Energy CIOs grapple with market-restructuring demands

A federal mandate for electric power companies that's aimed at creating a more competitive national wholesale electricity market is fraught not only with technological challenges for IT decision-makers but also with organisational and political burdens.

The Standard Market Design (SMD) initiative being pushed by the Federal Energy Regulatory Commission is leading energy companies to invest in near-real-time systems such as energy management and data warehousing systems that can help them respond to pricing and other market changes rapidly.

Executives at some of the regional independent systems operators (ISO) that electronically match buyers and sellers of electricity say they expect to spend more than US$100 million each on technologies to help them meet SMD and other market-restructuring requirements. Still, some IT executives complain that the FERC guidelines were established without enough feedback from IT departments about how long and onerous some of these projects will be.

Part of the problem is a lack of communication between business executives at energy companies who help FERC craft rule-making decisions and their IT organisations "to understand what the IT ramifications are," said Dennis Fishback, senior vice president and CIO at Calpine , a San Jose-based energy company.

On top of that, after the FERC imposes compliance deadlines, IT departments are left to discover as part of their own due diligence "that it'll take 13 man-years to complete" some of the associated IT projects, said Kenneth Fell, CIO at New York ISO in Guilderland, New York

Fell and Fishback were among the executives who discussed these issues at Meta Group, 's 2003 Energy Information Strategies conference here Tuesday.

For his part, Fell said he expects New York ISO to spend roughly $100 million over the next five years to replace about 85 % of its IT infrastructure to help it and its market participants meet the restructuring requirements.

Mark Griffin, chief operating officer at the Midwest ISO in Carmel, Ind., said his group expects to invest between $120 million and $130 million on new technologies over the next few years, including enterprise portals and professional services to help the ISO "refit" some of its existing systems.

Some of the most expensive investments that energy companies will have to make include purchasing price optimisation software systems, which cost $1 million or more, said Ralph Masiello, vice president of bulk power services at Kema , a Fairfax, Virginia-based consultant.

New York ISO has benefitted somewhat from the SMD mandate in that it "validated the technology plan we put in place" in 2000, including ongoing efforts to install a data warehousing system that's partly aimed at sending billing information to electricity market participants faster, said Fell.

Fell said he hopes the SMD mandate also ends up leading energy companies to standardise their communications. "Nobody really knows what caused the Great Blackout of 2003," said Fell. "But if we had a better way to automate communications, it might allow ISOs to be able to talk to one another more effectively."

Market restructuring will also force energy companies to spend a lot of money to cleanse their metering data. In New York, for example, billing between buyers and sellers of electricity takes three years to finalize, said Fell, largely because "it takes that long to clean up the (metering) data."

"It's a $9 billion to $12 billion problem (among New York energy companies) and you get the same question back on it — who's going to pay for it?," said Fell.

"The metering problem is substantial," said Griffin. ISOs "can't fix it because we don't control meters," he added.

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