win as The Energy Authority has licensed Commodity XL(TM) to manage its energy commodity trading, marketing, scheduling and counterparty credit risk processes.

As the press release says, “The Energy Authority (TEA) is the nation’s leader in public power energy trading and risk management. It is wholly-owned and directed by six Public Power Members and has contractual relationships with more than 30 electric-generating municipal Partners. The corporation operates in both bilateral and regulated power markets, with approximately 25,000 MW of generation under management”.

According to the release, the deals covers Commodity XL for Power(TM), Commodity XL for Gas(TM), Commodity XL for Oil(TM), Power Scheduling ‘Visual Cockpit’(TM), Gas Scheduling ‘Visual Cockpit’(TM), Commodity XL for Credit Risk(TM), Credit Risk Analytics(TM) and Commodity XL Xchange(TM).

Readers of this blog may remember a couple of postings that I’ve done over the last several months mentioning Paragon Consulting. As a reminder, the company’s two principles, Jason Wells and Kevin Gerold had been working to bring a new credit risk application to market and, based on those that had seen it, the reviews were looking good. I recently had the opportunity to see their new product, Vanguard, for myself as Jason and Kevin dropped by my office and provided a demo.

One of the first things you’re struck by with Vanguard is the unique navigation that they’ve deployed. Utilizing the latest UI tools from Microsoft, they’ve essentially created an iPod look and feel for navigating around the different modules within the app. It may seem somewhat superficial to note it as an “iPod look and feel”, but I do think that it will have actual value in terms of productivity as it allows very quick and clear movement amongst screens/modules. Using that navigation to dive into the functional aspects of the system, it appears that they have created a fully featured credit risk system providing all the required tools, analytics and reporting capabilities that are necessary to be a very competitive offering in the energy trading space, including full contract/counterparty management, counterparty credit status (with alerts), collateral management, credit scoring (both externally and internally generated), and a host of analytics including pre-trade analysis of PFE (potential financial exposure).

The company’s new website is now up and running. You can check it out here at www.paragon-consulting.net.

OpenLink announced today that they had entered into a joint venture agreement with MCG Energy Solutions, LLC (also known as the Minneapolis Consulting Group), “a nationally recognized leader in the provision of power scheduling systems, meeting North American Electric Reliability Council (NERC) e-Tag, Open Access Same-Time Information System (OASIS), and ISO communications requirements for electricity markets”.

The announcement indicates that OpenLink will integrate their Endur solution to the MCG product family, providing “traders and risk managers with up-to-the-minute market information about energy transactions, ISO deals, NERC e-Tags, and transmission reservations. The robust framework will help clients capture purchases and sales of electricity, fuel, and emissions credits, show risk across multiple scenarios that affect forecasting and profitability, reserve transmission, schedule and tag power, submit bids, track positions, perform settlement reconciliation, track costs, and post to sub-ledger accounts.”

This is obviously a significant move as it allows OpenLink, the largest ETRM vendor in the market, to compete more effectively for the large utilities and physical power traders by being the only large scale solution that can be deployed with the tools necessary for complete transmission management, scheduling, and tracking of physical power transactions.

MCG will also gain access to OpenLink’s growing roster of client companies. MCG has, for a number of years, had a good reputation in the market but has trailed the market leader in NERC tagging and ISO communication, OATI. This transaction provides MCG with the ability to move into the higher-value upper tier of the market where OpenLink has been consistently viewed as the ETRM solution provider to beat for the last couple of years. From OATI’s standpoint, their ETRM business should be relatively unaffected by the partnership as their markets tend to be the low and mid-tiers, areas that OpenLink would have a difficult time competing do to the scale and cost of their Endur solution. However, for the larger utilities and physical power traders, OATI might feel the pressure of the partnership as they compete for the scheduling and ISO market functionality in those shops.

For other large scale product vendors that compete in the power markets, including Allegro, SunGard Energy and Triple Point, this partnership raises the bar in terms of competitive functionality. While OpenLink’s Endur is generally regarded as the most expensive product, if OLF can create a seamless solution for the large physical power traders in North America, they should be able to demonstrate tremendous value for prospective clients - complete coverage from the highly technical functionality required in the NAM power markets, all the way through sophisticated physical and financial risk management capabilities.

This partnership does raise a significant question though...Will OpenLink leverage their IRM acquisition of a couple of years ago in order to also provide asset management and optimization capabilities as part of a comprehensive NAM physical power market solution?

Even without exploiting the IRM capabilities as part of a NAM power market solution, this partnership clearly provides OpenLink with a very formidable and highly competitive solution.

UtiliPoint International IssueAlert
Patrick Reames- VP - Trading and Risk Management

As I noted recently in the ETRMCommunity blog, it's been interesting monitoring the 2008 results from the various ETRM software houses. Many of the large vendors are indicating that license revenue numbers for the year were up significantly over 2007, even as new customer signings were down, in some cases 20% or more.

The results are indicative of two factors: 1) Increased sales of add-on-modules, incremental functionality, and additional user licenses which are generally accounted for as license revenue but do not increase new client company counts and 2) an increase in the average sales price for new systems, which, based upon conversations with many of the vendors, is the single largest contributing factor to 2008 results. A few of the ETRM system vendors signed deals that were of very significant size in 2008, such as Triple Point landing Cargill and expanding their presence in ConocoPhillips. Allegro also reported several large transactions during the year, and indications are that Open Link closed several very significant deals; however, until the company publically releases their results through an updated SEC filing or via a press release, it will be difficult to know the full scope of their year as they are necessarily careful in discussing results and forecasts due to SEC restrictions as the company looks toward an IPO.

In terms of incremental license revenue, our research indicates that many companies, in the face of an uncertain global financial situation, have chosen to make the best of what they have in place - spending to improve their systems' capabilities, while limiting their overall expenditures. Given the economic conditions and the costs associated with a new ETRM license and implementation, many trading companies have made the decision to delay purchasing or replacing their existing systems, instead upgrading what they have in place and putting off the replacement decision until economic conditions improve.

2008 was a Year of Mixed Results

The first half of 2008 was a continuation of 2007, with virtually all markets segments showing strong growth. However, after the commodities crash in July, the lower to mid tiers of the market - the small regional to mid-sized national companies showed a significant slowing of activity, with new system purchases put on hold as companies scrambled to cut costs. However, on the high end of the market, including the multinational producers and trading companies, there appeared to be less slowing of activity. Many of these very large companies have had system replacement or expansion programs in the works for a year or more. These companies tend to take a longer view of the markets, so unless they are caught up in the financial turmoil engulfing the financial sectors, they’ve generally been following through on those plans despite the currently unfavorable economic conditions. This long view has resulted in several large and, in a couple of cases, record-setting sales for a few of the ETRM providers as noted above.

Given the turmoil in the financial sector, the banks and other financials are obviously not beating down the doors for ETRM system suppliers; in fact, many aren’t even returning calls. They have bigger problems right now, like trying to stay alive. While a few financial institutions bought new systems in 2008, these were deals primarily consummated in the first half of the year, with only a tiny handful closing in the latter half.

Crude centric buyers have become few and far between these days. While the results from last year do indicate several crude driven ETRM deals closed, with the global crude markets being pounded by the more than 70% drop in crude prices in the last eight months, few refiners or traders are currently focused on adding or replacing a system. In fact, the crude markets seem to be without any real equilibrium. Conflicting price signals abound in the global markets - futures seem locked in a permanent contango; domestic crude inventory reports have only within the last week started to show any lessening of inventory builds; and reports are emerging out of China of increased petroleum product exports (though currently modest, with increases up to 12,000bpd, this volume could go much higher as an additional 1 million barrels of Chinese refining capacity will come on line this year alone. Should China's economy continue to slump, this capacity would most likely be turned to the open market, putting significant additional downward pressure on prices). Meanwhile, some reports do indicate that OPEC has been moderately successful at cutting production, achieving about 75% of their stated 4.5 million bpd cut.

The bottom line for crude is that there is an untold millions of barrels of crude in stock tanks, tankers and bunkers around the globe. Until the excess is absorbed by a freshening global economy, the outlook for crude producers, traders and refiners remains murky at best. Given the state of the crude markets, and despite some recent mixed indicators of futures prices, it’s difficult to see much improvement until the 4th quarter at the earliest. And until the underlying market improves, ETRM system sales to the segment will continue to be depressed.

The end user, or commercial scale commodity consumers, markets have also all but disappeared for most ETRM vendors. Commodity prices have fallen across the board as demand has weakened and many industrial facilities have been dialed back or shuttered entirely. Most commodity futures markets are in contango, leaving few hedging opportunities and, at least in the near term, reducing this group’s attention on risk management and commodity management systems. The one remaining bright spot in this market group is the agricultural centric buyers. This group as a whole, with some notable exceptions, appears to have not been impacted as much as chemical producers, industrial manufacturing or transportation companies. Even in poor economic times, “people gotta eat” (as Houston Astros outfielder Hunter Pence noted to a reporter after hammering a home run that hit the Chick-Fil-A sign attached to the right field foul pole, providing free chicken sandwiches for the fans) and agricultural producers continue to be a viable, if not robust, market for a few of the ETRM vendors.

Buyers for gas functionality are also still active in the markets. The LDC market, while relatively small and somewhat specialized, continues without much interruption, and many (but certainly not all) gas producers don’t appear to have radically altered their system acquisition plans. Natural gas, despite having fallen significantly off of the highs of 2008, is still a relatively healthy segment. Though today’s $4 gas pales in comparison to the $14 gas the producers enjoyed in the middle of last year, that price provides most a fairly nice return on investment and solid cash flow. However, indicators are pointing to toward lower prices in the coming months - despite record cold in the north and north east recently, prices actually fell in those regions as reduced industrial demand more than offset increased heating demand. If prices do fall significantly in the coming months, ETRM system sales in the natural gas market could start to slacken as market participants across the board rein in spending.

