If you’re in the wholesale or resale natural gas or electric power business, then you’re likely familiar with the North American Energy Standards Board (NAESB). Their standards are designed to lead to a seamless marketplace for electricity and natural gas. Their membership includes about 300 corporate members and additional non-member volunteers who contribute to the drafting and adopting of NAESB standards.
In this Emerson Automation Experts podcast, I’m joined by Martha Rendon to discuss NAESB and the challenges and solutions around standards compliance. Give the podcast a listen and visit the Order-to-Cash (O2C) Software for Energy Logistics section on Emerson.com for more information on how you can integrate all commercial activities (also known as order-to-cash) in a single software solution, resulting in greater efficiency, faster month-end closing, and improved compliance with local regulations, including NAESB.
Transcript
Jim: Hi, everyone. This is Jim Cahill with another Emerson Automation Experts podcast. The North American Energy Standards Board, known as NAESB, serves as an industry forum for the development and promotion of standards to advance marketplace efficiency for wholesale and retail natural gas and electricity. Today, I’m joined by Martha Rendon, who you may recall from an earlier podcast, to discuss the NAESB and its interactions in the industry. Welcome, Martha.
Martha: Hello, Jim. Thank you so much for inviting me.
Jim: Well, it’s great to have you back with us. Let’s open by asking you to share your background with our listeners.
Martha: Okay. I am currently the Senior Product Manager for the Gas Commercial Solutions with Emerson. I have a bachelor’s degree in computer science, and I am certified in project management professional, the PMP. Also, I have a certification in business design thinking. I have been working with Emerson for 16 years now, and working mainly with the gas management solution as commercial gas subject matter expert. You know, it is involved with the commercial gas business transportation processes mainly.
Jim: Well, that sounds like great background for our discussion. So let’s get into NAESB now. So what is NAESB, and what is its role in the gas industry?
Martha: Yes, the NAESB, the North American Energy Standards Board, as you were indicating at the beginning, is the organization that plays an important role in the natural gas industry, as well as in the energy and electricity industry. They develop and promote the standards that are oriented to improve efficiency and ensure that the market is transparent. They have standards as well that are oriented to facilitate interoperability and ensure at the end that the market is efficient and competitive. In the U.S., we have in the gas sector is an open market. So the NAESB is working closely with the FERC, that is the agency, the Federal Energy Regulatory Commission in the U.S. to develop the standards that are aligned with that regulatory requirements. For instance, NAESB standards often incorporate into FERC orders that govern the natural gas industry. So that is mainly the role for the NAESB in the gas industry.
Jim: Okay, so what is the importance of complying with the NAESB standards for gas pipelines and distribution companies?
Martha: Yes, and as mentioned before, the natural gas business is a mature market in North America. So complying with these standards that NAESB is defined is crucial for the gas pipeline operators, distribution companies to meet those regulatory requirements. And basically, it’s important to avoid any penalties promoting the trust with the market. So a pipeline operator, gas pipeline operator, and distributors, they require to have in place those standard business practices to make sure that the market of the natural gas is improving and is managing efficiently. It is important for those companies to apply the standards in order to optimize their operations, reduce the risks that are involved, and improve the communication among the stakeholders at the end. The business practices that are in the commercial business are important to reduce any obstacles that come when trading and enhancing the coordination between the different players for the market. So when talking about the players in the gas market, we are talking about suppliers, shippers, consumers, and the business practices are really important to reduce the obstacles complying with those standards are intended to do that and to make flexible and clear the business for everyone.
Jim: Well, yeah, it sounds like their role just to keep things moving along efficiently all the way through the supply chain from, you know, getting the gas out of the ground and to getting it to the consumer. So it sounds like a very important thing. So how has the NAESB regulations evolved over the years?
Martha: The gas market, as I see for the regulation, has evolved considering the technological changes and as well the expansion of the energy markets. The need when evolving technological changes has been important to improve cybersecurity and operational efficiency. So I think that the regulation has evolved oriented to that over the years. Initially, the standards were focused more on gas flow management, but now they cover different aspects as automation of communication between systems or integrations, include aspects about cybersecurity, and as well the integration of renewable energies. So that is how the NAESB regulation has evolved over the years.
Jim: So it sounds like the regulations are important for the efficiency of the overall marketplace and the reliability of getting things where it needs to go, but I imagine it brings along its challenges. So what are the main challenges companies face in complying with these NAESB standards?
Martha: I think that as a common challenge here is to include the complexity of the technical requirements, to have those technical requirements in place. When they integrate the standards into the legacy systems, it’s an important challenge. I think as well I can see when it is a lack of the trained compliance people, it’s an important challenge that companies are facing, and of course the costs that are associated when implementing and doing the outreach for these standards are required to be compliant with those companies.
Jim: Yeah, so it sounds like some people and some technology challenges all in there. So what’s the impact of non-compliance with these standards on companies?
