Inside the IT Nerve Center
October 15, 2001
By Carl J. Levesque
Managing
information technology at the ISO, the trading platform, and two merging utilities.
Twelve months
sure make a difference. Or do they? Perhaps not, at least when you're
talking about IT. In spite of an ever-shifting energy landscape, this year's IT
Executive's Forum reveals that at least some IT issues have remained the same.
For example, the issue of unifying a merged company's information systems apparently
won't drop from the radar screen until companies simply stop merging. Also, note
that in its "IT 2000" special supplement, the Fortnightly took a look at the burgeoning
number of new energy trading platforms and examined just how many the industry
could support ("Electronic Trading: Big Bang and Beyond," by Richard Stavros,
July 2000 Supplement). So, after an initial escalation in the number of platforms,
combined with the tribulations of the last year, we've seen the last of the new
platforms, right?
Wrong.
Anil Suri might
be a Johnny-come-lately, but this former risk management consultant thinks he's
got some answers that will serve the industry well with E-lecTrade, self-dubbed
the "world's first anonymous electricity marketplace for highly complex structured
electricity products." What makes E-lecTrade different? Suri tells of how E-lecTrade,
which is focused on the Northeast, is tailored around the concept of "shaped"
power, whereby electricity can be bought and sold with hour-by-hour variations
in price and volume-but in the forward market.
No
doubt, one of the biggest challenges when two big utilities merge continues to
be that of IT. Dede Ramoneda, vice president, IT systems delivery at Progress
Energy, walks us through the successful process laid out by Progress to turn
two companies (Florida Progress and Carolina Power & Light) into one from an IT
perspective. Ramoneda talks about how the IT roadmap was created, and, interestingly,
how the IT arm of the company played a part from the beginning-even before the
merger became final. But no energy story would be complete without a nod to the
West. For a peak inside an ISO in a troubled market, we turn to Daniel Yee,
the new CIO of the California Independent System Operator. Appointed in
July, Yee already knows the ISO well, having the unique background of previously
serving in the same position for none other than the now-defunct California Power
Exchange. Yee compares his first two months at the ISO with his experience at
the PX, sharing what he feels are the ISO's strengths and discussing purpose,
priorities and goals for the future.
Dede
Ramoneda,
Vice President,
IT Systems Delivery,
Progress Energy
"We
basically [created] an approach to put together a technology Integration plan
and then work the plan."
Tell us about the process of the post-merger IT initiative.
IT
was actually involved during due diligence, and had put together sort of a going-in
strategy related to where we wanted to take both the architecture and the applications.
Then as we announced the merger, we formed a series of business teams, and on
each one of those business teams we put an IT rep. So as the business teams were
sorting their business strategies related to work processes and how the organizations
would come together, we actually factored in what would be the IT implications.
Out of that we created
a list of IT initiatives-about 80 of them-and we ran that through a technology
planning exercise, and created a technology integration plan, or a blueprint of
what we needed to do over the next two years. There were three steps to that plan.
One was to standardize-in other words to have Florida move to the same environment
that we had pre-close. The second step of that was then to integrate our architecture
and sort of back office-our data center and network, exchange, mail-stuff like
that. And then the third step was to integrate the business applications that
would ride on top of that.
And
so we are working through that plan as we speak. Within 15 days after close, we
had migrated their data center to ours, we had integrated our networks so that
we could all share common emails. We moved them to the same email system we had,
the same calendaring, office automation products. And then we had launched a re-branding
initiative and as part of that, we did a new Intranet corporate portal as well
as a new external website. So that was all wrapped in the first two phases of
integration. And then, starting first quarter of this year, we integrated our
HR system, the payroll piece, and a bunch of smaller applications have occurred.
Then the next big wave will be towards the end of the year and early to mid next
year, where we'll go to common financials and HR benefit systems as well as a
common enterprise asset management system for both the fossil and nuclear plants
in Florida.
We basically
[created] an approach to put together a technology plan and then work the plan.
We got senior management to buy in about, "These were the steps and this is what
it's going to take."
The
business teams drove it. One of our fundamental premises to this-we have a couple
guiding principles-but one of them was that business decisions are first and the
technology is second. So we worked to understand where they wanted to take both
the processes and the organization, and then from there, if that's your ultimate
vision, what is the technology ramification of that? And then there was obviously
some round-circle discussion-do you really want to do that? What is the cost impact?
Does that still make business sense? So there was refinement that went on through
that process. Technology was part of the decision.
Are you on schedule with your two-year plan?