Utilities, particularly the regulated utilities, are by their nature, somewhat less exposed to the immediacy of wholesale price movements. While they rarely get to share in really good times alongside the traders and producers, they also rarely get pounded when the markets tank. For many, in fact, today’s lower fuel prices are providing short term benefit. The biggest issue for this group is their capital intensive structure - with the financial markets in turmoil, their access to capital has been constrained. However, small scale projects, such as new systems purchases, while having been somewhat delayed, are moving forward, providing a continuing market for power capable ETRM solutions.

Again, while sales of full scale systems have slowed, the market for ETRM components and add-on modules continues to be relatively strong. As pointed out in our recent report “Changes in Energy Commodity Markets - Impacts on Traders and Software“, risk management and credit risk are, not surprisingly, top priorities for the companies that responded to our survey. Many existing users of ETRM systems are seeking additional functionality in these areas and have been purchasing new modules or replacing risk management systems in order to address infrastructure weaknesses in these areas.

Looking at the markets globally, the North American market appears to have slowed more than has the European market. Sales of gas and power ETRM systems are down somewhat in Europe compared to the peak of the market in early 2008; however, the growth and maturation of the continent’s wholesale energy markets continue to provide opportunities for many vendors.

The Big Picture

The sale of an ETRM system can be driven by one or more factors:

1. New market participants entering an expanding energy market place
2. Company growth or expansion of activities forcing a move to a more capable system
3. New regulations or industry driven business practices requiring additional system functionality
4. Technology advances attracting buyers to the latest and greatest system
5. Normal software replacement cycles (on average about every 5 to 6 years for ETRM systems)
6. A failure by an incumbent vendor that drives an company to seek a new ETRM supplier

Unfortunately, only a few of the factors listed above actually create real growth in the ETRM markets. Several, like system replacement driven by depreciated software assets or service failures, are a zero sum gain for the market as a whole as one vendor’s gain of a client is another’s loss. The only clear expansion of the ETRM solutions market will come from the emergence of new market participants or niches (like end users emerged as a significant market in 2006 - 2008) or from increased functionality requirements to meet changes in regulation, such as new hedge accounting pronouncements, or new business practices like the development of new trading products and instruments.

Without a dynamic and expanding energy market driven by a robust economy, the overall market for ETRM systems will become moribund, with vendors cannibalizing each other’s client base at an ever increasing cost and with lower margins. It becomes a market of clear winners and losers, not a market, as we've had over the last several years, of big winners and not-so-big winners. In a depressed global economy, there is no rising tide to lift all ships.

An Uncertain Outlook for 2009

Market growth for ETRM systems is directly linked to a healthy energy commodity market, which is in turn directly dependent upon a healthy global economy. Unfortunately, until the global economy, or at a minimum the US economy starts to recover, some ETRM vendors will be facing difficult times. We are now in a market where the strong will survive, however the outlook for the weaker companies is uncertain.

Until the economic pulse quickens, the energy markets and those that rely on them for their livelihood are going to be facing an uncertain future. Until our political leaders start concentrating on calculating and applying the proper amount of defibrillative voltage to the heart of our economy (instead of dressing the body in a new suit and styling its hair, in addition to adding a whole lot of junk debt and severely burdening the economic body, if and when it can get up off the ground), the recovery this market needs may be a while in coming.

With energy commodity prices having collapsed like Miguel Tejada at a press conference and the futures markets in contango, the preferred strategy for many traders has been to buy as much physical product as available storage capacity would allow and either sell for future delivery, or hold and wait for the cash markets to recover. On the surface it makes sense. Cash prices for crude are more than 70 percent off their highs of last year. The economic picture is just about as gloomy as possible, so recovery, with an increasing demand for energy commodities, should be coming along soon. Even if it’s not very robust, the bounce off the economic bottom should start to push prices up, right?

Maybe not. The bad economic news just keeps coming. Japan just reported that their economy shrunk by more than 3 percent this last quarter. Manufacturing levels in the US keeps are continuing to decline. The Dow is falling back as stock traders aren’t feeling stimulated by the “stimulus” package being signed into law - a bundle of boondoggles, favored pet projects, green golf carts and just enough tax relief to keep those lucky enough to get a tax break equipped with smokes for 3 days out of every week (what else are you going to spend $13 week on?).

Unfortunately, it looks like the strategy of buying and holding physical product may extend what would otherwise be an already extended period of price weakness. Crude closed below $35/bbl today, crude inventory levels in the US are at 82 week high and around the globe (which outside of the US has no reliable inventory reporting), stories are rampant of tank farms nearing capacity and supertankers driving around in circles offshore, waiting to offload as soon as prices start to tick up. Traders are starting to get nervous about being so long with physical product, that as soon as any trader gets in the money, they will dump what they can, and in turn, push prices back down. It will take many months if not longer for the markets to absorb the surpluses that exist, even if OPEC is successful at cutting production by the 4 million barrels a day that they are claiming.

Until the surpluses in crude and products are burned by the carbon emitting engines of recovering economies, it’s going to be hard to see much improvement in prices. And without some decent price recovery, it’s just not going to be much fun to be in the oil business.

It’s been interesting monitoring the 2008 results from the various ETRM software houses. In most cases, the major vendors are reporting that their license revenue numbers are up over 2007, even as their numbers of net new customer sales are down, in some cases 20% or more.

Clearly, part of what’s at play is the fact that some of these vendors have signed deals that were of significant size in 2008, such as Triple Point landing Cargill. Indications are that Open Link also closed one or two very large deals, however, until they release their updated S-1, it will be difficult to know since they aren’t talking about their results due to SEC restrictions.

Cumulatively, there is no question that fewer market participants purchased entirely new trading systems in 2008 vs. 2007. It’s also apparent that while fewer trading companies chose not to replace an existing vendor’s system or buy their first; many did, in fact, buy new functional modules or additional user licenses from their existing vendor in 2008, adding to the vendors’ license revenue numbers and user counts, but not increasing their roster of client companies.

According to our research, part of what’s at play is that many companies have choosen to make the best of what they have in place - spending to improve their systems’ capabilities, while limiting their overall expenditures. Given the economic conditions and the costs associated with a new ETRM license and implementation, many trading companies have made the decision to delay purchasing or replacing their existing systems, instead they’re upgrading what they have and putting off the replacement decision until the overall market conditions improve.

Yesterday, Triple Point provided a briefing on their results for 2008 and they were certainly impressive. According to the company, their performance last year yielded a:

* 139% growth in license revenue over 2007
* 63% increase in total revenue over 2007
* 79% increase in profits over 2007
* 43% expansion in headcount - now over 400 worldwide
* 107% increase in total revenue in the last three years

They also highlighted several operational achievements including:

* Acquisition of INSSINC and Rome. According to Triple Point, this places them as “the only provider of a software solution that tightly integrates the 4 key areas of exposure as identified by the Committee of Chief Risk Officers (CCRO: market risk, regulatory risk, counterparty credit risk and operational risk.”
* Winner of the SAP Pinnacle Award - “Triple Point accorded the award in recognition of its advanced, next generation, service oriented architecture.”

It’s hard not to be impressed with these results, although the metrics they provided do include the impact of the acquisitions. When pressed for some indication of their organic growth, well...still impressive. According to Michael Schwartz, the company’s CMO, taking out the effect of the acquisitions still yields a 46% increase in total revenue over 2007 vs the 63% indicated above.

Their partnership with SAP is obviously paying off and has lead to a number of new license sales. Although they haven’t released an exact figure as to that impact, there is little doubt that the company has enjoyed much success with their relationship with the German giant. A quick review of press releases indicates that the SAP relationship has directly lead to sales with Evonik, Van der Sluijs, and CITGO; not to mention the still unannounced, but giant, deal with Cargill (remember the deal worth north of $30mil in license by many estimates; although depending on their revenue recognition practices, may account for only about $10 million in new license revenue booked in 2008). Other non-SAP related deals included the large one at ConocoPhillips and others that included Sheetz, Seaboard, and Reliance (of the announced deals).

According to Mr. Schwartz, their 2009 sales pipeline continues strong despite the global economic slump and they are anticipating another record year.

Although the company won’t talk about their strategy in terms of a potential public stock offering, if one applies some standard assumptions around revenue-per-head, the company is clearly nearing the $100 million revenue mark and, based upon their forecast of another record year, should easily surpass that number in 2009. If so, they will be well positioned for a potential IPO in 2010 (if the equity markets rebound by that time).

I visited with several of the leaders from ZE PowerGroup yesterday, including Aiman El-Ramly (VP of Strategy and Business Development) and Robert Bruce (Manager of Product Strategy) about the company’s ZEMA product, a data management, analysis and reporting solution.

ZE PowerGroup is headquatered in Richmond BC, just south of Vancouver. They started business in 1995 and have grown significantly. They currently have 3 lines of business - an engineering group, a strategic consulting group and their software group, which has developed the ZEMA product.

ZEMA, which stands for ZE Market Analysis suite, is primarily comprised of a data server/data warehouse, a data management layer, an analytics/BI layer and provides a fully featured reporting capability. They demoed their capabilities to consolidate dozens of data feeds (both internal and external) down to a common database, which allows traders to access that world of information and compare or combine those multiple data streams into a single graphical view, or to export their analysis out to a spreadsheet, database, or to other systems or applications. They provide the system with a raft of preconfigured price curve analytics and utilize the client’s pre-existing data feeds, like Platts or Bloomberg, or market feeds from any of the ISO’s for example. In fact, from what I saw, you would be hard pressed to find an external data source that they haven’t already connected to.

I was certainly impressed with the system and its capabilities. They indicate they anticipate adding a number of new clients to their existing base in the US and Canada in 2009. You can find out more about the company at www.ZE.com.

