Affordable E/CTRM

A CommodityPoint Whitepaper

Affordable E/CTRM

Sponsored by Woodlands Solutions

CommodityPoint, a division of UtiliPoint International, Inc. 19901 Southwest Freeway, Suite 121

Sugar Land, Texas 77479 www.commodity-point.com

August 2012

http://www.commodity-point.com/

©2012 CommodityPoint, a Division of UtiliPoint® International, Inc., all rights reserved. 2

Table of Contents

Table of Contents ................................................................................................... 2

Introduction ........................................................................................................... 3

New Entrants ......................................................................................................... 4

Profile of an Affordable ETRM Solution Provider ................................................... 5

Summary ............................................................................................................... 7

About Woodlands Solutions .................................................................................. 8

About CommodityPoint ......................................................................................... 9


Introduction

At CommodityPoint's 2012 E/CTRM Technical Conference, speakers representing a wide variety of

energy and commodities market participants, including heads of trading and chief information officers,

all noted their dissatisfaction with the concept that there exists a singular E/CTRM system that is

capable of meeting the needs of all market participants. These executes noted that the most commonly

deployed systems shared numerous qualities that made them unacceptable for many companies

seeking such solutions. These qualities include wide ranging functionality and commodity coverage that

was not applicable for all but the largest global trading companies; and large rigid data structures that

limited customizations necessary for meeting more than 80-90% of any individual company's business

practices and processes.

As published in the CommodityPoint CommodityAlert newsletter at the conclusion of the event in

London, we noted, "There is no singular E/CTRM system that can address the needs of all participants in

what is a very diverse market place. Lower cost solutions, componentized and preconfigured to meet the

needs of particular market segments, will be required if technology providers want to continue to grow

and expand their market reach. Additionally, as markets continue to emerge and evolve, new systems or

components are required to meet the unique needs of particular geographies or commodities."

Recent CommodityPoint research, including the 2011 CTRM Market Size Report1, indicate that license

fees for the large scale, traditionally installed systems are now generally above $1,000,000 for those

companies that operate in the top and upper middle tiers of the market – those companies employing

more than 50 trading staff, trading more than a single commodity, or operating in multiple geographies.

For the rest of the mid-tier, initial license fees in excess of $750,000 are not uncommon and very few, if

any, of the largest vendors will pursue deals with companies that cannot afford an initial license fee of

$250,000. When combined with the cost of annual support and maintenance of 20% of the initial

license fee and implementation costs that run, on average, two times the initial license fee, it's not

surprising that many in the mid-tier and lower tier of the trading markets feel they can not pursue

licensing of a fully supported, vendor supplied solution.

This perceived lack of affordable solutions has 1) effectively locked many smaller companies out of the

market for a vendor supplied and supported solution or 2) prevented companies that previously

1CommodityPoint 2011 CTRM Market Size Report


purchased a system from upgrading to a newer version due to the perceived high costs of such an

upgrade.

In the current market environment, marked by constant and unrelenting changes including the

impending Dodd-Frank regulations, few companies can afford to not seek out a supported solution (or

upgrade an outdated version) to capture, manage, report, and monitor their trading activities. Not

having such a system can create significant risk of non-compliance with new regulations (either through

the reporting of inaccurate data or an inability to identify and report such data in a timely fashion) and

expose the business to significant punitive fines.

Fortunately, for those companies that haven't been able to afford the latest large scale E/CTRM

solutions, the last several years have witnessed a new generation of E/CTRM software providers offering

cost effective solutions built around architectures that are more open and, potentially more

importantly, more affordable.

New Entrants

According to the latest version of the CommodityPoint CTRM Sourcebook, there are more than 40

companies that provide core E/CTRM capabilities – contract management, deal capture,

physical/financial deal coverage, position management, physical logistics, risk management analytics,

and back office or accounting functionality. Additionally, as noted in the CommodityPoint Ancillary

SourceBook, there are dozens of other companies that provide products that support some portion of

that CTRM value chain or provide additional capabilities (such as asset optimization, market

connectivity, etc.) not found in what is traditionally defined as a full CTRM system. Despite this large

number of vendors servicing what is otherwise a relatively small market, these recent entrants have

found a willing market.

Companies such as Woodlands Solutions, Pioneer Solutions, and Enuit have found success selling their

technologies to not only small shops that could not readily afford a larger scale, established solution, but

in many cases, selling to larger trading companies that are seeking innovative solutions without the

substantial prices garnered by the largest suppliers in the market.

In addition to the recent entrants, other vendors such as Data Management Solutions (DMS) have been

around for more than a decade, providing single commodity solutions with specific geographic or


market coverage capabilities (such as North American natural gas in the case of DMS). Other examples

are found in Europe where there are multiple suppliers servicing the specific requirements of the

diverse, regional physical power or gas markets that still dominate much of that area. While these types

of solutions may meet the "affordable" criteria previously noted, few provide full CTRM capabilities

across multiple commodities or the functional capabilities necessary to service markets outside their

established geographic or commodity niche.

So, how have the vendors that have recently appeared in the market been able to develop multi-

commodity/multi-market solutions that are more affordable than those provided by legacy E/CTRM

vendors? The answer is largely that these newer vendors were able to make a fresh start, and as such

are not burdened by legacy data structures developed over time to address a market in a state of

constant evolution since the advent of FERC Order 636 in the early 1990's. Given the dramatic changes

that have occurred since that time, including FERC 888 (which opened the NAM wholesale power

markets), the emergence of on-line trading, new exchanges and new derivative products, it's little

wonder that many of the larger, legacy systems have grown complex and burdened with vestigial

functionality. For the most part, these new vendors have started from scratch, leveraging lessons

learned from their previous experience as well as new technologies to provide functionally competitive

solutions at a much lower price point.