We
are. We had a motto, to be "home-free by 2003," and we continue to meet the milestones
that we set in that original plan. The final milestone will fall in June of next
year.
What have been the biggest IT challenges in the post-merger effort?
There
have been many challenges. I guess two of them fall less on the technology side
and more on the people side, which probably isn't any surprise. One is that, to
a large extent, most of these projects have significant business involvement,
and business decisions and business process impact. So the whole change management
sees to this is a significant one. And we continue to underestimate the level
of impact that we're making, and how much is changing for a particular group in
the organization. So, just continuing to focus on change management, communication,
and understanding what's changing.
The
second issue is just working through the whole cultural assimilation and understanding
the differences between the two companies and making sure we're all communicating
through the same language, using terms the same way.
Generally
speaking, have you been pleased with the merger IT initiative?
I am very pleased. We have, to a large extent, worked our plan. That was part
of our strategy, to create a plan, get everybody to buy in and commit to the plan,
and then to work the plan, and we are on target with all of our milestones and
are on budget right now.
Your
CEO, William Cavanaugh, said that the merger would result in $100 million in savings
for 2001. Is some of that attributable to IT? Will the merger result in any permanent
added IT costs?
That's
a hard one, because we're spending money and saving money. So there's a piece
of investment that's occurring here, and there's some costs that neither company
had before. We have now the cost of telecom running between our two organizations
that neither company incurred before, so there are new costs, but there are some
costs that we have achieved economies of scale related to our pricing, related
to purchases and that kind of stuff. So I think it's going both ways. There's
some investment that we've made in things like our corporate portal and those
kinds of things that because we brought the two companies together made sense.
So it's kind of hard; there's stuff going in and stuff going out.
Are
there any unique IT challenges presented by having utilities in noncontiguous
territories?
I would say the issue is no different than anybody who has to manage a distributed
IT shop. ... The challenge is to make sure that we're focused on the same things
and delivering in the same way. I think that's the challenge, making sure we have
the coverage and the relationships with the organization spread throughout not
just the Carolinas but that we have a relationship built with the staff in Florida.
What
within your IT system has given you a lot of bang for your buck?
We've
been trying to take an incremental approach related to our customer systems, and
one of the areas that we're looking at working with our business partners on the
customer service side is putting a Web front-end to our billing systems. We're
doing that very incrementally, but we're finding that that is ultimately going
to save average handle time by bringing together information from multiple applications
and presenting that through a web front-end.
And
hopefully that will start to insulate our business rules from our presentation
of information to call reps as well as the people out in the field. So that's
an area where we haven't made a huge investment, but we feel like we're getting
a big bang for our buck there, and believe that can start to set the pattern for
additional development in the future.
Is
there anything cutting edge or "coming soon" in the IT space that you might be
interested in employing?
I
think we work pretty hard to stay tied with the business and continue to evolve
with technology at the right point in time. I think one of our strengths is not
doing the bleeding edge, but not waiting so long that we've passed the window.
... There are a lot of things that we're watching, but nothing that we feel like
is missing right now significantly.
Parting
thoughts?
I
think we have a pretty good success story on the M&A. We had done a small gas
company [NCNG] before we did the bigger one and we learned from that and applied
our lessons learned. I was [part of that]. That was part of what we wanted to
do, is build a team of folks who went through the M&A process and ... I had been
through an M&A situation before I came here and so I feel real pleased that we
have been able to take advantage of what we've learned and apply it.
Daniel
Yee,
Chief Information Officer,
California Independent System Operator
"I
think one of the things ... that's been a hallmark of this organization in terms
of culture is the desire of folks to want to work together and deal with issues
on a constructive and collaborative basis."
How
is your experience at the California Power Exchange an asset in your current incarnation?
I think
one of the benefits of coming from the recent experience with the California Power
Exchange is the familiarity with the systems that are involved and not only from
the exchange, the trading of electricity, but as you look at the California ISO
in terms of the scheduling and movement of electricity. So there's definitely
the familiarity of the systems and then over the past three years of working with
the California ISO, familiarity with the IT folks [and] definitely their capabilities.
After
being in your current position for a couple months now, what's your take on the
state of IT at the ISO?
I
think using my most recent reference point at the California Exchange, definitely
I feel that the IT capability here at the ISO is leading edge in terms of all
the systems being current. Folks are using what I would call good practices; definitely
they are a lot more mature in their approach on systems development and system
implementation than ... compared to my days at the Exchange.
What
IT goals have you set for the ISO?