Risk Management Tops Trading Firm’s Critical Business Issues in Less Liquid Energy Commodity Markets

For Immediate Release
Albuquerque, New Mexico--February 4th, 2009-- CommodityPoint, a division of UtiliPoint® International, Inc., has released a new report titled "Changes in Commodity Markets - Impacts on Traders and Software” based on a survey of a variety of energy commodity market participants. While commodity traders face a barrage of issues as a result of the ongoing financial and credit crisis, the study indicates that risk management is the most critical business issue facing those market participants.

The study, based on a global survey of 65 firms trading commodities (and follow-up interviews with many of the survey respondents and other market participants), shows that tighter credit, decreasing market liquidity and related developments are being felt by, and are creating serious issues for, increasingly cautious trading firms. The survey quite clearly indicates that many traders are finding current conditions difficult, to the point of reducing their exposures, both volumetrically and financially, and in some instances, exiting the markets altogether.

The results also indicate a growing divergence between the physical and financial players in the markets. In the period of rapidly escalating prices prior to July of 2008, financial traders were entering the markets in large numbers, bringing with them new strategies and trading styles, and catalyzing growth not only in traded volumes, but also in the introduction of new products and instruments. The survey respondents indicated that for many of the physical players, while these new market developments provided some benefit, such as access to new trading partners and improved liquidity, there has also been some detrimental impacts, the most cited of which is the lack of clarity around price formation.

"A key finding in this study is related to the impact that financial commodity traders may be having on price formation,” said Dr. Gary M. Vasey. "Understanding factors behind price formation was cited as a key concern in the study which appears to indicate that financial traders trading styles, strategies and overall portfolio make-up can have a definite impact on price formation."

“Additionally, the study indicates that while uncertainty surrounding price formation is a concern for all traders, physical traders, and particularly those that have naturally long or short positions such as producers or industrial scale consumers, are faced with unique concerns.” said Patrick Reames. “These companies are having a very difficult time developing and executing hedging strategies in light of the extreme levels of uncertainty around future prices.”

The new report, "Changes in Commodity Markets - Impacts on Traders and Software” examines a broad array of issues faced by the industry and provides particular focus on those issues considered critical to market participants, both in terms of business strategy and the implications for the systems and software deployed to support those businesses. The report, sponsored by Triple Point Technology and supported by SunGard Energy Solutions, HyperRig, Lacima Group, Accenture and SolArc is available for purchase at UtiliPoint's website at http://www.utilipoint.com/rci/details.asp?ProductID=1176

About CommodityPoint
CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc. CommodityPoint provides Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. Our services bring insight into business issues, trends, processes and technology, to energy companies, utilities, banks, brokers, funds, investors and vendors, enhancing their competitive position and supporting critical business decisions. CommodityPoint has been formed to bring focus and clarity to the broad array of issues surrounding the wholesale trading of commodities. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. Our principal analysts, Dr. Gary Vasey and Patrick Reames, bring years of practical experience to their roles. With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace.

About UtiliPoint® International, Inc.
UtiliPoint is a leader in providing analysis and consulting services to the energy and utility industry. Our 76-year history and over 500 clients worldwide have led us to currently operate as an energy and utility consulting and issues analysis firm. Our staff is comprised of leading utility and energy experts with diverse backgrounds in utility generation, transmission & distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs, and international issues.

IssueAlert - January 30, 2009
By: Patrick Reames and Gary Vasey

CommodityPoint, the recently launched division of UtiliPoint International that is focused specifically on the global commodity trading, transaction, and risk management space, is now completing our latest report. The report, “Changes in Commodity Markets - Impacts on Traders and Software” will be available within days and is based upon a study undertaken by CommodityPoint during the fall and winter of 2008 to assess the impact of changes in commodity markets on traders and the software used to support trading and risk management operations. When we first envisioned and initially defined the study, commodity markets were experiencing tremendous volatilities, increased trading volumes, and rapidly escalating prices.

However, by the time the study was initiated, much had changed as the financial crisis had began, spilling over into all markets and spreading to all major economies; commodity prices were in free fall and credit markets were in a virtual melt-down. Fortunately, the timing of the market events was such that we were able to develop a survey that allowed for a full examination of the market changes and impacts, both pre- and post-collapse. Additionally, we conducted a number of interviews with a variety of companies in order to gain a more complete picture of the evolving markets than could be developed from a survey alone.

Our overall goal in undertaking this project was to examine the impacts of the recent shifts on those that trade in the energy commodity markets, measuring their responses and adjustments to the rapidly evolving developments. The 2 primary goals of this research were to assess:

- Impacts on Physical Traders - What have been the impacts? How can physical traders adjust in order to better compete and survive in the new energy markets? In the research we looked at issues such as risk management, market liquidity, credit, and trading styles amongst others.
- Impacts on ETRM/CTRM software - How has ETRM software been impacted by 1) the influx of larger financial players over the last several years, and 2) the structural changes that have occurred in the commodity and energy markets?

In all, the survey component of the study garnered a total of 80 responses from a wide variety of commodity market participants around the world. After elimination of duplicates, incomplete submissions and other potential issues, we were left with 65 responses, providing a significant research base and allowing a detailed analysis of the issues. In addition to the survey and interviews with a variety of traders, brokers, systems vendors and trading platform providers, we also conducted research using industry regulator and market participant websites and a number of industry publications to assist in developing the findings.

About 85% of those companies that participated in the survey were located in North America and Europe (with the remainder in South America and the Asia-Pacific region) and represented virtually all aspects of the commodity trading industry participants; with hedge funds, utilities, merchants, banks and consultants forming the majority. Overall, we are very satisfied that the survey sample is a solid representation of the industry.

What did we learn?
At UtiliPoint (and now at CommodityPoint), we’ve noted several general trends over the last couple of years that have significantly impacted the markets, including:

o Trading companies expanding their portfolios to encompass a broader range of commodities - With the possible exception of the companies that are in the markets only in support of an operational need (like an LDC buying for system supply), the majority of trading shops are now transacting in multiple commodities, with many trading energy alongside metals, softs, and other non-energy commodities.
o The raft of new entrants into energy and commodity markets, including hedge funds, investment banks, proprietary trading firms and more, and the impact they’ve had in bringing fundamental structural changes in commodity markets, including new markets and new instruments and almost effortless access for the ordinary investor who can now access and influence the market with the advent of Exchange traded instruments such as ETF's, ETC's an ETN's.
o The growing interdependency of commodities, both energy and non-energy, brought about by industrial shifts, new regulation, and continuing globalization.

The results of the survey confirmed many, if not all, of our observations; however, there were a number of striking differences when looking at the data by organization type and region. Amongst some of these differences:

o All major groups of respondents are trading a diverse set of commodities, though the physical traders tend to be more or less exclusively focused on energy and energy-related commodities; whereas the financial traders are trading a wider range of commodities overall and that exposure to commodities is only an aspect of a larger portfolio that includes significant exposure to other asset classes such as equities and debt.
o There are some distinct differences between the range of physical and financial commodities traded by North American and European traders that appear to reflect the levels of the maturity and liquidity of regional markets as well as the historical evolution of those markets, including the nature of the generation mix in the regions. Of particular note, the European hedge funds that responded are trading only in financial markets, whereas North American hedge fund respondents are trading both financial and physical markets.
o The loss of some market participants (especially several of the large financial institutions) and pull back of others is being felt in terms of reduced market liquidity: 68% of the respondents stated that market liquidity was less than a year ago and 62% stated that this was impacting their ability to do business. However, the impacts from the loss of the liquidity was being felt more in Europe than in North America, as 73% of the European respondents said their business had been impacted by lower liquidity, versus 53% for those in North America.
o There has been somewhat of a reversal in the trend toward companies trading a broader portfolio of products, at least in North America, as one third of the North American respondents indicated they are now trading fewer commodities than a year ago. In Europe, the data is less conclusive, with an almost equal number indicating they are trading less as are indicating they are trading more.

What are the critical issues for industry participants?
One area of particular focus for the study was to determine what the respondents’ felt were their most critical issues to be dealt with in the face of the turmoil in the markets. We asked the survey participants to rank more than twenty widely reported issues in terms of most critical to least critical. For those respondents, the most critical business issues include risk management, market liquidity, tightening credit and collateral, understanding factors behind price formation, and volatility as well as a variety of technology-related issues such as reporting and data management. While there were some surprising regional differences in the rankings of many of the issues, Risk Management is clearly the critical business issue facing virtually all respondents given the current market conditions.

We also dove into the issue of risk management tools and analytics as part of the survey, asking what forms of analytics are being used by the respondents. Although all the respondents indicated they utilize some form of risk analytics, there is a preponderance of mark-to-market analysis and some form of VaR across the survey respondents. Around 40% of the respondents also use sensitivity analysis and stress testing methods on their portfolios. Stochastic analytics, pre-trade VaR and Credit VaR, are used only by a minority of respondents, and of those firms that utilize such analytics, most are banks.

Summary
Overall the current financial crisis is impacting commodity trading in a number of key areas including market liquidity, credit and counterparty issues, risk management and oversight and is therefore likely to impact trading volumes and trading behavior in the future. There are also suggestions that there may well be yet a broader impact associated with the financial players being forced to withdraw from commodity markets as hedge funds face redemptions and the banking crisis goes on. Most participants indicate that they will be exercising increased vigilance and caution in the future.

Finally, as noted by a few of the respondents when asked about future impacts, and an area noted by several during interviews, is the potential of increased regulation and market oversight. CommodityPoint believes it certain that there will be greater of both in the future, impacting trading firms in a variety of as-yet-unknown ways, and unquestionably placing more demands on their accounting, risk management and management functions.