Martha: Yes, well, this is based on complying with regulations, so it is clear when in North America not compliance with those standards can result in regulatory penalties. When we talk about high penalties that companies need to pay for those and noncompliance, it means economical losses. Sometimes they have to interrupt the operations, so the economical losses are due to operational interruptions as well. This can generate security risk, and at the end, a loss of trust from the business partners and the different customers that are related with those companies.
Jim: Well, I think that gives a pretty good overview of NAESB compliance. Let’s get into some of the technical or implementation type questions here. So, Martha, what are the most critical aspects of NAESB compliance that software developers in the gas industry should consider?
Martha: Yes, for the developers it’s really important to understand first what are the objectives of the NAESB standards that are required to be implemented. It is important for them to ensure that their systems can communicate with other systems that are using NAESB protocols and that communication should be effective. It is important to consider as well that these solutions have the adequate security controls to protect the data. The solution should be adaptable to the standard updates without significant services with disruption. It means that the solution should be flexible to facilitate these standard updates when that happens.
Jim: Okay, so yeah, they’ve got their set of challenges if you’re a software developer. Let’s turn more to what Emerson can do to help. So what is the most effective tool or technology offered by us here at Emerson for ensuring NAESB compliance?
Martha: Yes, then with Emerson we have the technology that is managing the order-to-cash solution for gas. The order-to-cash is the commercial software that streamlines the entire order-to-cash cycle and enhance the communication between the gas transmission, the distribution of pipelines, the stakeholders. This order-to-cash solution is managing all the transactions that are related to multiple types of contracts and the commercial services of the natural gas. This is an off-the-shelf software solution that is aligned with the standards set by the NAESB for the wholesale gas quadrant. And this order-to-cash solution is used for managing the contracts, different types of services, for instance, transportation agreements, the OBAs, parking loans, storage, pooling, the title transfer tracking, capacity release, including segmentation, etc.
With this solution, we are capturing and validating the nominations. This solution is order-to-cash because it’s from the nominations to the invoicing process. So one of the first things that we are doing is capturing and validating the nominations, calculating and confirming the final scheduling results. Here we are managing allocations, imbalances, inventory, invoicing, and we are capturing all transactions helping to maximize the available product. The transactions that are capturing the system facilitate the generation of reports. We have the actual report functionality with these solutions. We are improving with an order-to-cash solution the visibility of the linepack helping to optimize its use since we are able to communicate with any SCADA system or any operational system for hydraulic validations. We can improve that visibility of the linepack. And at the end with this solution, something that we see is that we facilitate the connectivity, transparency, increase the customer satisfaction, and allow the companies to have a system that satisfies the auditing and the cybersecurity requirements.
Jim: Wow, that sounds like a broad list of capabilities for managing all those transactions along the way and scheduling and some of the other parts in there. So that seems like that’s pretty valuable things. So what recommendations would you give to a company just starting to integrate NAESB standards into its operations and how can Emerson help?
Martha: Yeah, this is a good, really good question. The recommendations, I think that when I see a company that is just starting to integrate within NAESB standards or even companies that already have and want to have the process manually, I think that my recommendation is to think about four important criteria when considering a gas commercial solution. The first criteria and recommendation for me is the question, “does the solution comply with NAESB?” So many of the NAESB standards, as mentioned at the beginning, Jim, are incorporated by the Federal Energy Regulatory Commission, the FERC, and it is critical that the North American gas filing companies implement those NAESB-compliant business practices with tools and protocols that enhance the system and software security for those transactions. So the first criteria, does the solution comply with NAESB?
The second criteria or recommendation is a question, “does this solution support the end-to-end gas commercial business cycle?” I think that this criteria is important of the Shell software solution that complies with NAESB and that is considered in the end-to-end gas commercial business in implying processes, standards, and data sets associated to contracts, the nominations, confirmations, scheduling, notifications, flowing gas, invoicing, informational posting. All of that is important to consider as a criteria. Does the solution support the end-to-end gas commercial business with those aspects that I just mentioned?
The third criteria and recommendation is ask this question, “does the solution provide with the flexibility that is needed in the commercial process?” There are different particularities with dealing with different customers, so the question is, is the solution flexible? So definitely here a robust gas commercial solution must manage these transaction validations, being user-friendly, configurable, adaptable to the market changes, and it is essential definitely to have a solution that is powerful and customizable for reports, features, for instance. So that is the third criteria. And the last one, even if it’s optional, I think that is a plus. The question is, “does the solution offer integration for hydraulic validation?” Even if that part is optional, I think that effective scheduling process can be enhanced when this is supported with hydraulic validation. With the hydraulic validation, we are minimizing the silos between operational and commercial side. We are considering the ability of the pipeline to transport gas, the actual flow of gas through and around the constraints in order at the end to ensure that the optimal capacity is used and that there are no operational violations in place. So that question or that criteria, a recommendation, I would say would be important to consider if the solution supports integration with hydraulic validation.
