Adapting Today’s Tech for Tomorrow’s Challenges

00:05

Howard Walper At this point, it's my pleasure to introduce this next session, which is adapting today's technology for tomorrow's challenges. It's going to be osted by our panel moderator, a good friend for many years, Mike Prokop, managing director for the Lions Risk Group. He's also a very active working group leader for our content partners, he Committee of Chief Risk Officers. So with that, I'm going to turn the floor over to Mike to introduce his panel.

00:38

Mike Prokop Well, thank you, Howard. And, Stephen and Isaac, thank you for your presentation – that was fantastic. It helps us actually lead into our first question, which I'll get to in a moment. First off, I'd like to introduce your panelists for today. And, we'll have them introduce themselves and tell us a little bit about their company, s well. Brock, would you like to go first, please?

01:00

Brock Mosovsky Sure. My name is Brock Mackowski. I'm the co-founder and VP of analytics of cQuant.io. My background is mostly in energy. I've been in the energy space now for about a decade – mostly on the wholesale power side, doing anything from risk management, portfolio analysis, long-term forecasting, of asset value, and, really, total portfolio analysis. And, that's really related to what we do at cQuant.

For those who may not be familiar with cQuant, cQuant is a cloud-native software-as-a-service organization for energy analytics. And so, we work with a variety of different stakeholders across the energy industry, regulated utilities, independent power producers, and organizations that are looking to procure renewable energy to meet sustainability goals, trading shops, consultancies. And, really what we focus on is total portfolio analysis. We focus on assessing and analyzing all the different risk factors in the uncertain quantities within the portfolio, and then helping our clients to optimize that through advanced analytics that runs in the cloud.

And so, it's a pleasure to be here, you know, thanks to Mike and Howard and Commodities People for hosting this great forum, and I'm looking forward to the discussion.

02:14

Mike Prokop Thank you. Great to have you here. And Sameer, would you like to do the same, please?

02:20

Sameer Soleja Absolutely. Hi, everybody. I'm Sameer Soleja, founder and head of product at Molecule Software. For those of you who might not be familiar, Molecule is the modern, cloud-native ETRM/CTRM system. We were born in the cloud, and we built our foundations on bleeding-edge technology. So we can do things like real-time position, P&L, near real-time VaR, and pre-built integrations to other systems like cQuant. Today, we value 80 billion worth of physical trades and financial derivatives across 50 commodities daily: power, gas, crude or refined products, ags, softs, metals, chemicals, and more for plenty of companies that you know, so feel free to check us out at www.molecule.io.

03:05

Mike Prokop Very good, sir, and thank you. And, I believe you just made it blatantly clear to the participants here today that we are now making that transition from the great presentation that you just did, from what they experienced in these environments, now to the people that actually have the systems. So with that, what I'd also like to add, as you saw Steven and Isaac start to talk about integrated risk management, one of the things that the CCRO is doing is focusing on that a great deal. As they very rightly said and pointed out, it is becoming blatantly, incredibly important that those silos between the different areas come down, and communication and transparency increases. We are experiencing a number of big events in the marketplace, and systems like your own are a part of managing that risk, predicting that risk, and things like that. So, what I would say for our first question is, you know, we have talked about that interest in the market to adopt integrated risk management as an approach even away from even enterprise risk management. Brock, maybe you could start us off, how are your platforms adapting to this transition?

04:21

Brock Mosovsky Yeah, it's a great segue into talking about some of the systems, and I think that the, you know, Isaac and Steven, queued that up very nicely. Kind of, the last point that they made with that really nice slide that shows all the different systems within an organization and how they're connected. I think is really telling, and one of the biggest things that we're seeing is that with the rapid pace of change within the energy industry today, with the transition to renewables, and with regulatory changing constantly, and different market mechanisms kind of coming online, and being available to practitioners – you have to be able to kind of keep pace with that change. And that's hitting all the different components of the organization.

And, so, part of the integration component is, is really one of integrating those pipelines, right. And, that idea of building this system where all the different components, the ETRM, the ERP, the sophisticated quantitative analytics, you know – all of those systems can talk to each other seamlessly, is something that traditionally has been very bespoke and has kind of come in the implementation phase.

But, I think that part of that transition toward a more integrated approach to risk management comes along with a transition to more modular and flexible systems. And I know that something that has been at the very core of cQuant from the very beginning is the idea of modularity and flexibility, the ability to kind of integrate with these other systems through modern architectures, like RESTful APIs, housing systems in the cloud, so that they can scale up and they can scale out at a moment's notice. To be able to have the kind of computational firepower that you need, but to not keep that up 24/7, right. It's very similar to the energy industry itself in terms of peaking resource needs. These systems don't just kind of crank out, you know, computation 24 hours a day, they do it at certain times.

