Armed with advanced energy trading, transaction, and risk management (ETRM) software, energy companies can turn the ability to adapt into a strategic and profi table competitive advantage. Utilizing an ETRM solution designed from the ground-up to embrace change—rather than react to it—and one which is scalable across the front, middle, and back offi ce, improves business agility and performance. An ETRM solution supporting this level of adaptability must utilize the latest technology and must provide advanced functionality to:
• enable new, more complex types of transactions yet to be created,
• support more complex logistical decisions,
• give users better understandings of volatilities and market dynamics,
• allow more fl exible management of business processes,
• free users from the limitations created by "information silos" by ensuring that all relevant processes and information can be readily integrated,
• permit more effi cient handling of variables such as constraints, tariff s, and fees,
• help companies accommodate change at any scale, from enter-prise-wide reorganization to individual user preferences, and
• enable companies to deploy and modify ETRM solutions more quickly to keep pace with changing business imperatives.

A tall order, attainable with software technologies already developed and deployed by Allegro. Through a next-generation, modular design, Allegro solutions deliver these critical capabilities.

Handling new types of transactions
Companies are gradually gaining deeper understandings of risks and opportunities embedded within new market dynamics. As these understandings grow, professionals are creating new types of physical and financial transactions. The number of new transaction types is increasing and markets are already seeing increases in transactions involving multiple commodities, swaps, swings and spreads, multi-leg options, multiple tiering price mechanisms, deals featuring FX and weather derivatives, and other complex features.

Complex transaction types are commonly beyond the capabilities of today's software, thus requiring workarounds. For example, users may need to manually disaggregate a complex deal into a series of vanilla transactions. However, manually disaggregating deals into smaller pseudo-transactions invites complications, especially if a deal's terms are later modified. These smaller transactions can get out of sync, spawning database discrepancies. While such discrepancies can be manually adjusted, this tactic often cascades into further discrepancies—significantly reducing the advantage of using integrated ETRM software in the first place.

Allegro provides the decision support tools necessary to
properly represent even the most complex hedging and risk management transactions and strategies including cross commodity, cross currency and hybrid.

Managing physical processes
An adaptable ETRM solution must guide increasingly complex physical decision-making in virtually every energy commodity, and help users structure and administer correspondingly complex physical contracts. The solution must assist in determining optimal actions, predict financial outcomes, help users understand and manage risks associated with each physical process
step, and support strategies to mitigate those risks.

For example, schedulers frequently encounter a new well coming on line in the middle of the month. Pipeline capacity is often constrained, and production moved to storage. Injections to storage are valued at current month prices. When withdrawn, production will be sold at the current month's price. From the producer perspective, the financial impact is dependent on the
scheduler's ability to effectively manage pipeline capacity and volumes. If prices are up, royalty owners obtain a greater return. If prices are down, the producer will take the loss. Also, other choices can be made such as choosing another market or an alternate route.

Allegro equally supports physical and financial workflows, integrating data from deal capture through scheduling, settlement, and financial reporting and compliance—raising efficiency and improving decisions based on more-accurate, physical positions and margin calculations.

Predicting volatilities and optimal paths
Market volatilities impose the greatest challenges on traders and risk managers who make physical and financial transaction decisions day-to-day. Decision support must adapt by delivering superior analytics, simulation and optimization tools integrated with real time, streaming market data. Such tools give professionals better understandings of volatilities and market dynamics, and provide more accurate price curves and other forward views.

Users can quickly simulate the impact of different decisions and varying market conditions. Optimization routines can help select optimal paths of execution from the hundreds of permutations possible such as with multi-leg options. Risk managers can develop more effective hedging strategies for mitigating volatility effects.

Also, hedging and optimization require fully integrated information. For a production company, this might include data communications with field, SCADA, and treasury systems to clearly understand volumetric information and counterparty exposures. It may also include market data, plus information from pipelines,
brokers, and exchanges, enabling greater insight into risks such as volumetric, price and counterparty risk.

Allegro's software automatically captures and integrates these information resources with its advanced analytical and decision support tools. Potential risk behavior can be observed under various market conditions, and this information can be used to support decisions regarding option exercise and other risk management activities within chosen risk profiles.

Accommodating process changes
As corporate policies, strategies, alliances, and internal controls evolve, business processes evolve with them. These changes may be far-reaching, for example restructuring entire approval hierarchies, with approval paths and individual authorizations redefined throughout the enterprise. Such reorganizations also require new workflows for document drafts, redirecting confirmations and resetting automated alerts and reminders in integrated software.

An ETRM solution designed for flexibility allows companies to convey specified contractual obligations to a new party, for a specified time span or indefinitely from a specified date.

Allegro accommodates even the most complex changes
providing messaging, automated version control, confirmations and alerts, shared calendars and related features facilitating collaboration among individuals, teams and counterparties.

Embracing numerous variables
Companies continually face changes in taxation, fees, compliance rules, contractual stipulations, and a myriad of other variables. In addition, deal-specific variables may include counterparty information, deal number, volume/quantity specifications (unit, frequency, rate), locations (multiple points of delivery), pricing formulas, product quality, duration, and supply and demand load shapes.

Allegro allows users to define an unlimited number of
variables, such as brokerage, transport and management fees, and demand charges. It also permits definition of standard or user-defined formulas to calculate charges, logic gateways to determine when charges should apply, and allocation routines that express which party pays what portion of the charge, under what terms and in which currency.

Adapting at any scale
To be truly flexible, businesses must adapt to complexity and volatility at any scale—and at any point in the business process— including enabling users to self-customize their digital workspace, satisfying each user's desktop productivity preferences.
At the enterprise level, a scalable solution must allow business relationships, as well as processes, to be redefined quickly and easily, seamlessly integrating processes and information.

Allegro is highly adaptable and scalable—from adapting
new corporate policies or approval hierarchies to an individual's choice as to which information to display, how to arrange it on the screen, and which links will be most readily accessible. Further, Allegro user-configured executive dashboard displays enable drill down to any level to accommodate preferences.

Deploying and modifying solutions
In some cases, to remain nimble, a company may need to deploy a new, more adaptable ETRM solution. A wise approach combines a component-based solution with a phased implementation strategy. This combination permits early deployment of the most critically needed functionality, addressing the area where a company is experiencing the greatest challenges.

Subsequent deployment phases follow a declining "pain
gradient" until a total solution is achieved. Each phase adds functionality, returning value to the enterprise while seamlessly integrating into the full solution. Phased implementation using modular software components also allows the solution plan itself to be readily modified in response to market volatilities.

Allegro's service-oriented architecture is a component-based solution. Process-specific functionality can be added incrementally, with those functions providing the greatest ROI and/or meeting critical requirements first, with additional functionality integrated as resources and budget become available.

Conclusion
Designed from the ground up to provide flexibility, Allegro's multi-commodity software is based on a modular architecture characterized by Web services and availability of a large number of independent, easily integrated software components. Allegro facilitates rapid change of business processes by separating the
processes themselves from underlying data.

When applied throughout the solution, and combined with a service-oriented architecture and other technical features, this decoupling strategy makes Allegro software adaptable enough to keep pace with the extreme complexity and volatility of energy markets.

By Lisa Chiranky, Director, Global Marketing – Allegro