A UtiliPoint IssueAlert
Patrick Reames

Obviously, one of the realities in writing a topical article like those in UtiliPoint’s IssueAlert is that the article represents developments around that topic up until the time the article is submitted by the author. But, as they say, life goes on and new developments emerge. Therefore, I’m taking this opportunity to update and elaborate on a few articles from the last year...
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We discussed the development of the California MRTU and the Texas Nodal market in Evolving Power Markets--Opportunities and Challenges. At the time of its writing almost exactly a year ago, the article noted the forecasted “go live” dates of February 1, 2008 for the California ISO’s market redesign and technology update, and December 2008 for the Texas Nodal market.

As those involved in the California markets know, the CAISO missed their date and had announced a new opening date of October 1, 2008. However, that date has been cast as an “at the earliest” date and the CAISO appears to be struggling now that market simulation testing of their new systems has begun. Those systems have been buggy, with fixes lagging and many critical issues not yet addressed. In a survey of the market participants, more than 40% of them said that the technology was “not on track” and the CAISO is facing significant pressure to delay the go-live even further.

Meanwhile, in Texas, ERCOT announced that they will not be able to meet their December date due to delays in delivery of software from vendors. In particular, ERCOT has said that the delivery and implementation of the Common Information Model (CIM), and its interfaces, is particularly problematic as that functionality is on the project’s critical path. As of their most recent report, ERCOT remains uncertain as to when the software will ultimately be implemented. According to a presentation delivered recently by ERCOT CIO Mark Hinsley, a revised go-live date won’t be available until after their meeting before the ERCOT board on September 16, in which they present their revised plans and budget for approval.
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In the Jan 28, 2008 IssueAlert titled Energy Trading and Risk Management Systems Market 2007 Results, 2008 Outlook, and Customer Implications, I noted:
“UtiliPoint believes that the North American market (for ETRM products) will show growth in 2008, although not at the pace we saw in 2006 to 2007...”

Well, the first half numbers are in and it looks like 2008, while still a good year for many vendors of ETRM products, is showing some slowing. While one or two of the solutions providers will say “we’re having a great year and expect record revenues”, the reality is that for many, the first half of 2008 was weak in comparison to 2007 for sales in North America. Of course, the first half of the year has historically been the slowest for ETRM systems sales, and there’s no reason yet to believe this year will be different. It is, however, becoming clear that unless something dramatic changes, the North American market for ETRM systems in 2008 will show, at best, only a modest increase over 2007. Based upon the results so far, it appears that the best bet for strong revenue growth for ETRM solutions providers will be global product sales, particularly in Europe and Asia.

By the way, if you’re interested in a detailed look at the North American market for ETRM solutions, we will be releasing our latest report on the topic, “2008 North American ETRM Market Size and Analysis”, within the next couple of weeks.
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In the recent IssueAlert titled What is Really Driving the Price of Crude Oil?, Gary Vasey and I looked at the contention that market speculators were driving the large increases in commodity prices. Since the publication of that IssueAlert, I ran across an article published by Jon Birger, Senior Writer for Fortune magazine, titled “The Onion Conundrum”. In it, Mr. Birger examines the market for onions, the only commodity in the US that is prohibited by law from being traded on futures exchanges. The law, passed in 1958, was created at the behest of onion farmers who felt that futures traders/speculators were responsible for falling prices for their crops, despite the fact that new onion farms were bringing additional supplies to market at that time.

So, speculators are banned from trading onion futures...and the result for onion farmers during the most recent round of price turbulence in the commodities markets? As Mr. Birger notes, “Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.”

Certainly, on its own, the onion market doesn’t prove that speculators aren’t responsible for increases across other commodities. However, it is an interesting data point in the analysis.
You can find the Birger article on-line here
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In my article of June 23rd, 2008, Carbon Cap and Trade--The Balancing Act , I included the policy statements of both Barack Obama and John McCain regarding their advocacy of a carbon cap and trade market. Those policy statements were pulled from their websites and, as of this writing, each of those web-based messages remains unchanged.

However, within the last few weeks, Senator McCain appears to be hedging on whether he would seek to impose mandatory caps or not. At a couple of recent campaign appearances, he has begun talking about the possibility of creating a system around voluntary reductions. Again, while the policy statement on his website hasn’t changed, this could signal a shift in thinking and, for potentially affected industries, change the calculus as to whether or not the US will see carbon cap and trade after the election should he ultimately prevail in the election.

Obviously in political campaigns, words are parsed and inflections change to suit the audience (as both candidates have demonstrated on numerous occasions). Unfortunately, given the massive scale, and potential impacts of carbon cap and trade legislation, the sooner those potentially impacted can gain clarity into the future, the better.
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And finally, though not an IssueAlert article, I recently wrote in the ETRMCommunity Blog, this posting, Ranting about Gasoline Prices, in which I discussed, in somewhat colorful terms, the American appetite for imported oil and the perception that US oil companies were gouging the public. Included in that screed was a note that it wouldn’t necessarily be a bad thing if we stayed out of our cars this summer and spent our time closer to home. My not too subtle (and certainly not unique) implication was that unless the US consumers took positive action, including leaving their cars in their driveways this summer, we are going to continue to see high prices.

According to the most recent report from the Energy Information Agency (EIA), Americans have chosen to drive less this summer, as US gasoline consumption is down this month more than 300 thousand barrels per day compared to the same period in 2007. As a result, stocks of gasoline are rising (up about 6% versus last year) and prices are starting to come down, with the average retail pump price in the US falling below $4 for the first time since early June according to figures from the Automobile Association of America.

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