And so, being able to kind of leverage that modularity and the integration ability with other systems, and then to kind of unify the views of the market, across different, you know, disparate silos within the organization kind of break down those silos between front-office and middle-office and back-office. That's a big thing that we're seeing, as well, is that a lot of our clients are kind of integrating some of those with a single analytic tool, a single source of truth that can serve the traders, can serve the risk managers, and then it can also serve accounting and treasury in terms of looking at settlements. And so, I think that integration component is a really key one.

06:57

Sameer Soleja Yeah, the bar is pretty high for us, as well. I mean, I used to work at one of the big SIs before this. And, the requests that we get today are so, so far away from what we were asked before. They're more like, “Oh, don't you integrate into v17 platforms that we need you to integrate to?” And, the answer has to be “yes.” So, the bar is pretty high these days, and for companies to be able to do what they need to do with their energy data – everything from analytics to asset modeling to just core ETRM functions and integrations with ERPs, et cetera. You know, companies deserve what they need and what they need a lot. Oh, you're on mute, Mike.

07:54

Mike Prokop I didn't want any noise to interrupt you. Thank you. So one of the things I did want to point out again from the risk standpoint though, and unfortunately, it's coming all too apparent right now. Apparently, there's some mass cyber attacks this morning in the Ukraine. So, as people think about this, Jira was very good to talk about. And so, on the lower right, the mass data lakes of data that are being analyzed, brought in, and sent out to regulators – all those types of things – there's a lot of input and output. And always, as you look toward that integrated risk management solution, consider cyber.

There are cyber folks that work very hard, and they tend to be a little bit siloed, as well. But that information sharing and transparency and that holistic approach to risk can really pay off in today's environment. Which brings us to those types of challenges in our second question, which is really, how has this current energy transition affected your business? And what challenges are you hearing about from your clients? Sameer, would you like to start us there?

09:08

Sameer Soleja Sure, um, I think faster than we expected. We've had calls from customers saying, “Hey, we're spinning up a carbon group.” “Hey, we're spinning up a renewables group.” “Hey, can I shove my RECs in the system?” Or, even, “Hey, we've, you know, acquired batteries, and how do we model them here and make sure that we're modeling the transactions appropriately.”

One thing we learned early on here at Molecule is that the ETRM is no good unless it can model everything. And, and so we've had to adapt very quickly to to model, really, new things that are coming on real-time. As customers have ESG mandates, as customers have interest in battery storage, and interest in carbon and renewables, as well. So, we've been playing in that space for a couple – no, three, four years now – and it's not as if we've just covered everything. The change is accelerating.

10:27

Brock Mosovsky Yeah, I see so many of the same things with cQuant’s customers. You know, I mean, I think that with the energy transition, there's clearly a move toward renewable energy. I think everyone is asking “How can we get more value out of batteries?” You know, the idea that you are tracking a lot more than just megawatt hours and dollars; you're tracking renewable energy certificates. And in some cases, even bucketing those, you know, California manages PCC, one, two, and three different buckets of RECs, different classes. You have resource adequacy requirements, again, the flex local system, right.

You have carbon-free, which is a little bit similar to RECs, but a little bit different in some ways. You have all these different kinds of attributes across the portfolio that need to be tracked. And you're also managing portfolios that are increasingly non-dispatchable. Right, you're losing control over the energy that is being generated, whether you're, you know, a corporate that is procuring power purchase agreements, or an independent power producer, or a utility.

We're seeing the trend towards renewables. And we're seeing organizations ask, “What does that mean for me?” Right, and one of the things that I think is common to everyone is that it means a loss of control, because we can't control when the sun shines and when the wind blows. I think that's one of the cases where having the quantitative analytics to kind of support those decisions becomes really important.

But, the other thing I'll echo in what Sameer said, is that the pace of change is accelerating. I mean, we're seeing, you know, just since we've been working with organizations in California, we do a lot of work with Community Choice Aggregators (CCA) in California, and their space is evolving so rapidly. I mean, the regulatory requirements on them to track resource adequacy, you know, carbon-free credits, all their supply and demand, is constantly changing.

And so, we're getting requests all the time to kind of, you know, like Sameer indicated, “We want to track our RECs,” “We want to track three different buckets of RECs,” “We want to track this thing that's similar to a REC but slightly different and has all these intricacies, and we need you guys to do it.” And so, kind of the undercurrent there is that solutions need to be flexible enough to accommodate those changes. They need to be able to respond really quickly. And, I think one of the best ways to do that is to kind of maintain a focus on modularity and flexibility.

