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October 18, 2001 
Caminus and Altra Energy Partner to Create
Full-Service Trading Software Provider 
By Will McNamara
Director, Electric Industry Analysis 

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[News item from Reuters] Software company Caminus Corp. (Nasdaq: CAMZ) announced it would buy the software operations of privately held Altra Energy Corp. Caminus said it would swap 1.975 shares of its stock and pay $30 million cash for Altra's software business. That values the deal at about $62 million, based on Caminus' closing price of $16.05 on Oct. 12.  
Analysis: The announcement that Caminus and Altra Energy are joining forces represents major news for the energy industry, particularly impacting those companies that are involved in the trading sector. On their own, both companies have ascended in the trading space by focusing on a particular niche. Now that Caminus is acquiring Altra's software suite, which is primarily focused on the natural-gas trading sector, the synergy between the two companies creates a fuller package of offerings for companies that are involved in energy trading. Essentially, Altra has two core businesses-an energy trading exchange and a software business. Caminus has entered into an agreement process to purchase only the software side of Altra. Altra has a highly regarded portfolio of software systems and consultant services primarily focused on the automation of gas transaction management and pipeline operations. Together, the synergy of the two companies is intended to enable greater participation for traders in existing online energy trading exchanges.  
Let's first establish the business models of these two companies so that we can fully appreciate the synergies that the new partnership will create. Up to the point of this partnership, Caminus and Altra were not considered direct-line competitors, as Caminus' business model focused on risk management while Altra focused on the actual energy transactions. However, there were components of the companies' businesses that certainly overlapped. Caminus Corp. has created a software suite that helps utilities and gas producers trade energy commodities in exchanges such as EnronOnline, TradeSpark, HoustonStreet, etc. Altra's software, which is used in the same energy trading portals, focuses on natural-gas transactions.  
Headquartered in New York, Caminus, which went public a year ago, is a provider of software solutions (and consulting services) that help a wide range of participants in the energy market to manage their risk factors associated with energy trading. Toward that end, the company offers two software packages:
Zai*Net software solutions, which "enables energy organizations to effectively trade and manage energy transactions." Zai*Net has been designed to address a wide range of energy commodities, traded instruments and associated risks and was designed to interface with both proprietary and third-party systems.

Nucleus software systems, which were designed specifically to meet the trading, risk management, scheduling, and accounting needs of utilities, generating companies, power pools, gas and oil producers, processors, pipelines, and other energy market participants. In other words, the Caminus Nucleus system provides a tool for energy traders to organize, track and manage their various energy transactions from generation to end-user delivery. One of the advantages to the Nucleus software is that users can evaluate assets and market positions in real-time and consequently determine acceptable risk levels. 