Report Scope
Again, as pointed out, our goal in conducting this research was primarily to gauge the markets’ response to the recent turmoil and to better understand the impacts of the evolving markets. We sought out and received responses relative to trading styles, portfolio management, commodity mix, financial and operational impacts, hedging strategies, ETRM system issues, and much more. For those operating in the markets, this report contains a wealth of data with which to better understand issues of the those that trade in this market, whether they be your peers or your customers.

Note: The new report “Changes in Commodity Markets - Impacts on Traders and Software” will shortly be available for purchase at www.utilipoint.com for $1995.

Allegro just sent out a press release summarizing their year- end results for 2008. Amongst the highlights are a very solid 33% year-over-year growth in license revenue and 15 net new clients signed.

I had the opportunity last week to talk with Michael Hinton, Allegro’s Chief Marketing Officer, about the company’s performance and their view of 2009.

According to Mr. Hinton, Allegro saw growth in almost all market segments and geographies, with a few unsurprising exceptions. The financial institutions, including the banks and hedge funds have pretty much disappeared from the market in terms of new system purchases. He also confirmed, as almost all other vendors have, that the meltdown in July did impact their results, as some deal closings were delayed and others, like those associated with the industrial energy commodity consumers, failed to materialize as commodity prices took a historic nosedive. Still, the company is confident that 2009 will continue to show growth, although he points out that the shape of the market is evolving, with much of the anticipated growth coming from regions outside of North America. He also anticipates that much of the sales activity in 2009 will be driven by asset heavy players, including E&P and utilities, markets that have historically been Allegro’s “bread and butter”.

In addition to the providing a preview of the results outlined in the press release, he also provided quite a bit of insight into some of the changes that have recently occurred in the company. There have been persistent rumors in the market regarding personnel and management changes that have taken place over the last several months, including the departure of the company’s former president, Christopher Larsen. Without repeating the rumors here, the company’s performance in 2008 should, at a minimum, call into question the validity of most if not all of those rumors. Certainly, as an outsider looking in, I can’t have complete clarity into the boardroom decisions being made; however, it is clear that the personnel moves and shifts that have taken place in the organization are probably not reflective of a lack of performance on the part of the company. That being said, however, I do think, although not confirmed by the company, that some of the moves were done to right-size particular organizations within the company in anticipation of shifts in market and operational priorities.

One of the most obvious changes that have taken place within the company is the departure of Christopher Larsen, which Mr. Hinton described as a personal decision on Mr. Larsen’s part. Based on our discussion of those circumstances, I’m confident that his leaving was a decision he made, and was done with the best interests of his family at heart.

As I understand it, one of the cardinal rules of being a blogger and attracting lots of readers is to continually update your stuff. The only problem is that I like to keep it somewhat relevant to the space in which we are all interested and in order to do that, I really need to take some time to ensure that what I’m writing makes at least a little sense to the industry. It’s about quality, not necessarily quantity - setting aside the posts about the Mexican witch, the Geneva tea drinking dog, and the latest alien hardware.

Unfortunately, when I’m working on a project, such as our latest research study around the commodities markets, I have a difficult time shifting gears and taking the necessary pause to reset my thoughts from the data intensive work of analyzing huge spreadsheets choked full of information from around the various global markets, to the more newsy elements that arise during the day, like the latest Triple Point press release. By the way, one does have to wonder how they seemingly always manage to get their customers to allow press releases when most, if not all, of the other vendors aren’t allowed to even whisper new customers’ names…

Anyway, I realize the blog has been somewhat barren lately and I’m going to work on improving it. Once I get past a few deadlines, the quantity (not necessarily the quality) of posts should improve. Until then, I’ll fill this entry out with something totally unrelated to the industry - just a little story to make you feel better about the life you may be leading…

Some may remember the mention in this blog of the rock eating idiot hound that cost me $1300 in emergency vet bills a month or two ago. Well this last weekend, the other dog, who I had considered to be somewhat smarter than the idiot rock eater, began to exhibit similar symptoms - vomiting, stuff happening at the other end…so on and so forth. After 5 hours at the vet it was determined that she had also being dining where she shouldn’t have been. After the requisite spending of cash and performance of an expert medical technique (aka induced violent projectile vomiting), from this one we recovered 2 pairs of underwear and a sock. No rocks.

Stupid dogs.

Do I have my sources or what? Triple Point issued a press release today confirming that their new deal in Germany is, in fact, Evonik. According to the press release, it was a joint Triple Point/SAP deal, with Triple Point contributing Commodity SL. The PR says that Evonik will be using the system to manage coal, frieght, and carbon.

At CommodityPoint, we recently closed out our most recent survey, part of a study to examine the impacts to market participants of the recent melt down in the financial and commodities markets. We were able to capture the views and experiences from traders, utilities, producers, hedge funds, and many others around the globe, with responses coming in from Asia-Pacific, South America, Europe and North America.

We’re just finishing up collating and analyzing the data (thus the lack of blog updates this last week). We’ve got some great stuff here and, no question, the final report will provide some significant insights into the markets.

So, to address the title of this posting: What do you think the number one issue is for market participants right now?

Actually, it’s not much of a surprise given the volatility and downward spiral of the markets. The number one issue in virtually every segment of the market is being able to conduct appropriate risk management given the circumstances we find ourselves in. Again, not much of a surprise. However, things do get a little more surprising when you start to examine the issues that rank right behind “risk management”. We’re seeing some pretty significant differences in terms of current impacts and future outlook when we compare North America to Europe. Falling market liquidity, for instance, while high on the list for all market participants around the globe, has a much greater urgency for those in the European markets, while changing credit and collateral requirements are a significant hot button issue in North America, but less so in Europe…

We’ll be examining these regional differences and drilling into the impacts on the specific market segments. The results should be of great interest to anyone looking to better understand the current and future issues that are causing lots of sleepless nights in this industry. We’ll have the report available around the end of the month.

I recently had a chance to talk with Simon Crisp, Senior VP of Operations Solutions, and Jolene Wolf, Ventyx’s Product Manager for their ETRM solution.

As you of know, Ventyx has grown in the ETRM space through the acquisition of Global Energy and NewEnergy Associates. When we last spoke, the company had indicated that they were committed to focusing on their efforts on NewEnergy’s Monaco solution as the “go forward” ETRM product and building out its capabilities in order to remain competitive in the energy markets.

Since that conversation, the company has undergone some significant management changes. However, according to Simon and Jolene, they continue to be dedicated to expanding the capabilities of their products and are making significant investments in the area of asset risk analysis, an improved trader desk-top (deal capture), and in improved integration to their market data warehouse application.

Additionally, while they continue to pursue business in the wider ETRM markets, they feel their capabilities in servicing asset-centric companies really differentiate them. Given their breadth of applications for utilities and generators, along with their domain knowledge in that space, they should clearly be considered on any short list for those asset heavy operations looking to find a single vendor to service the entirety of their operations.

A few unannounced deals to close out 2008 and to kick start 2009.

Triple Point is continuing to rack up new business with their SAP relationship yielding yet another new Commodity SL customer. Not confirmed, but it appears to be Evonik, formally known as RAG. In North America, they have confirmed that their Inssinc acquisition continues payoff in terms of new clients; this one is a Southwestern utility who has purchased their hedge accounting product.

SunGard appears to have locked up a couple of new customers in the last couple weeks. A good-sized Midwest municipal has purchased Zainet along with SunGard’s new Java-based version of ACES and also GTM for gas operations. According to what I hear, they were able to close the deal based upon a good showing for their newly deployed integration strategy. It also looks like they closed a fuels management deal with a very large generator in Australia.

All in all, a good finish and a good start.

This looks like a winner…as they say, “everything is just a few hundred clicks away” - just like a few old ETRM systems I had to deal with in the past.

UtiliPoint® International, Inc. (UtiliPoint) today announced the launch of CommodityPoint, a new global division focused on providing Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. CommodityPoint's services are designed to provide insight into business issues, trends, processes and technology; enabling energy companies, banks, brokers, funds, investors, utilities, and vendors to enhance their competitive position and support critical business decisions. More details about CommodityPoint's offerings, including research programs, capabilities, and sevices, may be found on its website at www.commodity-point.com.

The new CommodityPoint division will be headed by two seasoned analysts in the field in Dr. Gary M. Vasey (Europe) and Patrick Reames (North America) and supported by a research and marketing staff based in its Brno, Czech Republic office, with additional support from UtiliPoint’s experts accross the US. CommodityPoint will consolidate the UtiliPoint Trading & Risk Management and Commodity Markets practices and will be well positioned to provide global perspectives and reach from its Houston, Texas and Czech Republic locatons.

"As we have grown the UtiliPoint presence in Trading & Risk Management both in North America and in Europe, our clients have asked us to entertain the broader commodity markets as many times the research and analysis we are doing applies to both, not just the utility or energy aspect of the industry," said Jon Brock, President & COO of UtiliPoint International. "Combining the seasoned experience of both Dr. Vasey and Mr. Reames to be focused on Commodity Trading & Risk Management is a welcomed move not only for our clients, but also for the market as a whole."

CommodityPoint will continue to conduct market leading proprietary research, covering not only energy, but also the wider commodities markets; the results of which will be leveraged by the group’s analysts in the provision of expertise market analysis and other services.

"Energy trading has merged with other commodities over the last year or so and we believe that our focus should now be on the broader commodity trading arena albeit with a strong continuing energy emphasis," said Dr. Gary M. Vasey. "ComodityPoint will afford us the ability to be more focused on global commodity trading and risk management issues as we seek to build a world class brand for premier analyst and consulting services for our current and future clients."

“CommodityPoint is a reponse to our customers’, and the market’s, need for a more holostic view of wholesale commodity trading. Energy trading and risk management has, for many, evolved into commodity trading and risk management,” said Patrick Reames. “Combining the skills and assests of our two practice areas will afford Gary and I the opportunity to better service our exisiting clients and meet the needs of those in the market seeking to better understand the trends and issues they’re facing as they move forward in a very dynamic, and increasingly globalized, market.”