You know, the days of big deployable, kind of, enterprise systems; software that sits on prem on servers that are dedicated for the purpose, I think those are largely gone. And the industry is kind of moving toward a paradigm that is much more flexible, much more integrate-able. And acknowledging this idea that no one system is going to be able to do everything and that the pace of changes is rapidly accelerating. And to keep up with that takes a certain architecture.

13:24

Sameer Soleja Just to build on what Brock said, right, the pace of change is fast enough that at least again, from the system side, it's not as if we're gonna get a call from a customer saying, “Hey, we're thinking about spinning up a carbon desk six months from now.” It's more like, “We just did these trades and … how do we get them in? And by the way, our reporting deadline is next Monday. So, uh, can you help?”

13:49

Mike Prokop I sense collective chuckles across the participants right now. So yeah, you’re in good company.

13:57

Brock Mosovsky Yeah, it's always, “This needs to be in here yesterday; it's just this is happening now. Our hand has been forced, and you know, what can you guys do for us?” And so, if organizations are not able to meet those needs, then I think they're gonna see clients migrate to other more flexible organizations that can. So, it's something that, I think, is spurred on by the energy transition, but it's changing the way that technology and software companies have to operate their business.

14:24

Sameer Soleja But academically, it's just so fascinating.

14:28

Mike Prokop Now, it really is. And, I think it comes down to, also, the rate now that we're seeing new products coming into the marketplace, from tradable products, management products and things like that, and not only just systems but also opportunities. And you know, changing market dynamics globally from opportunities to fill gaps, or perhaps, exit out of different markets and things like that, which kind of leads me to my next question. So, what makes these new products and new needs unique to what we're doing now from a systems perspective, specifically, if you can. Brock, again, if you could start us off there.

15:09

Brock Mosovsky Sure, yeah, I think one of the big things that we're seeing is that some of the, kind of, standard traded products are becoming less relevant, to an extent. And, when I say standard traded products, and I mean, you know, block forward contracts for power, peak and off-peak. And, even the name peak itself is starting to get a little bit fuzzy because, you know, peak was meant to indicate the peak of the demand but also the peak of the pricing, right. That was the period in which pricing exposure was the highest. And in some cases, we've actually seen those invert, where peak prices, on average, are settling below off-peak prices. And that's because of things like solar energy in the middle of the day, that's really dragging down those prices with zero marginal cost generation.

So, I think that there's a huge shift in the way that energy is traded and will be traded. We're seeing a lot more very, very bespoke, customized shapes being offered into the market. And the premiums really are not as high as maybe I would have thought, initially, for a completely bespoke project shape. I mean, some of our clients will go to the market and say, “Here's the shape of my net short position.” And, once they know the shape of their net short position or the expected shape, they can go and say, you know, “who wants to offer me energy with exactly that shape, every single, you know, 12 by 24, shape, or even an 8760.”

And, organizations are coming back. They're getting responses and the premiums that they're paying for for those types of products are not exorbitant relative to standard peak and off-peak products. And so, there's a ton of value to organizations in the ability to align their supply and demand at an extremely granular level. And that's all financial, then you bring in, kind of, the component of battery storage and the ability of batteries to kind of shift that energy around and do that alignment.

There's also a lot of organizations that are looking at, you know, 24/7 alignment of supply and demand just because they want to show that commitment to sustainability. Microsoft has been one that's been very open in terms of some of their marketing material to say their goal is 24/7, renewable energy. They want to match every megawatt hour they're consuming by a megawatt hour that's produced, at the same time and in the same region.

And that's very different from just tallying up the megawatt hours and the RECs that you've generated over a year and saying, “Yep, for 2022, I generated just as much renewable energy as I consumed, right?” Because as we know, the impact of generating electricity is a very locational impact, but it's also one that varies by time. And so, there's this kind of increasing trend toward granularity. Those are, it's creating a need for new products and new analysis.

18:01

Mike Prokop Now, thank you, Brock. And if I may, Sameer, I’m going to ask for your comment in just a moment. But, while Sameer’s commenting, Brock, if you wouldn't mind reading, there’s a question that came in on the chat from a participant that actually is very relative to what you were just talking about. And I'd like to have you expand on that, just a minute, after Sameer gives his thoughts on what's being said now. Sameer, would you like to go ahead with this?