And how Emerson can help? There are different advantages that I see for the Emerson solution. We have the experience in the industry. We can enable energy companies to run their business with compliance with the latest standards and access to the secure and innovative technologies. We have a solution that can be offered as a subscription model, hosting, and as well on-premise. We are using here the best practices implemented with project execution. We use an interactive approach when implementing projects. And this is an intuitive solution. It’s easy to set up. We manage automatic events, actual reports, information, and posting, flexible configuration. So that is basically the way how Emerson can help after considering those criteria or recommendations that I mentioned before.
Jim: Yeah, that sounds like some great questions to start to uncover just what is the right path forward? And it’s good to see how Emerson can really be a partner in helping drive that forward to integrate those standards. Let’s look forward a little bit into the future. So how do you see the future of NAESB regulations in the next 5 to 10 years?
Martha: Yeah, when I think about this, what is going to be the future of the NAESB regulation, and in the U.S., in the next 5, 10 years, I expect here a greater integration of automation. I think that there are aspects in technology, artificial intelligence, the blockchains to ensure transparency, efficiency in the market. I think that the standards will also evolve to cover those new forms of energy and advanced cybersecurity. And I think that the future of NAESB should be oriented to adapt to emerging challenges in the energy industry. What I mean is there are definitely in the market, for the future of this market, commercial potential for hydrogen, carbon capture, CCUs that require technical methods and require to have in place new business models. And the standards and regulation to support that emerging sector and drive it, drive the innovation is going to be important. And I think that the future of NAESB in this next 5, 10 years should be oriented to that.
Jim: Yeah, it’s pretty dynamic with changing energy sources like hydrogen and capturing carbon. And yeah, I can see that those regulations will have to address those as we move forward. So how are digitalization and new technologies affecting NAESB compliance?
Martha: Yeah, definitely the utilization is driving the need to have adaptations to standards, to those new technologies. The technology at the end facilitates the compliance, but as well as introducing new challenges. It is really critical to protect the digital information. It’s really important to ensure the interoperability between those systems that are integrated, that are getting automated. So I think that definitely the digitalization and new technologies affect the compliance and facilitate that, but definitely affect the compliance and require adaptation as well in the standards to be aligned with those new technologies.
Jim: Now I asked you a little bit about looking out 5 to 10 years, but what about more near term? Do you think there will be new regulations or significant modifications to the NAESB standards soon?
Martha: I think that definitely yes. I think that even if NAESB is working with standards for cybersecurity and data management, it’s still an ongoing part of that. So NAESB is constantly working with those modifications in the standards oriented to the new ways to do the business and oriented to the new technology. So I think that areas like cybersecurity and data management are something that can bring significant modifications within NAESB.
Jim: Yeah, those are really significant areas that I think, you’re right, that are finding their way into the standards. And what has been the most impactful change you’ve seen in the industry in terms of these, in terms of NAESB compliance?
Martha: Yes, I think that the interoperability between the parties that are involved in the business has been an important change. And as I say, the introduction of the cybersecurity standard has been one of the most impactful changes, and it has forced the companies to change the policies and apply and adopt more robust technologies to protect the critical infrastructure. So I think that in general, the cybersecurity standards have been the most important changes.
Jim: Yeah. Okay, and, Martha, this has been a great discussion. Let’s start winding things down a little bit. Do you have any final perspectives to share with our listeners about NAESB compliance and technology solutions?
Martha: Yes. I think that my perspective is that it is important to see how the solution, the technology solutions at the end delivers the value to the companies. So it is important to consider going in line with the recommendations that I previously mentioned, is making sure that the solutions comply with NAESB and offers customizable fields and code values. The capacity optimization and imbalance management is important in this solution when added value ensures the transportation to using hydraulic validations, even if it is optional, I think that is an important perspective about the technology.
Another, I think that when trying to see a solution that delivers great value is the modern GUI, intuitive navigation, the transaction validation during the entry to eliminate errors, meaning that when users or customers are inputting information into the application, the transaction validation should happen immediately, not at the end of the two or three steps in the process to validate the transactions. That can generate more time to process and the interaction with the customer, with the user could be not really effective. I think that the transaction validations, the customizable report features are important, the email notifications. That regarding the GUI, one of a kind configurable tool, flexible, expandable, secure, with enhanced product integration, with controls that include the banks and tax that can run automatically would be really important. I think that my final perspective here is to find a partner that can offer the pipeline and operator distribution companies that are using these commercial solutions, including a partner that is going to support a good maintenance that is having a lot of expertise in the energy industry and in the compliance regulations. That is my final perspective, Jim.
Jim: Well, there were several important points there about that validation in real-time instead of trying to figure it out after the fact, which can really delay and slow things down quite a bit and choosing a partner that you’re collaborating with to really making it work right for your business to be compliant with the standards and operating as efficiently and reliably as possible there. Finally, where can our listeners go to learn more about how Emerson can help with NAESB compliance?
Martha: Surely, I invite to learn more going to the Emerson.com/EnergyLogistics or search the order-to-cash software on Emerson.com.
Jim: Well, that’s perfect. Martha, I want to thank you so much for joining us today and sharing your expertise with our listeners.
Martha: Thank you so much for having me here today.
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