About CommodityPoint
CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc. CommodityPoint provides Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. Our services bring insight into business issues, trends, processes and technology, to energy companies, utilities, banks, brokers, funds, investors and vendors, enhancing their competitive position and supporting critical business decisions. CommodityPoint has been formed to bring focus and clarity to the broad array of issues surrounding the wholesale trading of commodities. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. Our principal analysts, Dr. Gary Vasey and Patrick Reames, bring years of practical experience to their roles. With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace.

About UtiliPoint® International, Inc.
UtiliPoint is a leader in providing analysis and consulting services to the energy and utility industry. Our 76-year history and over 500 clients worldwide have led us to currently operate as an energy and utility consulting and issues analysis firm. Our staff is comprised of leading utility and energy experts with diverse backgrounds in utility generation, transmission & distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs, and international issues.

As we put 2008 behind us and look forward to better times in 2009, I thought I’d point out a few companies that I’ve visited with over the last year that have either 1) have been around a while, but have kept below the radar or 2) are just now emerging onto the market. The thing they have in common (based upon what I’ve seen, heard, or had other personal experience with) is they all have great potential to make significant moves in 2009.

I had the opportunity recently to engage with International Commerce (ICI) on a system selection project that they’re working on. Two of the principals of ICI that I worked with, Ed Bell and Dunham Cobb (names that should be familiar to many in the industry), demonstrated terrific professionalism, great project leadership, and brought with them a thoroughness in execution that was very impressive. While the project is underway and moving to the next phase, I can’t provide much in the way of specifics; however, I will say that based upon their performance in this engagement, they should have a very satisfied customer. Given their experience, intellectual horsepower and quality deliverables, I would say that these guys should be well positioned to see much success in 2009.

In August of this year, I posted my thoughts about Paragon Consulting, lead by Jason Wells and Kevin Gerold, and their new credit risk product, Vanguard. At the time, they were just bringing their system to market. While I haven’t had the opportunity to catch-up with them recently to get an update, I do know that they have been demo’ing the system and have been receiving good reviews. Based upon what I’ve heard, their system is solid, competitive, and if the market for credit risk doesn’t tank (very unlikely it will), they should be closing several new deals in the coming year.

I recently met up with Eivind Johnsen, the president of Entrion. Eivind’s company has been working with a couple of energy clients to develop a web delivered solution for VAR. The product they’ve developed, which they’re calling Pro-Fin Risk, is currently configured to address the needs of smaller organizations that require a VAR model, but don’t have the need for the higher end analytics, modeling and simulation found in most risk products. I got a demo of their product and it looks like a very good solution for that market. Again, web-delivered with easy connectivity to client data, a clean, simple front end and price point that should position them well for those smaller shops. I think there is a market for this type of product and they seem to have put together a solid offering.

And finally, DMS - Data Management Solutions. DMS has been around for more than 15 years, founded and lead by Frank Pena. Frank has been a gas professional for decades and developed his product, GasPro, to address many of the issues faced by the industry, particularly in the area of gas accounting. I’ve demoed the product and spent quite a bit of time with Frank. The more I see of this company, its products, and its leadership, the more impressed I am. The company knows its capabilities and is not trying to be everything to everyone. Frank has been very clear that his goal is to service the needs of physical gas players and is not interested in trying to grow his company by branching out into areas that don’t fit their expertise. That philosophy, while not generating a huge customer base across diverse industries, has generated some significant sales over the years and created a highly referencable client base. And while they’ve been around for 15 years, they’ve chosen to remain somewhat below the radar, relying on relationships to sell their products. I’ve seen indications that the company will be raising their profile in terms of sales and marketing, and I suspect as the natural gas market learns about DMS and GasPro, things could get very busy, very quickly for Frank and his team.

SunGard Energy just issued a press release identifying TaTa Power Co, Ltd. as the new India based deal that I mentioned a couple of weeks ago.

From the press release…

Tata Power Trading Company Limited (Tata Power Trading), part of theTata Group of companies,
has selected SunGard's ZaiNet to help it streamline and automate its power trading operation and
support its plans for continued growth in India and beyond. Tata Power Trading selected SunGard
because of its global experience in power markets and ZaiNet's ability to be configured to the unique
requirements of the Indian energy market. Integrated with the new India Energy Exchange (IEX),
SunGard's ZaiNet will support Tata Power Trading's trading on the exchange as well as its bilateral
trading with counterparties in India.

This is a good win for SunGard and ZaiNet. TaTa is a huge company and their power trading group is a significant player in the emerging power market in India. Given SunGard Energy’s presence in India (125 employees in Pune) and the fact that the country’s power market is now starting to find traction, this win clearly positions SunGard well for follow-on sales in the region.

Last week, SunGard also identified North America Energy Credit and Clearing Corporation (NECC) as a recently signed, and now implemented, ZaiNet customer. NECC offers credit and clearing services for gas deals at more than 40 points in the US, and for power trades at ERCOT, CAISO, PJM and ISO-NE.

December 16, 2008

By Gary M. Vasey, Ph.D.
General Manager, Europe

Recently, UtiliPoint launched an online directory of Commodity Trading & Risk Management software vendors and service providers (www.trmdirectory.com) to accompany our existing Directory of ETRM Vendors and Products subscription service. The idea behind the online directory is to provide a single and definitive list of providers for those seeking CTRM software or services. The Directory features quite a lot of functionality to search for vendors and services by categories or by name and provides some basic information along with a direct link to that provider’s web pages.

We have and will continue to add new categories to the directory including “publications” and “conferences and tradeshows” and will populate them accordingly to make this a one stop source for information about the CTRM software space. We are also using the comments feature to post short snippets based on news announcements made by vendors too to add some additional useful information to the site.

UtiliPoint’s on-going research into areas such as vendor perceptions has informed us that many prospective buyers lack up to the minute information about vendors and products. The CTRM software landscape changes very rapidly and due to the heterogeneous nature of software requirements, actually supports many more vendors than perhaps might be realized. By providing the TRM Directory online, UtiliPoint hopes that prospective buyers of such software have a definitive and central source to research the vendor space.

In our book, "Trends in Energy Trading, Transaction & Risk Management Software - A Primer" we provide both a historical perspective and a lengthy explanation as to why there are so many vendors in the space. In a nutshell however, the physical aspects of moving and managing various energy and other commodities in regional markets adds a good deal of complexity while the reporting needs related to the different assets employed in the business at different locations adds another layer of complexity. For those and other reasons, it seems that there is room for niche vendors that can provide a best-in-class approach to a particular piece of functionality.

Indeed, new vendors continue to emerge. Recently, UtiliPoint talked to a UK-based vendor, Contigo, about their new products aimed at communication and trading in UK and European energy markets. Contigo started out in 2006 developing custom software but now have three off the shelf products available and are already signing clients in the UK gas industry.

I have already written an IssueAlert article about Hyperrig, another new UK-based vendor who’s approach has been to look at things in a different light and bring to the market a platform that both offers the ability to integrate your current software components as well as add a whole new dimension to risk analysis including pre-trade VaR and other calculations. Hyperrig isn’t necessarily a replacement for your existing Trading & Risk Management solution, though potentially it could be. Hyper Rig is a technical framework that can be added to your existing set up, complement it and enhance it. As such, the architecture has been designed to include features such as orchestration, exceptions management and audit, messaging, integrated security, automatic failover, monitoring, load-balancing, virtual computation-grid and data quality management.

Just a year or so ago, I also wrote an IssueAlert article about Abacus Solutions and its new SATURN software product which we believe is tailored to asset-centric trading operations and also brings a new dimension to risk management. SATURN has its focus on “solving the Integration problem,” according to Dr. Salim Jabbour, founder of Abacus. “True Integration goes beyond linking a bunch of systems; it involves removing unnecessary redundancies and offering a common scalable platform with broad analytical functionality,” he adds. The focus on the physical side of the business puts SATURN in the “Asset ETRM” software space (an expression I coined last year in IssueAlert article to point out that for asset-heavy entities, many ETRM systems lacked certain functions such as asset optimization, bid to bill functionality, real-time trading and market modeling). The software was designed to analyze production, capabilities, requirements, revenues, costs, profits and risks for a portfolio of assets and contracts and to facilitate decision making, transaction management, data analysis, and compliance with regulatory requirements.

There are other new vendors bringing to market new innovations and products to complement the existing CTRM vendor and product landscape quite frequently. Meanwhile, the existing vendors are not standing still either. Triple Point has made several acquisitions over the last year including ROME and INSSINC adding functionality in credit management, fair value accounting and hedge accounting to its platform or as stand-alone modules to integrate with other CTM software. SolArc, SunGard, OLF and Allegro have also been busy while Navita has been consolidating its ground in Europe after its acquisition of UK-based AESL and has signed several new license deals during that period.

In short, the CTRM software space is a complex and highly dynamic software niche and it is difficult to keep up with all the changes taking place there. Hopefully, the TRM Directory will become your online source to keep up.

Triple Point just announced a couple of new European deals, Nidera and SOCAR. Additionally, there is another that was just signed, but is yet to be announced.

Gary Vasey, over at the UtiliPoint Europe Blog, looks at the new activity in some detail.

One of those posts that has little to do with energy, just something really interesting…

This thing is a Multiple Kill Vehicle - L (MKVL) that has been developed to be taken aloft in a rocket and released in the path of re-entering nuclear warhead. It tracks the warhead and drives itself into it. This is a test of the latest version conducted a couple of weeks ago. Or at least I hope that’s what it is and not a preview of the latest weapon to be deployed by our newly arrived alien overlords…

I recently had the opportunity to spend some time with Alan Gunn, Kiodex’s SVP of Sales. As many of you may know, Kiodex, now owned by SunGard, has its roots in the energy commodity space and continues to close business there. However, the company really took off when the banks, hedge funds, and other financials looked to them to help manage a broader portfolio of commodities. Additionally, industrial commodity consumers have also become a significant market for their product, Kiodex Risk Workbench, evidenced by the recent announcement that George Weston Foods has decided to subscribe to Kiodex to help manage their commodity hedging program, including both agricultural and energy products. According to Alan, a key differentiator for Kiodex in the George Weston deal was that Kiodex was able to bring the commodity appropriate models incorporated in their system along with all of the necessary data to facilitate a quick implementation.