18:24

Sameer Soleja Oh, sure. Um, so you know, Brock's comment leads right into the High Performance Computing (HPC) and how it's being used as a, I don’t know, I guess you'd call it a demand sink. And you know, how it relates to off-peak power, how it relates to crypto mining, et cetera.

We've heard some just absolutely fascinating things, like discussions of a crypto crack, for example. You know, natural gas to power to the mined coin, and, you know, decisions around how to run the miner, et cetera. Oh, man. You know, when we talk to folks in the industry about what we hear, it's clear that people have taken these concepts sort of, really to the next level, to a point where, just you know, shoving it into the existing platform is going to be difficult. But further, yeah, back to the original question that the pace of change is extremely fast.

19:41

Mike Prokop Well said, and I think you might have … Thank you, Sameer. That's very present. Brock, if you wouldn't mind, you may have taken a look at that question. And if you can just kind of summarize a little bit what the question was and then what you would say to it.

19:57

Brock Mosovsky Yeah, so you know, the question was regarding this idea of really accelerating pace of change, especially in the electricity and carbon market. And so the question was really, how are ETRMs and analytic systems adjusting to the flexibility that's needed? For example, you know, electricity, traditionally, you could assume that there was no storage. It was… it needed to be generated at the exact time of consumption.

Now, that assumption may be changing, at least a little bit, with battery storage becoming more feasible. And so, how our systems, you know, are adjusting to that. And, I think the answer, you know, goes back to some of the points that were made earlier about flexibility and modularity because, you know, suppose you have a system that is very, you know, monolithic. It's deployed on premise. There's potentially different custom code bases that are deployed to every single organization that is using the software, and you have a new change where you want to be able to accommodate battery storage, or you want to be able to model you know, renewable energy certificates or new power purchase agreement structures, like, you know, proxy generation swaps, or some of these new things that we're seeing coming on and starting to gain adoption.

In order to actually deliver that to the customer, you now have to kind of update all those custom code bases. And you have to go through the customer's IT process to get it into the server that's on prem and, kind of, behind their own firewall. That takes a lot of time, and it takes a lot of coordination across both of the organizations. So having kind of a centralized system with a single codebase, where all of the customers who are accessing the analytics or the software solution can access that system in the cloud seamlessly allows that organization, like cQuant, to deploy these updates in an extremely rapid fashion. A lot of times we're getting these requests, and we're able to, kind of, turn around and update within one release cycle, which for us is every two weeks. We're continuously releasing; we're continuously updating the software.

And so that flexibility, in terms of the architecture of the entire software becomes just as important as the flexibility in being able to kind of develop these new analytics. Because, you know, you can develop an analytic model reasonably rapidly, but if the only way you can run it, is you can have your quant run at the command line on their local computer, it's going to be of limited use, right? It needs to be integrated and needs to kind of flow through in a way that's transparent and usable. And so I think that's a huge component of this – keeping up with that pace of change really requires an architecture at the very foundational level of the entire business, to be able to support these changes and to deliver these changes in a very robust framework in near real-time.

22:45

Sameer Soleja A great example that, Brock, was on our end was when crude went negative last year without much warning. You know, CME had started publishing… CME and ICE, I think, both were starting to publish warnings in the days prior. Like, “Hey, here's what's going to happen. We're going to switch to Bachelier for the crude options if it crosses this threshold." You know, everybody thought we had four or five days – we had one. You know, we were fortunate in that we were able to roll out a release very quickly, I think, within a day or two, that covered that scenario. But, I mean, that was a great example of change happening very fast.

23:29

Mike Prokop Absolutely, for sure. Thank you. I'm staying with one of our other questions here that we have for you. And please, for the audience, keep the questions coming. We have another one in the queue that we'll ask in a moment. But, for both of you, what are the top three drivers in the market that has companies out exploring new analytics and risk management systems right now in your purview? And, Sameer, maybe you can start us off here, please?

23:58

Sameer Soleja Sure. I think the big three that we're seeing are renewables, carbon, well, for renewables, carbon credits, and crypto. Those are the places that we're seeing that we're seeing a lot of growth. You know, and I get asked, from time to time by larger, possibly older trading companies, “Hey, are people actually doing these things?” Especially when I asked when I mentioned carbon and crypto answers. Absolutely. I've been doing it for a while. So those are probably the four big spaces we see.

And what's really interesting is the fascinating ways that all four are linked together in ways that if you really think about it, you could probably get your mind around but wouldn't be obvious at first, such as how, you know, crypto mining might connect with High Performance Computing (HPC), which might connect with intermittent renewable generation and how to link it all together.

