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SCIENTECH IssueAlert, November 7, 2000 from Phoenix, AZ
CEOs Speak on the Strategic Importance (or Lack Thereof) of Information
Technology in the Energy Industry
By: Jon T. Brock, Director, Strategic and Competitive Intelligence
===============================================================

Four CEOs participated in a panel entitled the "CEO Mega Panel: View From
the Top" at the 48th annual EEI/AGA Energy Information Technology Conference
in Phoenix this week.  The moderator was Charles Bayless, former chairman,
president and CEO of Illinova.  The remaining three CEOs included: Keith
Stamm, CEO, Aquila Energy; Dr. Matthew Cordaro, president and CEO, Midwest
ISO; and James Pignatelli, chairman, president and CEO, UniSource Energy.


ANALYSIS:  This panel was diversified in a very interesting manner. The
conference organizers did a good job in getting a cross-section of the
energy industry in transition.  The trading organization specialist was
represented with Aquila, the ISO specialist was represented with the Midwest
ISO, and the vertically integrated utility was represented with UniSource
Energy.  Each panelist was asked what role information technology (I/T)
played in their respective organization.  Their answers may surprise you.

Dr. Matthew Cordaro of the Midwest ISO went first.  Dr. Cordaro stressed
that I/T was very critical to the operation of an ISO, saying "it is 
essentially
the foundation of the ISO." He mentioned that the Midwest ISO had started
from scratch and would have to be able to handle hundreds of thousands
of transactions every week in a real-time operation.  Among the 
responsibilities
that the Midwest ISO is entrusted with are: monitoring the congestion on
the grid and taking appropriate action, preventing gaming through market
monitoring, settlement processing (who owes who what), and handling the
dispute process.

The Midwest ISO signed a contract with the Regional Transmission Organization
(RTO) Alliance on July 20 of this year to deliver an integrated control
center system (ICCS) that, when complete, will provide $50 million in 
infrastructure
for the MISO.  The RTO Alliance, which consists of ALSTOM ESCA Corporation
of Seattle, Open Access Technology International (OATI) of Minneapolis,
Perot Systems of Dallas, Texas, and TenFold Corporation of Salt Lake City,
Utah, will deliver an electricity transmission system that will enable
MISO to match electricity demand with available transmission. The hardware
and software in the ICCS project will support MISO's operational functions
including transmission planning, reservation, scheduling, real-time monitoring
and control, settlement and billing.  Dr. Cordaro also stated that Lodestar
was involved in the MISO and that communications had been outsourced to
AT&T Solutions.

Keith Stamm of Aquila Energy went next.  Keith began by clarifying Aquila's
focus as trading: owning very little assets in a high-volume, low-margin,
high-volatility business.  I/T is very important in the trading business.
Real-time information must be known and disseminated appropriately to
the right individuals.  Keith believes that one of Aquila's strategic assets
and strengths is its risk management system.  Aquila strives for a real-time
calculation of risk.

Aquila Energy, a subsidiary of UtiliCorp United, Inc., has been a surprising
winner in the trading marketplace this year, showing a 113-percent growth
since last year with $9 billion total revenue for the past six months,
of that $55 million in trading revenue compared to $18 million in 1999.
The EBIT was $34.2 million vs. $9 million a year ago. Aquila has gathered
top traders and intellectual, financial, and risk management personnel
to enthusiastically participate in the power marketing race.

Keith mentioned a recent alliance with five other companies * including
top traders AEP and Duke Energy * as an investment step Aquila perceived
was necessary to keep pace with trader tycoon Enron and other online trading
platforms. The Energy Trading Consortium (Duke Energy, AEP, Aquila Energy,
Reliant Energy, Southern Company Energy Marketing and El Paso Energy) is
in progress to create an exchange that the participants hope will reap
benefits from the transaction cost, liquidity, volume and speed of exchange.
This consortium differentiates itself from EnronOnline by bringing many
buyers and sellers to the platform as opposed to one-to-many.  Another
competitor recently launched is e-Speed's TradeSpark.

James Pignatelli of UniSource Energy went last and had some controversial
statements concerning information technology.  James stated that I/T in
the vertically integrated utility is not strategic, at least not at the
present time.  James believes that I/T will become strategic someday (in
the deregulated market).

James claims getting frustrated with platform switching in the I/T arena.
He mentioned pulling in his I/T folks and saying, "Let's switch the 
distribution
network to DC power and once the public has bought new appliances, we'll
switch back to AC." While James' comments may have been controversial with
the more than 500 attendees and approximately 50 energy CIOs in the audience,
he does have a point.  The vertically integrated utility's core strength
is to generate power and distribute it to "captive" customers reliably.
While some I/T systems (like outage management and SCADA devices) may
be strategic in this sense, the other parts of I/T are questionable and
could be candidates for outsourcing.

James claims to be working on B-2-B and B-2-C initiatives at the moment.
His vision for B-2-C is a smart chip in the residence that has access
to instantaneous pricing information.  The residence will "buy" electricity
for itself from the most efficient supplier and it will be able to reduce
load, thereby reducing the T&D utility to a simple conduit for service.


James and Charles Bayless both were involved in New Energy Ventures prior
to its sale to AES.  In 1997, Tucson Electric invested $3 million in NEV
and Charles Bayless (then Tucson Electric's chairman, president and chief
executive officer) and James Pignatelli (Tucson Electric's senior vice
president and chief operating officer) served on New Energy Venture's 
administrative
committee.

It is interesting to view the different parts of the energy marketplace
as it unbundles and the profound impact that is occurring on the associated
I/T systems.  If one were to stop and think about it, deregulation could
not occur without the complex I/T systems that are employed today in the
marketplace.  I wonder what Thomas Edison and Samuel Insull would have
thought about an unbundled electric marketplace.  It is, in fact, undoing
their design of an integrated electric system constructed for operational
efficiency.
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Sincerely,

Jon T. Brock
Director, Strategic and Competitive Intelligence
jbrock@scientech.com
===============================================================
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