The New Environment -- With an Alliance

The New Environment — With an Alliance

The telecommunication organization (TEL) discussed in this chapter provides services to its customers through its own telecommunications network and would like to improve its customer base by forming a strategic alliance with the retail electricity distribution organizations. As large telecommunication organizations exhibit structural inertia, generating a competitive advantage in a new market poses an enormous challenge (Henderson & Clark, 1990). An organization must make a distinction between a new product and the means to achieve that new product. The recent merger between American On-line and Warner Publishing clearly demonstrates that it is not too difficult for an IT organization to offer new products in an existing market. Considering this point, strategic alliances and partnerships could be a way for an IT organization to enter into a completely new product market. From a systems development perspective, alliances may result in the development of new interfaces to the existing ISs or alternatively a new integrated IS.

As per the deregulation rules, a retail distributor must make financial settlement with other suppliers of the electricity industry supply chain. This needs to cover the cost of electricity from the wholesale electricity market, tariffs for distribution of the same by the transmission and distribution service providers, and meter data collection from meter providers (MPs) and meter data agents (MDAs). The processes and systems therein must be able to interface with retail energy distributors accounting and billing, service activation and service assurance processes and systems.

To conduct business as a market participant, TEL must purchase wholesale electricity and services for the physical delivery and metering to the customer. There are two clear options available to TEL to purchase electricity:

• By direct participation and trading in the national electricity market (NEM). This means TEL would perform all electricity trader functions, including the act to bid and settle wholesale purchases in the national electricity market from its own resources and carry all market and prudential risks and responsibilities.

• By engaging an existing specialist energy trader. This means TEL would form a close and long-term relationship with one (or more) existing trader(s) who would operate all market trader functions and processes on TEL's behalf. This would be an outsourced supply arrangement. The sharing of risk and responsibilities is a matter for specific agreement with the trader.

Figure 3 and Table 1 identify the risks associated with the Energy Trader functions for various participants in the national electricity market.

Table 1: Risk Allocation for Energy Trading

Risk	Description	Risk Allocated to
R1	Customer numbers/market share not achieved.	Retailer
	Mix of customer profile types is not as expected	Retailer/Trader
R2	Load/Purchasing forecasts are not accurate	Trader
R3	Trading decisions are flawed	Trader
	Market price risk	Retailer/Trader
R4	Industry development expectations are incorrect	Trader
R5	Incorrect or unrealistic performance expectations are set	Joint - Retailer/Trader

Figure 3: Energy Trading Risks