A UtiliPoint IssueAlert
Patrick Reames

Recent acquisitions in the ETRM space clearly indicate that many solution providers are moving to broaden their presence outside of the “traditional” ETRM model, seeking to service an ever increasing portion of the energy value chain. While the market for wholesale energy trading and risk management systems remains strong, areas adjacent to this market are showing similar strength and have drawn the attention and dollars of the ETRM vendors.

In previous years, acquisitions were primarily executed to gain market share. Companies such as Caminus and SunGard purchased smaller competitors, increasing their customer bases, but, in the process, they also expended significant energy and resources reconciling overlapping products and strategies.

The latest deals however do not come with the burden of competitive products. They offer the acquiring companies the opportunity to grow revenues, without the attendant costs of supporting multiple products serving the same market or ending support for one or more of the products and trying to maintain and service customers through that process.

Asset Heavy Focus
Competition among the leading vendors, particularly in the “asset light” market (deals involving hedge funds, banks, and brokers) has been fierce. As that segment of the industry and the products servicing it mature, it is becoming increasingly difficult for solutions providers to differentiate themselves from their competition for these primarily financial players. Sales in this segment are becoming more about the vendors’ reputations and less about the products functionality. However, for prospects holding significant assets, such as generators, utilities, and oil and gas producers, logistical and physical risk management challenges offer solutions vendors an opportunity to sell a combination of creative products focused on solving these unique and complex problems.

SunGard’s Acquisition of Energy Softworx
SunGard Energy’s recently announced acquisition of Energy Softworx enables the company to broaden their market reach without having to expend significant resources on product reconciliation. Energy Softworx has achieved success by focusing on unique logistical problems and in the process has become the market leader in the servicing of fuel management needs for power generators. Their FuelWorx product, with additional modules covering fuels budgeting, rail management, and gas fuel supplies are targeted solutions that provide deep functionality in areas that are underserved by “typical” ETRM solutions.

We had an opportunity to meet with Debbie Wohlers, now COO of the Softworx group of SunGard’s Energy Solutions unit, and Karen Dowd, SVP for Softworx customer services, product management and product development. Together, they formed the management team responsible for Energy Softworx’s success as an independent company. They noted that the acquisition has been very well received by their customer base, indicating that SunGard has a very good opportunity to leverage Softworx’s success to introduce the entirety of the SunGard Entegrate product family to those customers.

With this acquisition and the transition of the ACES power scheduling and deals management system onto the Entegrate platform, SunGard is now able to offer a broader asset oriented solution to merchant generators and utilities.

Matt Mandalinci, president of SunGard’s Energy Solutions unit, has indicated that the company will continue to seek acquisition opportunities that allow them to increase their coverage up and down the energy value chain.

Other Recent Deals
In January of this year, Open Link Financial announced they had acquired IRM, a European based provider of asset management, forecasting, optimization and planning solutions for utilities, generators, and oil and gas producers. While primarily serving the European markets, OLF has indicated that they are bringing the solutions to the North American market and are focused on growing their presence in the asset heavy space. Their asset centric strategy is further evidenced by their recent announcements of the release of a new oil and gas producer services module and cMotion, a logistics and scheduling solution for virtually any commodity.

Solarc, a company that has seen significant success in the natural gas liquids, petroleum, and industrial fuels markets with their RightAngle product, announced late last year that they picked up Trinity Apex, a provider of physical gas management solutions. Trinity Apex’s Ties II product provides significant gas producer, transportation, and storage functionality, giving Solarc a wider footprint in the physical natural gas markets.

The latest deal in the ETRM space, announced just two weeks ago, is the acquisition of Global Energy Decisions by Ventyx. Ventyx came into being earlier this year with the merger of Indus International and MDCI Mobile Data Solutions, creating one of the largest global suppliers of billing, revenue management, call center, materials management and service delivery solutions to the utility markets. With the acquisition of Global Energy’s energy trading, risk management and asset management solutions, Ventyx is now positioned to cover the majority of the power utilities value chain from generation to retail billing and customer care.

Moving Toward Energy ERP
ETRM vendors are taking a more holistic view of the energy markets - not only acquiring products covering adjacent functionality, but also creating new ones, such as OLF’s producer module. Certainly, ETRM will continue to be a lucrative market for these vendors, but areas such as asset management, forecasting, and planning and control are commanding more attention and becoming components of more comprehensive energy solutions. As one executive stated, “It’s no longer just about ETRM - it’s becoming more about energy ERP (enterprise resource management).”

Customers Impacts
For systems providers, the advantages of serving the wider energy markets are clear: increased market opportunities and the ability to grow through acquisition without creating product conflict. For the customers of these systems, significant advantages also exist. Integration of the multitude of applications necessary to run an asset heavy business has always been problematic and expensive. Purchasing these systems from a single source helps to shift that burden from the customer to the vendor. Additionally, upgrading components of a single sourced solution should be less burdensome as the newly released products will be compliant with the vendors overall technology and integration framework.

However, downsides do exist. There can be significant risk associated with a single vendor supplying and supporting a majority of systems that businesses rely upon. In selecting a solution covering multiple operational areas, buyers need to be doubly certain that their chosen vendor is stable and has the financial wherewithal to weather potential market downturns. Additionally, the odds are that no single vendor will provide the best “fit” for every need of a complex asset oriented enterprise, leading to some level of compromise in order to get the best overall solution.

What’s Next?
The upstream push will undoubtedly continue. Utility centric functionality is now a component of many of the leading ETRM solutions and the coverage is fairly extensive. Oil and gas producers are also seeing increased attention from providers; however, there are areas in this market that have not yet been impacted in the latest merger and acquisition activity, including production revenue accounting and land management. It would certainly not be surprising to see transactions in these areas within the year.