Although the shakeout in the online energy trading marketplaceis expected to take its toll on large and small companies, in thelong run, the Internet will become the first choice for buying andselling energy products, according to an expert who follows theindustry on a daily basis.

Peter Fusaro, principal of knowledge management for SkippingStone Inc., said the e-commerce marketplace is still so young, thatit may take as long as two years before the dust clears and thetrue players are determined.

“It is so early in the game for electronic energy trading, andwhat you have with electronic trading is a long process of actuallychanging human behavior,” Fusaro said, and what’s happening nowalways happens with a new way of doing things. “Brokerages reallydon’t want to change. They have the information and many customerslike to deal with their brokers on the phone, and it’s still verypopular. But in the long run, the value of the electronicmarketplace will take over, and I think that in the next couple ofyears, we’ll slowly see the brokerages gravitate toward electronictrading.”

It won’t be a straight line, though. Some electronic traderswill cease to exist or consolidate — not a negative consequence,just the normal migration of a burgeoning start-up industry, hesaid.

Fusaro tracks the dotcom energy business on a daily basis andsince 1999 has issued three in-depth reports on where it is andwhere it’s going. He confirmed rumors that have been circulatingthe past few weeks about an apparent shakeout, and said thatHoustonStreet and RedMeteor are floundering because of a lack ofliquidity (see Daily GPI, Jan. 11).

However, he predicted that those companies and others losingsteam might be “patched” together or swallowed by more liquidplatforms. “Somebody will buy them,” he said. “I don’t know if itwill be some of their backers or another platform, but I expect tohear about that soon.” Fusaro said he also suspects that someexchanges that appear to be solid may be “hyping up the numbers” ontheir transactions, which also will eventually come back and hitthem in the bottom line.

“It depends on how a transaction is measured. When I hearsomeone talk about having 100 trillion in over the counter sales,are they talking about 100 trillion kilowatts, or 100 trillionmolecules? It makes a big difference, and the numbers can bemanipulated in a lot of different ways.”

Even with expected consolidation among the current list of30-plus exchanges, Fusaro said the marketplace wouldn’t be gettingany smaller.

“There will be more, not fewer in the very near future, both inEurope and the United States. The next wave of exchanges mostlikely will replicate those that are most successful at the presenttime,” he said. The reason, he said, is that consolidation of theenergy industry will “accelerate the movement further. There willbe more liquidity, which in turn will generate more growth in theelectronic trading field.”

On his short list of those companies likely to make it throughthe latest shakeout is the IntercontinentalExchange, known as ICE,and TradeSpark and Altra. He doesn’t include EnronOnline on hislist because “it’s not like any of the other exchanges.it createsits own liquidity” with its massive wholesale marketplace.

And unlike Enron, other electronic traders should consideringparing down their offerings and concentrate on what they do best.”The energy industry is very information intensive and someexchanges are trying to do too much. It’s difficult to captureeverything. To be successful, the electronic platform has to createliquidity, and how to do that, no one seems to really know, exceptcertainly Enron. The trader has to find a niche to help him standout and cut out his slice of the market,” he said.

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