25:06

Mike Prokop That's a great answer. Brock, would you like to answer?

25:08

Brock Mosovsky Yeah, yeah. So, I think what we're seeing in terms of the top three, kind of, overlaps with Sameer’s types of renewables and carbon are huge. Everyone is asking about this regard about those, regardless of the nature of the organization. The other big one for us is batteries. And I would put High Performance Computing (HPC) and or Bitcoin as kind of a rising trend. What I think all of these are doing together is that they're creating the need for new ways of analyzing portfolios, new models, new paradigms, right.

I mean, like, like Sameer was saying, when you think about Bitcoin, you think okay, well, it's such an energy intensive process. We're running these servers to create these Bitcoins. But, when you move a Bitcoin mining facility next to a wind farm that is losing a ton of money for the off-taker because prices are so depressed in the region because there's so much wind, you create actually a new market opportunity to arbitrage energy into cryptocurrency or other High Performance Computing (HPC) computational outputs, right? You're… effectively what you're doing with High Performance Computing (HPC) is you're taking electricity and you're converting it into data. And that data has value. And that's essentially what Bitcoin is, right? So we're seeing organizations ask that same question.

Bitcoin’s almost operating like a reverse battery, in some cases, coincided with renewable energy, right. Whereas a battery can store energy and shift when it hits the grid. The crypto miner or the High Performance Computing, and it's not just crypto. It's computer vision; it's any application that requires a lot of processing power to deliver value. But it's able to operate as, almost like, a reverse battery. And what I mean is that it makes money when you're consuming energy because you're converting that energy into high value computational output.

Similarly, with batteries, right – batteries are shifting energy around, they're trying to stabilize revenue, and they act as a risk mitigation strategy. But they also act as a revenue uplift, especially for renewable energy resources that might be out of the money. And then renewables in general, right. Just looking at the different way that you have to manage a portfolio that is very, very heavy on renewables, because you don't have control over it. You just don't, right?

You have to understand the statistics because that's the… you only have control over your portfolio, right before you contract for renewable energy. So, you have to understand the statistical nature of what you're bringing into the portfolio, not only in terms of the resource itself, but also in terms of the market pricing that it's exposed to.

And so all of those, I think those are definitely some of the biggest questions that we're getting asked. And, you know, along the lines of that flexibility comment that was made earlier, you know, we have a huge focus on developing our analytics very rapidly and evolving it very rapidly to keep pace with that.

28:15

Mike Prokop Very good. Thank you. A question comes in from the audience here that I think is also relevant to what we're saying. And, it's back to classic risk modeling. So, I'll let you two decide who wants to take it first.

But, let me read with the degree of complexity being modeled from renewables and power in general. How is the risk and pricing being handled for forecasting VaR and general mark-to-market computations? Are new models being implemented, or is AI and ML being used to supplement the valuations?

28:51

Sameer Soleja I'll just maybe weigh in briefly and let Brock run with it because I think he's gonna have a way better answer. I mean, I think people are still figuring that out. And to some degree, people are designing their own forward curves that contain components of, you know, nodal electricity, forward derivatives of things, from CME and Xpansive, and other places, smashing them together to form their own forecasts. And then, feeding them into systems that work like they always did. But, Brock, I'd love to hear what you have to say.

29:36

Brock Mosovsky Yeah, yeah. When you talk about the complexity inherent and the lack of control inherent in things like renewable energy, battery storage, even, you know, carbon, and some of these other attribute tracking. Some of the traditional methods of doing mark-to-market, kind of, break down. And it's related to some of those… to the notion that I mentioned earlier about this idea of peak and off-peak pricing. It's almost not even relevant anymore, and I think it'll become increasingly less relevant.

So, if your mark-to-market and your VaR is looking at forward contract prices for block shaped products and looking at market volatility, and you know, current market price, and you're using that to value even just the mark-to-market component, which is arguably a little more simple than even assessing risk, right. But even just determining that value – because the value of these things, renewables, batteries, even marginal carbon on the grid – is so tied to the real time shape of the generation, which you can't control. And the market prices, which you can't control. And the two are actually covariate. They covariate, right. The more renewable generation that is on the grid, the lower that price is.

And so, not only is there a shape that does not match typical over-the-counter (OTC) traded products or exchange-traded products (ETP). There's also a covariance that is very, very difficult to capture in kind of a standard bar metric. So, there are new metrics being developed. The metric that we really recommend is one called Net-Position-at-Risk (NPaR). But, the idea behind these metrics is that you're looking at all the hourly variability of the generation volume, so there's extreme volumetric uncertainty.