I
think immediately the goal for at least the near-term here is to definitely keep
our systems running with high availability, high reliability, especially with
respect to our data warehousing and Internet-type systems, because those are the
key systems that we're currently using to communicate to our market constituents.
And also [important is] the data warehousing with respect to providing access
and availability to the information. Availability and reliability are the keys.
I think the other thing
is that we've been fortunate. We've had a very moderate summer here in California,
and we've taken the opportunity to strengthen our infrastructure, such as looking
at some of our firewalls and consolidating them, standardizing a little bit more
our computing platforms. So we're taking the opportunity to focus a bit more on
strengthening our house, so to speak.
What
can the ISO's IT side do to alleviate any of California's troubles?
... Ensuring the high availability and reliability of the system definitely supports
that. We've been in business here for four years now and a key project that we
have going forward and implementing later this year is a replacement of our current
energy management system. That, I would say, is equivalent to our air traffic
control system.
How
have things gone day-to-day in your first two months as CIO?
It's
gone well. Again, being blessed with the moderate temperatures provided me an
opportunity to learn the organization a bit better and at an easier pace. If it
were a very hot summer with problems, then it would be totally different. It would
be fire-fighting everyday. But I've been fortunate in this introduction, in my
orientation with the corporation, that there's an opportunity here to assess and
assimilate.
How
do people issues affect IT at the ISO?
I
think one of the things that to me in my last six weeks here that's been a hallmark
of this organization in terms of culture is the desire of folks to want to work
together and deal with issues on a constructive and collaborative basis. I think
that reflects in terms of folks working well together, and that in turn should
reflect in the systems being implemented well.
How
does your experience at PG&E relate to your role at the ISO?
... I think the thing that keeps coming across for me is that I enjoy working
in a much-focused, smaller type of organization like the California ISO. Why do
you enjoy that? The path or the time between a decision is made and implementation
is very short, and I've enjoyed that. I spent 19 years at PG&E and then three
years at the Exchange, and now here. It's just the ability to move and move quickly
is a plus for me. It's even faster at the ISO [than at the California PX] because
the ISO is more of an operating type of institution, so you need to be very responsive
in that respect.
Dr.
Anil Suri,
CEO,
E-lecTrade
"What
the electricity market needs is a forward market with an ability to vary price
and volume on an hour-by-hour basis."
How
did the idea for E-lecTrade come about?
I
was a risk management consultant to the financial industry as well as the energy
industry for about five years before starting E-lecTrade, and I became increasingly
interested and involved with the energy industry on the risk management side because
the financial exposures my clients were facing were being quantified just then.
This is about five years ago. I think they were ultimately shocked and pleasantly
surprised by either how much financial exposure they had, or how much of it they
could pass on to their consumers.
And
it was obvious that what the industry didn't realize-and it's only being realized
now-that a lot of the electricity delivery and generation ... involves a huge
amount of financial obligation and exposure, especially when you start unbundling
it. And [with] my risk management practice, it was becoming apparent that what
the market really needed was a transaction mechanism to be able to do products
that are truly reflective of what electricity is about, which is that electricity
usage varies hour-by-hour.
...
In a typical commodity, you get to warehouse the commodity, you get to put it
in a store, and we can sort of give it as the consumer demands it. But in electricity,
you've got to generate it when the consumer demands it. So when you look at the
forward market ... you need to be able to do these kinds of transactions in the
forward market as well, which are hour-by-hour variations in price and volume.
And that's really where
the idea came from, that this is unique to electricity: What the electricity market
needs is a forward market with an ability to vary price and volume on an hour-by-hour
basis. What I'm talking about is, for example, like June of 2002, where you should
be able to buy electricity with a "shape" of usage, meaning you need 50 megawatts
at 9 [AM], you need 200 MW during the afternoon, and back to 50 MW at night, and
on the weekends you need only 30 MW. To buy that in the forward market today is
very hard. Basically if you want to buy that sort of pattern today in the forward
market, you need to issue a request for proposal, which is a 50-page document,
and you're telling everybody that's what you need. It's not anonymous at all;
it's just the opposite. You tell people in detail who you are and what you need.
There is another mechanism
to buy it and that's come about in the last couple of years. You can go to a Morgan
Stanley or a Goldman Sachs or an Enron structuring desk and say, "This is what
I need for next June. Can you price it for me?" And they will price it for you,
and the premium you pay for that service is huge. Given that 50 percent of electricity
usage is in these hourly changes in volume, it's a lot for the market to bear,
to have to go through a structuring desk every time. So what people end up doing
is relying on the spot market. They'll say, "Okay, I'll just wait for the month
of June to come and I'll take whatever is in the spot market to satisfy my hour-by-hour
variation in shape of volume or price of electricity." So the idea really comes
about by thinking about what the electricity market fundamentally needs in terms
of its shaping needs.