Recently, Caminus added the Storefront product, which is a Web-based trading application that helps customers to increase trading volume and reduce transaction costs by publishing bids and offers on the Internet. Also, just this week at the Power Mart conference in Houston, Caminus unveiled a new software product known as FrontOffice?, which gives traders of energy physicals and traded instruments the ability to see how a potential deal will affect a portfolio before committing to the transaction. According to company reports, approximately 80 percent of Caminus' revenue comes from software license sales. In addition, Caminus also has a consulting service that focuses on risk management services for energy clients.  
One reason that Caminus has gotten a good share of industry attention lately is its efforts, along with other software companies, to establish a common standard for moving transaction data from energy trading platforms to transaction / risk management systems. A few months ago, Caminus established the Energy Trading Standards Group with HoustonStreet, and has since generated interest in some 30 companies to participate and help create universal standards for energy trading. One of the key objectives of the Standards Group is to help determine which technology should be used as the standard protocol for energy trading platforms. The technology committee is reportedly working on a beta version of XML standard for physical power transactions. 
In September, Caminus formed a strategic partnership with Lodestar Corp., which primarily provides billing software and load forecasting solutions. Under the partnership, Caminus and Lodestar will work to integrate and jointly market their respective wholesale and retail energy billing, transaction, trading, and risk management systems to create what they are calling a "Straight-Through Processing (STP)" environment for vertically integrated energy companies.  
By comparison, Altra Energy is a private company located in Houston that provides software systems primarily focused on managing the transactions and physical movement of the gas and pipeline segment of the industry. Altra reportedly has the largest base of systems in the gas segment of the market. Some of the specific features of the Altra software include scheduling of direct access load, generation dispatch, regional transmission organization (RTO) connectivity, integrated OASIS reservations, and North American Electric Reliability Council (NERC) checkout and billing. Altra boasts a customer list of about 100 clients, mostly in the gas sector but also including power and multi-fuel companies. Altra's software product suite includes transaction management tools known as Altra Gas, Altra Power, Altra Pipeline and Altra Web, which all facilitate the exchange of a particular commodity. 
According to Caminus, the value of acquiring Altra's software suite is to create an offering of integrated applications that can be applied to both gas and power traders. Further, the exchange of customers should benefit both companies. Caminus will have the opportunity to sell its risk management services to Altra's customer base, and in turn gain the opportunity to sell Altra's new generation of systems to Caminus customers.  
The European market is arguably the top focus of Caminus Corp. In fact, Caminus believes that the global market for energy trading is presently "exploding." According to Caminus CEO David Stoner, the global market for wholesale energy trading, which consists of the European market, is six to eight times the size of retail markets. Consequently, a typical therm gets traded a number of times in Europe before it actually gets sold to an end user. Interestingly, about 30 to 40 percent of the companies to which Caminus has provided risk management consulting services are U.S. companies attempting to expand in the European wholesale trading market. Caminus consultants helped write the New Electricity Trading Arrangements (NETA) for the British government, due to be implemented by the end of 2001 or early 2002. Although smaller than the U.S. market, Britain has been experiencing privatization and various levels of deregulation since 1983, providing valuable experience and depth. Besides the U.K., Caminus has been active throughout Europe in Italy, Spain, Holland, Belgium, Germany, and the Nordic countries through NORDPOOL. 
Earnings for Caminus have been fairly strong up until recently, when fallout from the events of Sept. 11 began to impact the company's business. For 2Q 2001, Caminus reported that its total revenues increased 58 percent to $17.7 million, compared to $11.2 million for 2Q 2000. Specifically, revenues from the company's software license fees increased 61 percent to $7.5 million during the same quarter. However, for 3Q 2001, Caminus lost $369,000, or 2 cents a share, on revenue of $14.7 million, due primarily to the fact some license sales that were expected to close did not. Specifically, Caminus says that much of the revenue from its license sales is booked during the last month of each quarter. Given the impact that the events of Sept. 11 had on many companies, a large part of this anticipated revenue was not booked as scheduled. 
Moving forward, Caminus says that the addition of Altra's software should result in an increase of its 2002 revenue guidance by about 40 percent. Caminus also expects the partnership with Altra to increase its 4Q earnings to 27 cents a share, compared with a previous estimate of 23 cents a share, although analysts are still projecting 19 cents a share for the fourth quarter.  
Deregulation has opened up many new opportunities for generation companies to trade and market power in new regions. However, with these opportunities come considerable risks. Hence, creating this balance between risk and opportunity in the energy trading space is the market niche in which Caminus and Altra operate. However, the software market in the energy trading space is becoming increasingly competitive. Every month, new competitors in this space emerge, so it is difficult to offer a comprehensive list. However, some competitors that also seek market share in the niche now occupied by Caminus / Altra are Allegro Development, KWI and SolArc (to name just a few).  
Moreover, competition in wholesale trading should continue to gain momentum, regardless of the status of deregulation in a particular state. The wholesale market is without question far more attractive to traders than the retail market, and as I mentioned power is often traded many times on the wholesale market before it reaches the end user. Thus, consolidation within the energy-trading software space should continue, and I would expect Caminus to proceed with further acquisitions once it integrates the Altra software into its service offerings.  

Clarification Statement to 10/16/01 IssueAlert on Dynegy: In its 3Q 2001 earnings statement, Dynegy reported that net income of its transmission and distribution company Illinois Power was $26 million, versus $27 million in 3Q 2000. In the 10/16 column, we incorrectly stated that Illinois Power had taken a loss of $15 million. The loss of $15 million was reported by Dynegy's telecommunications segment, which was duly noted in the article. We apologize for any confusion this error might have caused. 


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