Another thing that VaR models have a hard time capturing. But, there's also extreme price uncertainty in the spot market and in the forward market, and then the two affect each other where they're not even decoupled, right? So, you have to have a framework that models all of that, and you have to model it at the hourly level, and then roll it up. It was kind of related to something that Isaac had said earlier, that the means are summative, but you can't sum the quantiles.

If you're looking at risk in your distribution, you can't just take your P5S across your different assets and sum them up, right? That gives you a very, very skewed view of risk. So, you need to approach the problem much more holistically. And you have to approach it from a very, very granular perspective, accounting for both the physical nature of the grid and the way that these different risk factors can move, but also the nature of a particular portfolio that's responding to that. And so, it becomes a problem of kind of impulse-response, stimulus-response for a particular portfolio or particular class of assets.

32:23

Mike Prokop Very good. Fantastic answer because you just lead into another question that came in from a listener. I'm excited to see that our listeners are really participating today and sending us great questions. And, it expands on a little bit of just what we just said.

So here it is, if you're sitting on a monolith, if you will, that costs many years of time and money. What are your thoughts and how to move towards modularity, and how do you pitch us to leadership? And this actually preamps a question we were going to ask prepared around, you know, how do you calculate that ROI and present that to leadership? Sameer, perhaps would you like to take a shot?

33:03

Sameer Soleja Yeah, sure. It's a hard case to make to rip out a monolith, right? Because, exactly what the listener or the questioner made the question about, lots of treasure and time and effort put in. And so one of the things that we've seen people do is say, “Okay, well, I have this new portfolio; it doesn't fit into my thing. Can I call somebody who can get me off the ground very quickly?” And the answer is, those people exist.

And, you know, put the new portfolio into the new platform and one way to justify the use of the new platform is, “Well, this is what enabled me to get my new portfolio off the ground.” Or, “this is what enabled me to meet my ESG targets,” or something like that. That case… we've seen that case made over and over. And then at some future point in time, if you like the new platform and want to start migrating things over to it, that's great. But this next gen of systems is nowhere near as hard as the ones that came before.

34:15

Brock Mosovsky That is such a good point. You know, anecdotally, we had a customer come to us in this exact situation… maybe it was two weeks ago. And, they had a solution that was on prem; it was running on their own hardware. It was very… it was a good solution for certain things, but it wasn't flexible enough to kind of keep up with some of these with the renewables and the batteries that this organization wanted to add to its portfolio. And so, we started talking to them, and they expressed the same concern. They said, “Well, it's gonna be a hard sell to move off of what we have because we've spent millions of dollars over the years getting up and running on this system.”

And, we said, “Well, why don't you give us an asset? Give us an asset or a small portfolio. And we'll just show you what the system can do. It's very easy for us to do this. And we turn the analysis around in two days.” And they say, “What? You do the analysis in two days?” And we said, “Well, yeah. The implementation timeframes that we're talking about now are not years, like they used to be. They’re weeks or months, at most. And, that includes training for all the users to be able to use the system. Right.

So, I think one of the big things that supports this transition is, take your PTSD that has come from the implementation of that monolithic software and just acknowledge that you have to get over the trauma of implementing that. Because the implementations of today are not the implementations of yesterday. I think the other argument is one, that it's tough to sell. It's a very rational argument. But, there's this idea of sunk costs. And, a big system that is implemented but does not suit the needs of the business should not be adhered to on a go forward basis, just because you've spent a lot of money on it. Right? That cost is sunk. It's gone, it's spent.

Now the question is, what do I do for the business into the future? How do I best position my business into the future? And, if you're looking at that system, and you're having trouble getting updates that can support the rapid pace of change. And, you're not able to model your whole portfolio, and you're looking at some at this growing segment of your portfolio – renewables and batteries and attributes that you can't fit into that, you know, it's a square peg that you can't fit into the round hole that you have.

You have to acknowledge at some point that going forward, you're going to have to make a change. And, the longer you adhere to that solution, you're only hurting yourself in the sense of being able to move down that path and get on a path that's going to be better for you in the long run. So there's this idea of sunk costs, it ends up being… it's a very rational argument to a very emotional problem. And so it can be a hard sell. But, there's an organizational change management component of this that's very difficult to navigate. It's an interesting problem.

