Six Major Energy Firms Launch Online Market

FRAMINGHAM (04/14/2000) - A consortium of six of the top 10 U.S. energy companies are partnering to launch an Internet-based trading exchange for gas, electricity and other energy-related commodities by year's end.

The online exchange will be open to all wholesale energy companies and compete with several other energy-related electronic marketplaces already up and running, including Enrononline.com and Altranet.com.

The exchange, which has yet to be named, will trade natural gas and electricity initially, and later expand to include natural gas liquids, coal, crude oil and other commodities, according to companies involved in the new energy trading consortium.

The partners are American Electric Power Energy Services Corp.; Aquila Energy Corp., a subsidiary of UtiliCorp United; Duke Energy Corp.; El Paso Merchant Energy; Reliant Energy Wholesale Corp.; and Southern Company Energy Marketing, a unit of Southern Co.

The exchange was designed to electronically execute energy trades now handled primarily by brokers, who often conduct much of their business by telephone.

"We believe that online energy is the wave of the future. It may never fully replace the broker system, but we are hopeful its share of total trading will increase in the next few years, just as it has in foreign exchange and futures," said Brad Karp, president of Duke Energy Merchants.

Karp noted that Cambridge, Massachusetts-based Forrester Research Inc. is projecting online transaction volumes of $166 billion for natural gas and $101 billion for electricity by 2004. "But the formation of a business-to-business platform of this scale and scope could accelerate the migration to online trading of energy and related products," Karp said.

Some analysts aren't so sure. Among them is Rick Nicholson, an energy analyst at Meta Group Inc., who noted that the size and scope of the partnership could be the very thing that slows its growth in the online energy trading market.

"The fact that some of the biggest bulk power traders are behind (the new exchange) is a two-edge sword," Nicholson said this morning.

On one hand, "it could have a positive impact as far as volume traded on the exchange. But on the other hand, trying to get five or six large energy companies with relatively large egos to agree on anything is going to be a challenge," he said.

For the time being, none of the online exchanges are trading significant amounts of power, Nicholson added. More than 90 percent of energy trades are still executed by telephone or fax.

"So the (online) winners have definitely not been chosen," he said, adding that he expects even more online energy trading marketplaces to launch in the next six to 12 months.

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