Utilities Form Internet Exchange

BOSTON (03/30/2000) - Joining the trend among vertical industries, 15 of the top U.S. electric and gas companies are starting an Internet exchange to buy goods and services.

The automotive, aerospace and chemical industries recently announced similar B2B (business-to-business) plans. Such efforts are generally aimed at increasing the number of suppliers from whom to buy goods, as well as lowering costs.

The consortium, announced yesterday by the companies, is expected to start an independent for-profit company by June to handle the Internet exchange, which initially will be owned by the founding firms. Online proposals, price quotes and auctions will be among the first set of services offered by the exchange which is open for membership.

"The electrical-utility industry is highly fragmented," said Pat Hemlepp, a spokesman for American Electric Power Co., one of the consortium founders. "We have a lot of companies, including small and medium (-sized) companies buying the same kinds of items."

Doing so through one outlet on the Internet will allow the companies to take bids for items from suppliers, Hemlepp said. It also will provide suppliers with a single place to go to place bids and to drum up business.

The consortium members have not publicly stated how much they believe they will save in costs because the process of setting up the Internet B2B exchange is as yet in its early stages. Members should have a clearer sense of expected savings within the next few weeks, Hemlepp said.

The group of companies decided to set up the exchange themselves rather than hiring an outside consultant or company to handle the work because "we know our industry better than anybody on the outside," Hemlepp said. He added that it didn't seem to make sense to pay someone else to do the work that the founding companies can handle themselves.

The 15 companies announcing the consortium are American Electric Power Co., Columbus, Ohio; Cinergy Corp., Cincinnati; Consolidated Edison Inc., New York; Duke Energy Corp., Charlotte, North Carolina; Edison International, Rosemead, California; Entergy Corp., New Orleans; First Energy Corp., Akron, Ohio; FPL Group Inc., Juno Beach, Florida; PG&E Corp., San Francisco; Public Service Enterprise Group Inc., Newark, New Jersey; Reliant Energy Inc., Houston; Sempra Energy, San Diego; Southern Co., Atlanta; TXU, Dallas; and Unicom Corp., Chicago.

The group has hired PricewaterhouseCoopers LLP to help with both developing the exchange and choosing a technology vendor to set it up. The Internet exchange is expected to be operating by the end of the year, Hemlepp said.

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