37:09

Mike Prokop Very good. That's for sure. Very well said. Thank you. All right. Here's our next question, Sameer, you started getting us down this track and you know it's some of my old stomping grounds. So, I want to make sure I want to… I want to get this out. Because, to set the stage a little bit – things like Bitcoin digital assets. The power it takes to create Bitcoin, blockchain in general, and some of the operational benefits of blockchain – take, for example, some of the great things that in Houston, Blockchain for Energy is doing a number of major corporations coming together to look at real solutions, real answers using this technology. It's no longer smoke and mirrors. It's hitting the ground and running.

So, let me ask you, how are companies that you've been speaking with, Sameer, right now approaching blockchain technology? And how are they handling from an assistants’ perspective, as well?

38:04

Sameer Soleja Absolutely. So, I mean, first of all, just on the purely crypto side, companies are trading crypto today, absolutely. Respectable energy companies that you know, are absolutely doing it. The second, on the purely blockchain side, the places that we see companies dipping their toes in the water, because everybody seems to be dipping their toes in the water, are around traceability and around settlements, typically.

So, settlements brought the confirms and settlements process being very difficult, being very labor-intensive, really being something that should be able to be solved with a trusted third-party source of information. Absolutely. A place where companies, like VAC and Heliox, for example, are dipping their toes in the water.

And then, on traceability, as well, you've got companies who are trying to make sure that people who, for example, say how they're going to use their RECs proved to their auditors and to their stakeholders that they are using them in that way. And that's not just necessarily registries, but it goes all the way down to well, “How do my auditors see it? How do they prove that I haven't tampered with it?” There's a great company here in Houston called Topple that's doing… that has its own chain specifically designed for traceability. And we've been having some really interesting conversations with them, as well.

39:43

Brock Mosovsky Yeah, and ours is, I guess, where we're seeing it is more on the, more on the revenue stabilization side than, kind of, the traceability of settlements. It's looking at blockchain, and really High Performance Computing (HPC) in general, as a way of combining an additional revenue stream with renewable energy.

So, if you have a, you know, a renewable facility. If you prolong the renewable energy, either through a PPA, a power purchase agreement, or through the physical asset itself, the lower market prices go, the worse that is for you, right? So what's a natural hedge for that? Well, it's something that consumes energy, right? It's taking that opposite position, it's something that makes… that has a benefit. The lower the market prices go, the easier it is to mine Bitcoin, right? Or, the cheaper it is, not the easier it is.

But, if you're looking at the problem as one of converting electricity into high value computational outcomes, then really what you're doing is you're arbitraging between the price of energy and the price of Bitcoin. You're saying, as long as I can make more than the cost of my electricity, right. If it's costing me 50 bucks a megawatt hour to feed into the bitcoin miner, but on average per megawatt hour spent on computation, I get x number of Bitcoin and that's worth, whatever it is to me. There's a spread there that you can capitalize on.

And not only are you, you know, adding revenue to your portfolio, but you're also, kind of, that revenue is offsetting some of the exact periods where you'd be losing revenue on the renewable energy. And, it's the same thing with the battery. So, what we're seeing is, I mean, we've seen a variety of different applications. We've seen High Performance Computing combined with very large thermal generators. We've seen it combined with actually running generators off of natural gas that would otherwise be flared.

And using the electricity from those local generators to run little, you know, High Performance Computing data centers that live in a shipping container, on site at the gas wellhead. And, of course, we've seen quite a bit with renewable energy. So, there's all these different kinds of applications, of organizations that are thinking very creatively about blockchain.

And again, I'll expand it to more than blockchain. We have companies that are, you know – really, it's server time, right? I've got some computational servers; I've got a satellite data connection; I can pipe data in and out. And, I can do a bunch of computation very, very cheaply. And, in some cases, even those computational centers are even mobile enough to move around as market dynamics kind of change.

And so, it's a really interesting dynamic because there is a bigger need for computation today than there ever has been. And so, if there's creative ways of accessing cheap computational resources, there's a huge spread in terms of the cost of the energy used to run the servers, and the value that you get out of the computational outcomes.

42:54

Mike Prokop Sameer, anything else to add?

42:57

Sameer Soleja No, I think Brock covered a lot of ground there, and I think he's absolutely right. I think the biggest takeaway for me, again, sort of just academically is just how fascinating this is. Every time we have a customer call and say, “Hey, we want to do X.” Sometimes, I have to sit and, like, decompose the thing with our team to really understand what they're doing. And, it makes so much sense. It's just a thing that we hadn't thought of before.

43:27

Mike Prokop Perfect. I appreciate that. And, I see we're just about five minutes from the end of our time here. So, I’d like to really get some deep thought around our takeaway question here. And that's going to be – and Brock, maybe I’ll ask you to go first on this – what would you like the viewers to take away from today's discussion? And that's kind of a loaded question. We've talked about a lot. But, for the most help that we can give our viewers today, what do you think they should take away? And then perhaps even look into more and ask more questions?

