Market Operations and ETRM systems are like peanut butter and jelly. You can have one without the other, but it’s just not the same. Whether they’re custom built or off-the-shelf, in our many years of experience in deregulated power markets we have yet to run into a customer, no matter how large or small, that doesn’t have one without the other.
However, it’s not enough to just have both. To truly get the most value out of your Market Ops and ETRM systems, they must be integrated. This can often times prove to be very challenging. When it comes to integration, the two systems can look more like oil and water, dogs and cats…you get the idea. It may not be a simple task to teach your Market Ops system how to speak ETRM, but there are experts out there that can help you get it done.
Market Ops systems are tasked with handling the extreme details of deregulated power markets. They must support the daily and hourly scheduling of physical and financial trades (and the often times complex business processes surrounding them), consumption of thousands to millions of sub-hourly prices, volumes, and settlement details, along with the math intensive settlement calculations required to accurately settle with the ISO’s. Reporting is typically performed intra-day and daily, and rarely months or years into the future.
ETRM systems can be quite the opposite. They deal with a wide variety of products beyond power. Their trade book structures can look vastly different than the participant accounts registered with the ISO’s. While they may utilize settled hourly prices and volumes, they will most certainly require forward commodity prices that can extend five or ten plus years into the future. The primary users of both systems may even look similar, but the ETRM system is most likely responsible for producing P&L reports that are signed off by your Risk team, landing directly on the desks of the C-suite.
For example, a generation asset can and should be optimized, scheduled and settled within your Market Ops system. They are designed with Real-Time operator input in mind and conform to the unique business and technical rules each ISO requires. But how do you value the five to ten year generation forecast of that unit? What about understanding the short and long term costs of fuel and associated transport charges? And what about power trades or hedges that take place on an exchange? Counterparty credit, VaR analysis, What-If simulations…the list goes on. As you can see, there is a much larger financial picture that must be presented from your ETRM system.
Taking these questions into consideration, it’s clear which role each system plays within your organization. But more importantly, they also highlight the limitations and the reliance each system has on each other. These limitations, which can be drastic, are mitigated by having a properly designed and functioning integration layer in place.
While some of these may seem trivial or minor, we have seen customers encounter major issues and pain points from ignoring some of these common questions below.
- Data Granularity – An important decision needs to be made when integrating data from your Market Operations system to your ETRM system. Hourly and 5-Minute data is the norm when dealing with ISO’s, but is that truly the best path forward when transforming and loading it into your ETRM system?
- Book Structure – It’s very common to have many participants configured within a Market Operations system, especially for power retail companies. While a necessity when dealing with ISO’s, there may be a more efficient way to structure your books that can still lead to meaningful financial reporting results.
- Timing – An often overlooked aspect of healthy integration is timing. Timing can be driven by many factors: Complexity and size of business, user count, market participation, reporting deadlines, even database support and maintenance windows. When ignored or incorrect, it can wreak havoc on your day-to-day reporting.
These issues may be common, but their solutions can be very complex and may not reside within an individual system. Hence, the integration layer, when designed and implemented properly with the correct business requirements in mind, can alleviate these issues.
And finally, one of the strongest arguments for a properly integrated ETRM and Market Ops system is the time savings. We have witnessed first hand the huge time savings that stand to be gained by recalling an example from a very recent project. Our customer in this example is a large power trading company operating across many of the North American markets. Even though it might have only taken users a minute of two to enter a single trade, the sheer size of their portfolio would require them to dedicate multiple resources hours a day to trade entry and verification. Once their integration layer was in place, which included automated trade creation, we witnessed a very noticeable decrease in the time spent entering and checking trades.
The impact is certainly apparent. What could normally take nearly seven hours a day (across multiple employess) could be accomplished by properly designed interfaces in under two hours. The benefits weren’t just limited to time savings, and also included configurable data validation and robust logging. There are huge amounts of value in automating interfaces between these two systems, and over time the realized benefits will only increase.
If you find your organization is struggling with making your Market Ops system speak ETRM, the team at Essentia Advisors would be happy to help. Zack Dorman is a Director at Essentia Advisory Partners and can be reach at firstname.lastname@example.org.