He also pointed out that there are a number of other multi-commodity companies, like George Weston, using Kiodex, including market makers like MF Global, the traditional coffee sugar and cocoa company ED&F Man, and FC Stone which provides ags, energy and soft derivatives to a wide variety of market players. Other recent successes he mentioned include a couple of building material companies; LaFarge, the large French conglomerate and one of India’s largest construction companies, Larsen and Toubro (L&T).

Even though their roots may be in energy, Kiodex is clearly enjoying solid success serving a wide spectrum of customers across a wider spectrum of commodities.

An UtiliPoint IssueAlert

By Patrick Reames
Vice President, Trading & Risk Management

When energy trading and risk management (ETRM) software first appeared in the post FERC 636 era, the applications were built around the best available technologies of the day--client server architectures, relational databases and Visual Basic or PowerBuilder front ends. These applications were suitable for the times, sitting on an internal server and running over the client company’s internal network. The data and the program itself stayed within the physical confines of that company’s business.

Following the client server phase, new technologies came into vogue, like n-tier and Service Orient Architectures (SOAs), and Java and .Net, offering the promise of improved performance, improved ability to integrate with other applications, and, perhaps more importantly, the ability to deploy the applications directly over the internet, enabling what has become known as “Software as a Service” or SaaS.

Using the Web for Energy Transactions

For energy companies, the advent of the Open Access Same-time Information System (OASIS) and the development of the RTO markets in the mid 1990s essentially forced a broad acceptance of web-based transaction exchange. The standardization of OASIS functionality (and later, the mandated use of e-Tags) meant that companies operating in the markets had to accept that doing business in those markets meant using the internet to communicate with their business partners.

Still, there remains some resistance in trading shops to the idea of transmitting critical and proprietary data to an offsite server not owned or controlled by that company. Some organizations continue to hold the perception that someone could hack-into that third-party box, access the database and read or corrupt their critical data, crippling that data owner’s business. What’s not readily recognized is that the servers within most of the trading shops today are probably less secure than those sitting in a hardened data center operated by a SaaS provider that has developed the operating protocols and security measures necessary to legitimately operate in the space. Today, particularly for critical industries such as power generation and transmission, data center cyber security and protection is a top priority. The proper certifications, such as SAS 70, and compliance with industry standards such as the NERC CIP Standards, provide assurances for SaaS customers that their data is secure and that their system will be readily available.

Today, the Intercontinental Exchange, ICE, is the largest energy commodity exchange in the world and all its transactions are conducted via the web or via virtual private networks to its own data centers. Given ICE’s ubiquitous use by virtually all trading companies, it’s increasingly difficult for holdouts to make the argument that Web-based transmission and third party storage of sensitive data is too risky to employ.

With energy markets’ participants increased exposure to web-based technologies, such as ICE, more and more are accepting of SaaS solutions for their critical business software. In our market research, UtiliPoint has seen annual double digit growth in the SaaS ETRM markets over the last several years, and we are forecasting that growth to continue, even in an otherwise potentially slowing market.

With the acceptance and adoption of SaaS solutions, companies are finding numerous advantages in relieving themselves of the burden of housing and maintaining these critical applications. Amongst those advantages:

- Limited or no hardware investments
- Reduced maintenance costs
- Standardized XML based integration points yielding potentially faster implementations
- Nearly transparent product upgrades-reduced cost, time, and pain

While SaaS does provide a number of benefits, it’s not without its perceived drawbacks. In particular, if a company wants a highly customized solution to fit a particularly unique business process, maintaining those customizations in a hosted, web-delivered system has the potential to erode the value of the model.

OATI--THE SaaS Success Story in Energy

While almost all ETRM vendors will advertise their ability to deliver their applications via the web, only a few have architected their products specifically for SaaS delivery. In fact, most will utilize a technology such as Citrix to “Web enable” their products.

One of the earliest solutions companies to adopt the SaaS business model for product development and delivery was Open Access Technology International (OATI). With the opening of the RTO markets, the deployment of OASIS in the transmission markets and the evolution of e-Tagging, OATI, founded in 1995, began providing the technologies and products required by market participants. The company’s web based solutions quickly became the standard for the vast majority of regional power market participants.

Since that time, the company has grown to be one of the largest players in the energy technology space (and the largest vendor of dedicated SaaS energy solutions), providing products in energy trading and risk management, NERC compliance, congestion management, transmission management, and smart grid development and management. However, despite their breath of solutions, there’s a chance you may not have heard of them as the company has accomplished all that it has without much investment in marketing. As they will readily admit, they’ve historically relied more on word of mouth to sell their products, believing that success breeds success, and apparently it has.

Despite their low profile in the market, the list of accomplishments for this company is impressive. Consider these facts:

- The company has over 650 active customers for their various products
- They handle over 96 percent of the e-Tagging in the North American market
- They’ve deployed their RTO market solution 116 times
- They’ve deployed their ETRM solution at more than 65 companies
- The company has over 80 percent of the Transmission Providers utilizing their transmission management, scheduling and OASIS solutions.

As Jerry Dempsey, OATI’s vice president of sales and marketing says, “We’ve focused our efforts on building an organization that is 100 percent dedicated to providing the highest value to our customers by utilizing the best available technologies to solve extremely complex business problems. We know that by delivering on that strategy, the market will be there for us.”

“The SaaS model has proven very successful in delivering on that strategy. Our customers have been able to achieve superior value on their investment and are assured that the products they are using will always be up to date with the ever changing energy markets.”

According to Mr. Dempsey, while OATI’s products can be delivered on servers located within their customers’ facilities, in almost all cases customers have elected to use OATI’s dedicated hosting facility. “For clients that want a more customized solution, even for some very large customers, we’ve been able to demonstrate that our SaaS model can provide that uniquely customized solution in a fully hosted environment. It’s the same effort whether the system is hosted or delivered. Customers recognize the benefits of a SaaS model. Yet some customers do elect for a delivered solution over a hosted solution mostly due to lack of experience of SaaS or the strong desire to simply retain the solution within their own facilities.”

OATI’s hosting facility is one of a kind for an energy solutions vendor, providing not only application hosting, but also managing almost all of the thousands of e-Tags that are transmitted every day in the North American power markets. In all, their data center manages over 80 terabytes of data on a daily basis.

I recently had the opportunity to visit the company’s headquarters in Minneapolis and tour their data center, which, from the outside is a rather unassuming building on the west side of the city. However, as you pass through a very robust security process, the unassuming label quickly drops away. OATI is very serious about their facility and have built a state of the art data center by essentially constructing a hardened bunker within the building, one equipped with its own utility feeds and back-up systems, operating independently from the outside facility.

“Our data center is the heart of our business. Our customers, including most of the power industry, rely on us to ensure that their data is safe and their business critical applications are available. We are constantly working to ensure that our facility remains state-of-the-art and is the most secure and reliable in the market. We’ve worked hard to maintain SAS 70 and NERC CIP compliance, and we take pride in that we are the only energy technology vendor to have achieved that compliance with their own 100 percent dedicated data center,” said Dempsey.

Good News for Other Vendors

For vendors of SaaS products, OATI’s story should be heartening, for it clearly indicates the growing acceptance of internet delivered solutions in the energy markets. Their continual success in selling, deploying, and maintaining SaaS solutions is one of the most persuasive arguments in tearing down perceived barriers to web-based ETRM products.

There have been rumors in the market recently that ConocoPhillips had signed a significant new contract with Triple Point. I had the chance to talk with Peter Armstrong, Triple Point’s president and CEO, recently and he confirmed the rumors with the following statement, "ConocoPhillips, a long-time customer of Triple Point, has just licensed additional components of the Triple Point platform for natural gas, power, and LNG trading and risk management and also for power scheduling."

While he indicated that he wasn’t at liberty to provide any additional details, he did say, “Obviously we’re very proud of winning this business. Deals of this caliber are the best validation of our multi-commodity strategy - a strategy backed by product excellence and superior technology.”

It’s clearly a big win for the company. Following on from the (still unannounced) Cargill deal of a couple of months ago, this win would seemingly position Triple Point well for another record revenue year, despite what is for many vendors, a difficult market.

To borrow a visual from my one of my more exciting experiences as a truck driver in the oil fields, ERCOT’s Nodal restructuring project has slid off the road and landed firmly in the ditch with the dirty side up and the wheels spinning.

In a press release sent out the day before Thanksgiving, ERCOT said, “The Electric Reliability Council of Texas (ERCOT), grid operator for most of the state, submitted a preliminary schedule and budget for the nodal market implementation to the Public Utility Commission today with a new "go live" date of December 2010 and a cost estimate of $660 million.”

The $660 million is a more than doubling of the current budget of $319 million, a number that was increased from $263 million at the start of 2008. If the new number is correct, it will add $.38/megawatt-hour to the cost of power in Texas. According to ERCOT, they’re currently working on a cost/benefit analysis to make sure it still makes sense to proceed.

One rumor from a fairly informed source says that ERCOT is contemplating junking the current project for one of two options - 1) start over from scratch or 2) buy a model from one of the other ISOs that has already implemented a nodal market and try to make that work.

The rumors of the troubles at ERCOT have been swirling around for several months. Apparently there have been ongoing and serious problems with the software behind the common information model (CIM), with missed delivery schedules and poor quality code. Additionally, the program has not been able to retain quality resources due to lack of appropriate compensation, especially for the level of experience and skill that they need to make the project successful.