44:01

Brock Mosovsky Yeah, so you know, to me, the biggest thing and, you know, this is certainly coming from the perspective of an analytic software vendor. But, I think one of the most important things that we can acknowledge is that the pace of change within the energy industry is very fast today. But, it's only going to get faster. It's going to accelerate.

It's going to accelerate in terms of the products that are available, our understanding of the products, and what we can do with them, as we've kind of seen today with some of the High Performance Computing and blockchain technology. And so, at the same time, businesses are being run today in a way that is increasingly data driven. So, you have an industry that is changing rapidly and accelerating in its pace of change. But, you also have a need and a desire for analytics to drive business decisions.

But, you can't just go to a textbook and learn how to do the analytics that you need because in many cases it has never been done before because these problems have just cropped up, right? You think you'd be hard pressed to go and find a textbook on valuing a bitcoin miner as a real option, what are the things you need to understand there, right? That's not written down anywhere. So, you have to be able to adapt. So, you're faced with a very challenging problem.

As an organization operating in the energy industry, I think the challenging problem that you face is that the industry is evolving so rapidly. And, to stay at the cutting edge of that industry, you have to be making data-driven decisions, you can't just rely on pure intuition. And, those two are almost incompatible.

Because the faster the industry changes, the harder it is to develop leading edge analytics that stay at the forefront of the industry, which is changing really fast. So, that requires a certain type of organization and a certain type of mindset to be able to keep up with that, right? It requires something that is extremely flexible. It requires something that is leveraging the latest technology out there. Something that's scalable, something that's dynamic, something that's flexible enough to be able to kind of integrate new analysis or new features in real-time, as the industry evolves. And, that architecture that goes to the very core of the entire organization because, you know, the enterprise systems, you know, just can't they can't keep up with that pace of change.

And so, I think the one big thing that I want, you know, folks to take away, is whether you're looking at analytics, whether you're looking at ETRM, whether you're looking at any other organism, any other vendor, or system that you're integrating into your organization to help your business run better.

It needs to be modular; it needs to be flexible; it needs to be high performance. Because even if you don't need all of that today, you will. And so, building, kind of, a system of systems requires these different systems to talk to each other. And so, that requires a modular architecture with, kind of, API-based communication. And really, that's the only way to kind of scale into this very, very rapid pace of change.

47:24

Sameer Soleja Yeah, you know, I'd love to just build on what Brock said. You know, we, in this changing environment, what blocking and tackling means is absolutely changing with it. But, I think my perspective is that it doesn't have to be that hard to make the change. The differences are intuitive to grok, despite the explosion of data. Like, we talked about power blocks maybe not being relevant soon. Hourly power means machines need to make more decisions than people do.

It just may mean that you need modern tooling, for which these problems are not at all hard to solve. A lot of modern tooling builds on Silicon Valley tool chains. Silicon Valley has been dealing with huge, giant amounts of data for years, maybe not quite as complex in some ways as what the energy industry does, but not dissimilar either. And, those two tool chains make it really easy to solve some of these problems. So, I don't know. I think this is going to be a fun ride for all of us.

48:27

Mike Prokop You know, if it's not fun, why don't we do it? So, before I hand over to Howard, gentlemen, thank you very much. Thank you for making my job so easy today. I know our participants, gauged by the questions we got and the answers you gave, got a lot out of it. I also want to thank Isaac and Steven for the great material they proposed today and how nicely it fit in with what we were talking about. So Howard, back to you. Thank you very much.

48:57

Howard Walper Well, you said it better than I can. Thank you, gentlemen. Brock and Sameer, thanks for your input. Mike, thanks for putting this all together and wrangling it and moderating it. You're really a hero of this week. Also, thank you to Isaac and Steven. From Jeremy, that was a fantastic presentation. Please be sure to join us again tomorrow at 10am.

As they say, same bat time, same bat channel for it. I'm sure it's going to be an amazingly insightful discussion between some of the leading chief risk officers out there. We've got chief risk officers from Cleco, from Easter Energy and from Muscat. And, this will be moderated by our good friend, Bob Anderson, the executive director of the Committee of Chief Risk Officers, colloquially known as the CCRO. Many of whose members speak and attend our various events. That's going to be a great look at the risk management challenges CROs are facing today.

So, with that, we'll say: see you tomorrow at 10am. And thank you again, and thanks to everyone. Take care!