Gero Di Piazza
Accounting practices have come to the forefront of energy company strategy since the demise of Enron. Selecting the right software can reduce risk as well as provide a competitive edge.
In the post-Enron era, energy companies around the globe are extra assertive when dealing with their financial accounts and what software to implement to monitor results. Risk factors are given more attention since Enron’s collapse, and increased wariness has forced power companies to find ways of preventing potential problems by implementing software packages to help them detect irregularities.
Houston-based IT company, SoftSmiths Inc., which manufactures integrated software solutions for energy companies across the US has one such solution. Set up in 1997, SoftSmiths has played a vital role in making transaction management software solutions for electricity companies. Although its services are more suited to asset-based companies that market surplus power, as opposed to those who just trade power, a growing client list indicates increasing demand for its products. Bonneville Power Administration, Indianapolis Power and Light and Northern Indiana Public Service Company have all opted for the company’s services.
As utilities continue to battle with each other in such a competitive – but weakened – market, utilities have turned to companies such as SoftSmiths to give them a slight edge in better managed transactions to facilitate faster settlement for increased profitability and accountability. The reporting features and accountability provided can be useful to companies in analyzing their business transactions, planning for the future and ensuring they are trading in the most profitable and ethical way possible.
Nathaniel Sheik, CEO, SoftSmiths explains how this is done: “In a complex business that processes thousands of transactions per day, capturing, valuing and reporting every aspect of those transactions including their impact on the organization’s relationships and contractual obligations with its counterparties, is critical to success. A seamlessly integrated system will meet the demands for accountability by enforcing business policies and practices, accurate timely reporting and quick decision-making. Risk is not limited to lost opportunities but includes exposures to credit and market risks as well as operational penalties when trying to make decisions without good visibility into critical information.”
One aspect about the company’s integrated software is its flexibility. Its energy software product enables customers to save time by avoiding the task of re-writing software each time business rules change. It does this by weighing up each customer’s diverse challenges and provides a solution suited to how the company operates. “Our goal is to help our customers move to a lower-cost, higher-value electronic business transaction computing model that provides them with a seamlessly integrated end-to-end solution from deal capture to settlement,” notes Sheik.
Figure 1. An Integrated business solution
Its solutions and services automate the manual processes and eliminate redundant data entry, reduce settlement cycles, increase business visibility across the enterprise and help reduce risk for better asset optimization through real-time access to consistent, in-depth, business-critical information.
The company has launched three variations of the industry software that caters for different market participants. The first is the e-Wheel, which is a collection of business-critical, robust and interactive applications designed for regional transmission operators, independent server operators and transmission providers.
The second is known as the electronic tagging portal suite (ETPS). It allows energy marketers to communicate with one another in a manner that is compliant with NERC regulations. The three components of ETPS, e-Agent, e-Authority and e-Approval, enable load serving entities, purchasing/selling entities, generation producers, transmission providers and control area operators to create, verify, approve and manage energy delivery transactions using the Internet as its platform.
Last but not least, assures Sheik, is the e-Merchant. The application is designed to solve practical business problems for independent power producers, load-serving entities, power marketers and large industrial customers by delivering the core capabilities to electronically create, process and manage transactions.
e-Merchant integrates forecasting, trading, portfolio assessment, resource management, scheduling, risk measurement, accounting and reporting to eliminate data errors and reduce settlement time.
Industry skeptics could argue there is no need for software programmes that aid transaction management, but better organization in the first instance within the company. SoftSmiths disagrees, arguing that the tools it provides are ‘must-have’. Sheik adds: “The tools we provide are focused on the backbone of our customers’ business and help them sell, purchase, trade and deliver energy in the most efficient and cost effective way. In a complex business that processes a high volume of transactions per day, capturing, valuing and reporting every aspect of those transactions, including their impact on the organization’s relationships and contractual obligations with its counterparties, is critical to our customers’ success.”
Figure 2. eWheel system information flow
The software aids both opportunities and risk in utility trading operations, turning them into efficiency or profitability. SoftSmiths helps companies optimize the value of their assets and increases internal efficiencies in terms of business processes. In terms of risk, the company’s solutions help energy marketers avoid penalties by streamlining trading operations and creating transparency to facilitate control and scheduling.
Worries about the ever-changing market can be eased as the software has the capability to handle data change, like prices for example, as well as minimizing risks from information sharing. With all these benefits in place SoftSmiths boasts that market participants grow revenues at a faster pace, predictably and profitably by reconciling regional differences, managing complex contractual relationships and providing real-time access to information that gives managers better visibility of current market dynamics.
One of the worries the company says it can eradicate is to prevent potential problems, like the California crisis, from ever happening. Its technology provides information-gathering tools that allow energy traders to have access to real-time information regarding weather, usage and other aspects affecting demand for power. It can be used to facilitate more accurate scheduling in the day-ahead and hour-ahead markets. It is important to remember this is a complicated market driven by many factors.
Sheik explains, “To achieve control, market participants need a Transaction Management Infrastructure that supports straight-through processing in its trade capture, deal valuation, risk measurement, reporting, scheduling, metering and settlement capabilities. As our solutions provide all these capabilities and are so well suited to physical businesses, we expect them to be in even greater demand in the future”
SoftSmiths’ Hugo Stappers, director of sales, follows on by stating: “With FERC’s Standard Market Design and the earlier orders since the deregulation started, companies need to move away from spreadsheets to be able to comply with regulatory and reporting requirements. Also a deal-based culture (As a result of the California crisis, FERC is looking at deal information i.e. what did you buy and sell – not schedules) may not be reflected in existing systems.”
Implementing tools that do not integrate well into existing technologies creates ‘silos’. Instead of waiting until
…implementation to confront silos, the company moulds its products around a customer’s system. For example, SoftSmiths uses e-Link in all its products. e-Link is an XML framework that enables customers to seamlessly integrate back office systems by deploying business adapters for risk management, trading, scheduling, generation, metering and tagging.
Thus, silos are addressed before the solution is implemented. Sheik adds: “A properly implemented automated transaction management infrastructure captures information from across all business units into a single repository, feeding the entire enterprise to ensure that the right amount of power is moved to the right place for the right price. This single source of transaction information imposes rigour and discipline on the information, managing it from cradle to grave and allowing individuals and departments to function as an enterprise rather than isolated islands – or silos.
“We recognized that data processing that relies on having each group enter information into its own systems, manually transfer the information between groups, and then try to make sense of the chaos at the end of the day will not stand up in a marketplace that grows increasingly complex with each new regulatory decision and industry shift.”
Given the uncertainties of such a volatile market, getting hard data on return on investment (ROI) can be difficult. However, one common area of immediate ROI impact is in avoiding penalties. If companies cannot deliver on a contract due to antiquated transaction management systems, it is ‘money down the drain’.
Sheik explains the simplicity of ROI: “If one can envision the benefits of a seamless transaction management system, they know the ROI begins immediately. By deploying SoftSmiths solutions, the customer will achieve measurable ROI through reduced and avoided cost, revenue growth and improved cash flows and increased staff productivity.”
As for the future, enhanced software is scheduled for e-Merchant. For example, the e-Cal Plus will allow users to define sophisticated calculations using a high-level language, and apply those calculations against data such as deals, schedules, load forecasts, actuals, and transmission.