From what I’ve heard, many of the contractors and vendors involved are heading toward the door at the end of the year, throwing their hands up in frustration with the mess.

Consider for a minute the proposed new budget and timeline. Since the start of the program in earnest, let’s say June 2006 when they first awarded contracts to vendors, and according to ERCOT’s latest status report, they’ve spent right at $300 million through September 2008 - that’s 27 months. Now they are proposing spending an additional $341 million in the next 25 months. Based on those numbers, the rumor that they will blow up the project and start over with something different sounds pretty much spot-on.

Note: Here’s a sneak preview of an upcoming announcement about a new website we’re launching. We are continuing to enhance and refine the listings, so if your company is not listed and you think it should be, or if you have any other feedback, just drop me or Gary Vasey an email, or you can go to http://www.trmdirectory.com/contacts.php and leave a note there. PR
__________________________________________________________________________________________

For Immediate Release

Albuquerque, New Mexico--December 1st, 2008--UtiliPoint® International, Inc. (UtiliPoint) has created a a new online directory of commodity trading & risk management software and service providers at http://www.trmdirectory.com. The TRM Directory is designed to be the premier source of provider information for commodity trading and risk management software and services for those seeking to procure software or services. The site is maintained by Dr. Gary M. Vasey and Mr. Patrick Reames of UtiliPoint International, Inc.

"The new directory is easy to use and offers a fast and convenient tool to find software vendors and service providers across any number of categories and search criteria," reports Dr. Vasey. "The directory will be linked to our other sites and blogs to make it even easier to find."

The directory lists software providers in categories ranging from “Commodity Trading & Risk Management Systems” to “Pipeline Management Systems” and draws its information from the UtiliPoint Directory of Trading & Risk Management Vendors and Solutions which continues to be available as a subscription service and contains additional vendor information, including deal detail. That directory may be found at http://utilipoint.com/rci/details.asp?ProductID=1084.

"We’re excited to bring this enhanced tool to the market. The TRM Directory website is just the first of many new products and offering that we will be rolling out over the coming months. We believe these new capabilities will provide tremendous value for both the buyers and sellers of commodity trading and risk management solutions and services.” said Patrick Reames of UtliPoint International, Inc.

About UtiliPoint® International, Inc.
UtiliPoint is a leader in providing analysis and consulting services to the energy and utility industry. Our 73-year history and over 500 clients worldwide have led us to currently operate as an energy and utility consulting and issues analysis firm. Our staff is comprised of leading utility and energy experts with diverse backgrounds in utility generation, transmission & distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs, and international issues.

UtiliPoint International is offering a limited time savings of 25% of many of our key ETRM market research reports. These savings are good only until December 31, 2008. For more information, or to purchase online, click on the links associated with each report.

2008 North American ETRM Market Analysis and Sizing Report
This study provides the latest analysis of the trends impacting the market for ETRM software in North America, and provides a quantitative analysis of the size of that market. Included in this report is an expanded examination of market forces and trends impacting market players and the providers of ETRM solutions and services.
Price: Regularly $2,495.00, Limited time price $1,875.00
For more information, or to purchase this report: http://www.utilipoint.com/rci/details.asp?ProductID=1173

European ETRM Integration Survey Results
This report provides a view of the levels of maturity of the different application areas around trading & risk management in Europe. For completeness, data has also been utilized from other UtiliPoint reports including the 2007 Benchmarking of European ETRM Software study, and the 2005 North American Gas Company study.
Price: Regularly $2,495.00, Limited time price, $1,875.00
For more information, or to purchase this report: http://www.utilipoint.com/rci/details.asp?ProductID=1164

European Markets for Energy Trading, Transaction and Risk Management (ETRM): Market Size and Analysis
This study utilized both top-down and bottom-up proprietary analysis techniques to establish the European market size for ETRM software license sales in 2007 for all energy commodities. The final report details the ETRM market size by a number of parameters.
Price: Regularly $995.00, Limited time price $750.00
For more information, or to purchase this report: http://www.utilipoint.com/rci/details.asp?ProductID=1152

ETRM Software Implementation Projects--Snapshot Survey Results
This report looks at ETRM project duration and costs, project activities including integration, enhancements, data conversion and training, the use of third-party consulting firms in implementation, respondent’s ETRM Implementation project experiences, project success rates and approach to training. While the quantitative metrics provide good data points for ETRM Implementation project managers, it is the lessons learned section that may provide the most value to report readers.
Price: Regularly $499.00, Limited time price, $375.00
For more information, or to purchase this report: http://www.utilipoint.com/rci/details.asp?ProductID=1149

Benchmarking of European ETRM Software Markets
This report details the findings of the breakthrough survey of European users of Energy Trading, Transaction and Risk Management (ETRM) software including ETRM vendor brand recognition in Europe, perceived European ETRM market leaders and why, installed base among respondents, what European buyers want in a new ETRM system, replacement rates and procurement rates in 2007 and beyond, and a comparison with North American ETRM buyers.
Price: Regularly $995.00, Limited time price, $750.00
For more information, or to purchase this report: http://www.utilipoint.com/rci/details.asp?ProductID=1142

It appears that SunGard Energy has chalked up another victory for ZaiNet with a major player in India. While SunGard is saying no comment, it appears the deal could be a sizable one…

I’ve talked to a number of the leading vendors of ETRM systems in the last few of days and most are reporting the market for new systems isn’t dead, but it has started to get a little lethargic. These software companies are saying that while their sales pipelines are healthy, they are having trouble pushing some deals to closure. Given the current credit crisis and overall lousy economic conditions, it’s really not surprising that many of the buyers are slowing down, reluctant to make a multi-million dollar commitment on new software.

This is particularly true of what we call around here the “asset heavy” companies, those that rely on physical assets (such as producers, generators, and pipelines) for the bulk of their revenue streams. These companies rely heavily on the capital markets for much of their growth and operations. Given the recent market meltdown, it’s to be expected that they would be proceeding cautiously when contemplating a significant new investment.

While many of the utilities we deal with have indicated they are reducing discretionary spending and are cutting many budgeted projects, oil and gas producers are being even more cautious as they are faced with rapidly declining values for their products. With crude trading below $50 today, and natural gas off more than 50% from its highs of just a few months ago, these producers are cutting back and are having to revisit their 2009 budgets which were developed based on the assumption that oil would remain at least $75/bbl.

It won’t be surprising if many of the deals that have been in negotiations over the last few weeks don’t make it to closing until after the markets find the bottom, which hopefully will be very soon but probably not until sometime in the first quarter of the new year.

As many of you may know, we are in the process of conducting research into the impacts of the recent and ongoing market shifts on companies participating in the evolving commodity markets. We received very good response so far and a preliminary review of the data is providing some interesting, albeit, early insights into the current state of the markets.

As one might expect with the recent loss of the banks and other trading firms, liquidity is being impacted. However, so far, the data indicate the impact may be larger than some had anticipated. Again, though the results are still coming in, the trend is clear…

We are continuing to collect data for what will be a very interesting and illuminating study of the market. If your organization is active the in energy commodity markets and you have the opportunity to participate, please click below. It should only take 5 to 10 minutes to complete the survey and your responses will be kept confidential.

www.utilipoint.com/2/Commodities2008/

An article in the Telegraph.co.uk paints a disturbing picture of the scientific bodies tasked with monitoring global temperatures and advance of “global warming”. The article, found here, points out some very serious flaws with a recent release from NASA’s Goddard Institute for Space Studies (GISS) in which they declared that this most recent October was the hottest on record. The only problem was that just about every geographic region in the world was reporting lower than normal temperatures and, in some cases, record snowfall. Ultimately, it took a couple of “non-official” websites to sort out the mystery of the obviously incongruent data. Seems the GISS model repeated September temperature data from Russia in what should have been obvious mistake. It appears that Dr. James Hansen, the head of GISS and a close ally of Al Gore, was more than willing to accept an obviously ridiculous result from his model as long as it supported his case.

As the Telegraph article points out...A GISS spokesman lamely explained that the reason for the error in the Russian figures was that they were obtained from another body, and that GISS did not have resources to exercise proper quality control over the data it was supplied with. This is an astonishing admission: the figures published by Dr Hansen’s institute are not only one of the four data sets that the UN’s Intergovernmental Panel on Climate Change (IPCC) relies on to promote its case for global warming, but they are the most widely quoted, since they consistently show higher temperatures than the others.

Spam, the “potted meat product” of choice for survivalists everywhere is apparently in such demand that its maker, Hormel, is having a hard time producing enough.

I guess I’m going to be forced to load up on Vienna Sausages when stocking my own bunker. Apparently you can still get other “potted meats”, such as Underwood Deviled Ham Spread, but having been forced to eat it as child (including as an ingredient in grilled cheese sandwiches), I think I would rather join my dog in eating rocks. I haven’t had that stuff in more than 30 years, but I swear I can still taste it.

I had the opportunity to meet with the SunGard Energy executive team yesterday to get an update on their product strategy and development progress.

While I think SunGard would be the first to acknowledge past difficulties in reconciling a wide and sometimes conflicting product line, what I saw yesterday was an organization that’s operating in lockstep internally and has been executing on a broad strategy to better position their product offerings. Though I’m not at liberty to disclose too much ahead of their announcements planned over the next couple of months, I will say that they have made substantial progress on their previously announced plans to fully integrate their various individual products into a comprehensive solution for the multi-commodity, physical and financial, wholesale energy markets. Keep your eyes on SunGard Energy…

It seemed that with their acquisition by ICE, Yellow Jacket had gone very quiet, almost dormant, other than their weather derivatives business. However, this morning, they’ve issued a new press release detailing a new product, YJ Block, which they describe as “an automated block-trade function that supports broker execution and submission of cleared over-the-counter (OTC) natural gas and power trades, as well as ICE WTI and ICE Brent Crude Oil futures blocks.”