You
feel, then, that your "ShapedPower" offering differentiates you from other trading
platforms?
Yes,
and very much so. We've built everything around the shaped product. ... We really
act like a structuring desk, the way Morgan Stanley would, but we are neutral,
so we don't take any positions, and we are very transparent on pricing.
Where
are you getting your financing?
A
large strand of the funding was led by Nth Power Technologies and the other major
contribution was from Shalom Equity Fund. ...
We
actively sought investment from venture capitalists who were in the energy industry,
who were funded by the energy industry, but we actively avoided investments directly
from energy companies who could be our clients. The reason for that was that the
whole idea of neutrality is critical to our success because clients end up sharing
deep transactional data with us. They end up telling us a lot about their requirements
and if there is any doubt about neutrality, I think it undermines our credibility
in the market.
What
did you set out to accomplish with your recently completed beta test?
... The purpose of the
beta test really was to test the market in terms of liquidity. ... We wanted to
demonstrate to a whole bunch of participants put together in the Northeast that
yes, if all of you come together at the same time, there is sufficient liquidity
and sufficient volume to drive this market. ... Technology testing was a secondary
objective, and I think we demonstrated that fairly well. ... People transacted
about a 61/2 million megawatt-hours and this is with those 17 companies in the
beta test, out of which about 41/2 million megawatt-hours were shaped deals. So
people found it very useful and very interesting. ... So, our objective in demonstrating
liquidity was satisfied.
What
are a client's options? How much volume are you expecting initially?
A
critical mass is defined as our clients put together represent at least 40 percent
of the trading volume in the Northeast. ... Now, having said that, if we get to
start in the first week with even a small percentage of that volume, I think we
are very successful. ...
Our
platform basically has three places clients can put in deals. One is what we call
a natural portfolio. That's where clients put in deals and not ever show it to
the market. This is a place where they can use the deals for evaluation purposes
and for defining their portfolio needs. But they don't even tell E-lecTrade-our
system knows, but we don't know in the sense that we don't use that transaction
data. The second place clients can input deals is a private portfolio. A private
portfolio essentially allows clients to remain hidden from the market. Even though
in the real market they are anonymous, this allows them to remain hidden from
the market even with their transactions. And the third place is the public portfolios
where their deals are posted, but nobody knows who they are.
The
advantage of having this private-public mix is that the liquidity market is fragmented
but it's not fragmented enough. If GPU were to post their entire need for next
year, everybody will know it's GPU. So you don't really want to go in there and
post your need in a public forum. But you want to post it in a private forum where
you tell E-lecTrade and the matching agent, which is just an automated agent,
knows your constraints and knows that you're posting your entire need but you'll
take it month by month, or you'll take it in 10 percent pieces. If we know those
constraints, we'll keep finding matches for you.
So
when we go live, I would hope that our clients represent a couple of percent of
their needs at least in their power portfolios so that we can start creating transactions
for them. But in terms of our megawatt-hour goals, our goals for the first year
are about 20 million megawatt-hours.
Who
are you targeting as your main customers-EnronOnline or HoustonStreet.com customers?
Not really. Of course
I would say that EnronOnline and HoustonStreet would like to have these guys as
customers also, and many of them do use EnronOnline and HoustonStreet, but our
target customer is somebody with either load or asset. Our target customer has
not been initially the proprietary trading desks. So we have not targeted, you
know, Morgan Stanley or other trading desks because the shaping needs are truly
evident to people who have assets or load. ...
In
some cases, these are UDCs [utility distribution companies] with net assets and
net load. I'm sure that they are also customers of EnronOnline, [but] in some
cases, they're not. In some cases, they've outsourced their asset management ...
to somebody else. And they would be direct customers because they find outsourcing
very expensive and not optimum.
What's
next?
What we've asked
our clients [to do] now is sign participation agreements, which will basically
allow them to do the same thing [as in the beta test], except now the contracts
become binding, so what they execute on the platform are real deals. We are in
the process of getting those participation agreements signed by those clients.
Every one of our beta clients, plus another five clients, have told us that they
will be signing the agreements. We are in various stages in their legal departments.
... We've got a few signed agreements and we are waiting for a critical mass to
be signed so that we can turn the system on and be live with liquidity. ... [Going
live] is soon, I think maybe [late September or sometime in October].
Carl
J. Levesque is associate editor at Public Utilities Fortnightly.
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