Profile of an Affordable ETRM Solution Provider

Woodlands Solutions serves as a good example of a new entrant which took advantage of a “fresh start”

and the latest development technologies. The company, founded in late 2008 by industry veterans Mike

Muse and Steve Wall (both founding members of Woodlands Technology, an early pioneer in ETRM

technology), was specifically launched to address the market need for deep ETRM capabilities at a lower

price point. According to Mr. Muse, while their "Phoenix ETRM" is an "affordable ETRM" solution, it still

provides the core capabilities and functionality considered necessary by most trading and marketing

shops, particularly those that operate in the North American markets, as well as significant advanced

functionality typically only found in the legacy E/CTRM solutions.

These capabilities include contract management, deal capture (including standardized interfaces to

trading exchanges as well as user-definable deal blotters), position management, risk metrics (including

an integrated Monte Carlo engine), credit management, scheduling, and back office settlement for


multiple commodities. The system, which has already been licensed for gas, power, crude, and NGLs,

also provides advanced features such as what the company calls "PnLExplained" (which provides the

capabilities to quickly identify the drivers of portfolio value change between two periods), trading limit

monitoring in near real time, and sophisticated cube/pivot reporting functionality utilizing a data

warehouse approach.

According to Mr. Muse, the product was designed around what the company calls the Phoenix Core,

"which is fundamentally a data warehouse that serves as the heart of the application. This approach

allows us to provide intuitive position reporting while also ensuring a client’s entire organization shares

a ‘single source of truth’."

It is this architecture, in part, that enabled the company to more quickly (and affordably) develop and

deploy their functionality. According to Mr. Muse, the more modular, loosely coupled solution has

allowed for functional updates of individual modules without extensive rewrites of existing code, as well

as lower effort (and cost) version upgrades for users of the system. Additionally, Mr. Muse notes that

Woodlands utilizes industry standard technologies and development methodologies and makes heavy

use of in-house code generators (according to Muse, more than 70% of the source code was code-

generated), "dramatically" reducing internal development costs as well as support and maintenance

costs.

In addition to providing lower acquisition, support, and upgrade costs, Mr. Muse indicates that the

Phoenix architecture also provides a number of technical and user advantages that lower

implementation costs and accelerate the deployment process, including:

• Service Oriented Architecture (SOA) for relative ease of integration

• Grid processing with configurable workflows without the need for middleware

• Simplified data loading via standard imports of reference and transactional data from

companies and markets, to deals and market data

• Simplified configuration, all performed within the software user interface

• An integrated reporting toolset, allowing users to easily create and share custom reports

• No code scripting or "behind the scenes" configuration

• Easier user learning curve through the use of standardized screen layouts and intuitive position

reporting resulting from the data warehouse approach


Summary

Though the E/CTRM markets are notable for the number and breadth of commercially available

solutions, there exists a widespread belief that there are few, if any, affordable solutions that can

manage the business activities of multi-commodity, multi-market trading and marketing businesses.

The large legacy vendors do have those capabilities, yet for the majority of trading organizations that lay

outside the upper tiers of the market, the total cost of ownership have kept such systems out of reach.

However, within the last five years, a number of new vendors, founded by entrepreneurs with extensive

experience in E/CTRM technologies, have entered the market and applied "lessons learned" to build a

new crop of products with significant functional capabilities and built using the latest technologies.

Leveraging these new technologies and using innovative designs and development methodologies has

enabled these companies, like Woodlands Solutions, to provide highly capable systems to a market

place that has been seeking a robust yet affordable solution.


About Woodlands Solutions

Woodlands Solutions specializes in helping organizations with exposure to energy commodities improve

their operational efficiency, better manage their exposures, and demonstrably improve their control

over operations through their Phoenix Energy Trading and Risk Management (ETRM) solution. Phoenix

ETRM provides energy organizations with a cost effective, front-to-back office energy trading and risk

management solution that allows them to automate and standardize the management of their energy

commodities, and was designed and built using the latest technologies and methodologies to provide

customers with a powerful, worry-free solution.

For more information see http://www.woodlandssolutions.com/

http://www.woodlandssolutions.com/


About CommodityPoint

CommodityPoint is the industry leader in providing Commodity Trading & Risk Management (CTRM) research, analysis and advisory services. Our services bring invaluable 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 around the wholesale commodity trading markets. 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.

With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace. CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc.

Other Resources The CTRM Blog – http://www.ctrmblog.com

CommodityPoint – http://www.CommodityPoint.com

TRM Products and Services Online Directory – http://www.trmdirectory.com

Other CommodityPoint Reports CommodityPoint research reports are available at http://www.Commodity-Point.com

For Additional Information regarding this report or any CommodityPoint product or service, please contact Patrick Reames at [email protected] or Mark Tredway at [email protected].

CommodityPoint Locations: The Americas 19901 Southwest Freeway, Suite 121 Sugar Land, Texas 77479 USA Phone: 281-207-5440 Europe & Asia/Pacific International Business Center Prikop 4 602 00 Brno Czech Republic Tel: +42 0 533 433 658

UtiliPoint International is a wholly owned

subsidiary of Midas Medici Group Holdings, Inc.

(OTCBB:MMED).

http://www.ctrmblog.com/

http://www.utilipoint.com/

http://www.trmdirectory.com/

http://www.commodity-point.com/

mailto:[email protected]

mailto:[email protected]

Documents

Affordable E/CTRM