According to the press release…

“YJ Block leverages YellowJacket’s instant messaging and real-time data platform already relied upon by more than 150 commercial trading and brokerage firms. This new patent-pending feature helps automate broker negotiation of complex trade strategies by removing the need to enter, verify and submit multiple trade tickets for one transaction.
“YJ Block is specifically designed to create efficiencies for natural gas, power and oil brokers in the options market,” said Jacob Pechenik, Chief Executive Officer of YellowJacket. “The ability to submit customer trades for clearing automatically to back-office systems with a single click allows brokers to spend more time on transactions rather than manual processing.”
YJ Block is currently used by three OTC brokers following a successful beta test. During the initial rollout, YJ Block reduced costly errors by approximately 75% while reducing entry time three-fold. Additional benefits include:
– One-click submission to ICE’s block trade facility, ICEBlock, for all off-exchange negotiated deals, regardless of the number of legs. Typical off-exchange block trades require the submission of each individual leg for clearing;
– Model-driven delta suggestion and leg premium allocation, leading to fewer deals broken while in delta negotiation;
– In addition to more accurate calculation of premium, YJ Block enables faster deal submission and less paperwork for brokers and the back office;
– Straight-through processing of executed trades directly to broker and customer back-offices, replacing previously manual trade processing;
– Fewer costly errors and trade busts; and,
– Real-time risk management for traders, compared to delayed or end-of-day trade entry, reducing operational costs and multiple ticket entry for brokers and traders.
YJ Block features free real-time front month Henry Hub and ICE WTI Crude futures prices. ICE is offering additional broker rebates on natural gas trades submitted for clearing via YJ Block. More products and enhancements will be added to YJ Block in 2009.”

It’s encouraging to see that ICE is pushing ahead with Yellow Jacket’s technology. However, I still hope to see YJ expand their IM-based trading tools into the wider peer-to-peer physical OTC natural gas and power markets, allowing physical traders to automate and integrate IM-based trades between their industry trading partners. Unfortunately, given that doing so may pull some trades off the ICE platform, I don’t think it’s going to be a priority.

Still for broker executed and cleared options trades, it looks like YJ’s technology is being put to good use.

A couple of weeks ago, my associate Gary Vasey and I were in Geneva to attend EMart, the energy trading show. We stopped by one of the local bistros for lunch and were soon joined in the restaurant by an elderly couple and their friend. They all sat together at a table next to ours, ordered their meal and coffee (with an extra saucer) and proceeded to enjoy a lovely afternoon respite….

Now, I don’t consider myself to be a germaphobe, but dogs don’t wear pants.

Speaking of dogs…funny story…

The younger of our two black labs has, just this weekend, decided that rocks make good eating. The only problem is that they clearly don’t make good digesting. Sometime in the wee hours of this morning, she started firing these golf ball sized rocks out of her “hind quarters” like a canine mortar, coating her crate and the surrounding furniture, walls, floors and rugs with unspeakable substances. Despite the valiant hours-long efforts of my dear wife to clean and disinfect the area, our house may be a total loss, leaving burning it to the ground as our only option.

Prior to drop off at the vet this morning, we’ve scored 3 large rocks and seashell. No telling what else is in there.

UPDATE: After two days, two vets, $1000, and a gastroscopy, we collected another rock and a chunk of plastic; leaving behind what appeared to be a piece of wood…

Quorum Business Solutions, better known as Quorum, is clearly a leader in the upstream oil and gas space. Their TIPS gas plant accounting system has been a mainstay of the marketplace for years. Their products covering land management, division order management, production accounting and other E&P activities have been extremely successful and have fueled tremendous growth for the company over the last decade.

Several years ago they also entered into the ETRM market with their gas marketing application Quorum Gas Marketing. After a flurry of sales, they’d gone pretty quite as far as the product is concerned. However, a couple of weeks ago, they announced a new sale of Quorum Gas Marketing to Mustang Fuel Marketing, an Oklahoma based company involved in gas and oil exploration and production, natural gas gathering and processing, and natural gas marketing.

Does this signal a resurgent push for the product and increased competition in the E&P ETRM market?

UPDATE: And the answer to the somewhat rhetorical question is “yes“. One of the nice things about this blog is that it can help elicit even more information. I’ve heard from an industry contact that Quorum has closed several other unannounced deals for the product this year. Despite not being loud about it in the market, it appears the company has indeed been having solid success with Quorum Gas Marketing.

SunGard Consulting Services is presenting a webinar on “Evolving to a Single, Timely & Accurate Source of Commodities Market Data”

If multiple channels of market data, and their reconiliation, are overwhelming your organization, you should check it out. It will be next Wednesday, November 12th, 2008 at 2-3 pm EST.

For more information, click here.

The election of Barack Obama as the 44th President of the US is clearly a historic achievement and one well deserved as he certainly ran the better campaign.

However, unless you are invested in a favored alternative energy technology like wind or solar, Obama’s election does not bode well for the energy industry. He has not been shy about voicing his views and stating his proposals to “reshape” America’s energy future. Unfortunately, the plans that he’s proposed, if fully enacted, would most likely destroy any hope that America could economically transition to that future.

Amongst his priorities are a return of the windfall profits tax (which will lead to significantly reduced oil production in the US), reinstating the moratorium on offshore drilling, and enacting the most aggressive cap and trade program in the world that would, in his estimation, bankrupt coal-fired generators, not to mention potentially create hyper-inflation as the “skyrocketing” cost of energy ripples throughout the economy, impacting everything from bread to bulldozers. And, despite his push to kill coal as our primary source for electric power, he’s also stated that he’s not a fan of nuclear power and wouldn’t support its expanded use unless new technology can addresses “safety and environmental concerns”.

Should he have the political support in congress to enact his agenda (which, without a constituent uprising, he does), the “old” energy industry in the US is going to suffer greatly. However, the real impact will be on the average citizen who has just recently started to see relief from record gasoline prices. In a couple of years, we are very likely to be nostalgic for the good ol’ days of the summer of 2008.

UtiliPoint International is conducting research to examine the impacts of the recent and ongoing market shifts on companies participating in evolving commodity markets, and we would very much appreciate your input.

To participate in this survey, please simply click on the link below and complete the questions online. The process will likely take around 5 to 10 minutes.

In return for participating in this survey, UtiliPoint will provide respondents with a management summary of the results of the survey when completed. UtiliPoint appreciates your contributing to the industry’s understanding of this important area.

All responses will be kept strictly confidential. To begin taking the brief appraisal, simply click on the following web link:

http://www.utilipoint.com/2/Commodities2008/

If you have any questions, please contact Gary M. Vasey, Ph.D in Europe at +42 0533 433 822 or gvasey@utilipoint.com or Patrick Reames in the U.S. at 713.917.6731 or preames@utilipoint.com

For those that know me, it will come as no surprise that based on current polling data, I’m probably going to be pretty disappointed with the outcome of the election tomorrow. I’ve tried to stay out of the political fray on this blog as much as possible. However, with the quotes by Sen. Obama that have surfaced over the last couple of days (including such things as “…more aggressive (cap and trade) than anyone else’s…”, “…somebody wants to build a coal power plant, they can, but it will bankrupt them…”, and “…under my plan of a cap and trade system, electricity rates would necessarily skyrocket…”), I’m growing increasingly concerned about whether the economy can withstand what’s about to happen over the next several years.

Pricing coal out of the market, potentially resulting in the shutdown of a whole lot of coal fired generators, and pounding consumers with “skyrocketing” costs for energy, and everything energy related, including gasoline and anything produced either directly or indirectly through the combustion of hydrocarbons (I think that would be almost everything), doesn’t seem to be a recipe for economic success in a period of recession.

Of course, we do have a congress that has signaled their willingness to rebate another round of $500 checks to help stimulate the economy…hmmm. Maybe that will go to partially offset the “skyrocketing” energy prices, at least for those that qualify for such a rebate. Or, maybe it will go to help offset the higher taxes that will be paid in the very near future under the plan that originated with a guy in green tights somewhere in the Sherwood Forest…Oh, wait, if you’re one of those paying the higher taxes to fund “tax reductions” to those that don’t pay taxes, you’re probably too rich to qualify for the $500 dollar check…Oh well, I guess you can just pull the money to pay for the higher energy costs out of your 401k…Darn it, I forgot that my 401k has taken a 40% hit in the last few weeks and that going forward, dividends are going to be taxed and capital gains taxes are going up, and there’s always that nasty early withdrawal penality…I’ll guess I’ll just have to cut back on extravagances, like contributing to my 401k and trying to accrue any other type of savings…yep, running up debt on credit cards may be the answer…and I can always work another job. I wonder if the new Civilian National Security Force will have any part-time openings.

Yeah, I’m glad the election is just about over. It’s always better to just get on with it, rather than sit around and worry about it.

This was forwarded to me by blog reader Sean…

Suppose that every day, ten men go out for beer, and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers,’ he said, ‘I’m going to reduce the cost of your daily beer by $20. ‘Drinks for the ten now cost just $80.’ The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share’?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times as much as I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison… ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth man and beat him up. The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Credited to:
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia

While Triple Point has recently released a raft of announcements noting multiple sales of products derived from their acquisition of INSSINC earlier this year; according to the rumor mill, they are not talking about what would be the largest license deal in the history of the ETRM/CTRM market.

According to multiple sources, the company has closed a deal with Cargill to supply Commodity XL to their global trading operations in a transaction that’s valued somewhere in the neighborhood of $20 to $30 million dollars in licenses alone. Again, while Triple Point isn’t talking (”we don’t comment on rumors”), it’s been known for some time that Cargill has been looking to upgrade their systems and has been talking to multiple vendors. If the rumor is true, and all indications are that i