ICE's Power Trades Gain 'Equal Footing' with EOL
Online power trading over the past six months in the United States has continued to grow by a sizeable percentage, but most wholesale power deals still are being done the old-fashioned way through traditional voice brokerages, according to the latest survey from Energy Argus Inc. The company said its data revealed that Internet-based trading now makes up 38% of trading in the country, up from 28.5% in February and 25% in April 2000.
The data showed that most online trading is done through either IntercontinentalExchange (ICE) or EnronOnline (EOL), each of which holds more than a third of the electronic market. However, Energy Argus said that its survey of 40 power traders also found that another 24% of the transactions are completed through other platforms including DynegyDirect, Bloomberg Powermatch and TradeSpark.
"I trade online much more now than I did six months ago, from 30% to 60%, roughly," an East Coast utility trader said in the survey. "It facilitates liquidity, but I'll reserve judgment on the pros and cons of online trading in general."
Energy Argus said that Internet-based trading really took off "on the back" of two new entrants last October, ICE and DynegyDirect. The company said ICE has gained "an equal footing with EnronOnline" in less than 10 months. From the survey, EOl was shown to hold 39% of the market, while ICE came in second with a 37% share. However, Energy Argus estimated that EOL performed 1.3 million trades during the second quarter with a value of $228 billion, while ICE did 155,000 trades with a value of $14 billion for the same time period.
Energy Argus claims that its survey showed that ICE is currently the most used platform in the Midwest and the Electric Reliability Council of Texas (ERCOT), while EOL is still "dominant" in the East, where it retains two-thirds of the online users, and is the single biggest platform in the West.
Energy Argus said that its respondents showed that "many" traders are shifting to ICE from EnronOnline because it is a neutral market, unlike EOL, where Enron Corp. is the counterparty in all transactions. Surprisingly, the survey also showed that Enron -- the largest U.S. power marketer -- is also one of the biggest participants on ICE.
"I'm able to post numbers and use the visual impact to move it one way or another," a trader said in the survey about ICE. "If they see a number get lifted, psychologically it has an effect. You never know (why a price moves or is taken off of EOL)."
Although traditional brokers have seen a decline from their 75% share two years ago, they still continue to process a majority of electricity trades. Energy Argus said brokers are able to maintain a majority due to their ability to offer options and other derivatives, their dominance in the short-term physical markets and some trading houses' reluctance to get online. Voice brokerage still holds the biggest percentage of the market in ERCOT (64%) and the East (61%).
"With brokers you get some color, some personality, and maybe even a steak dinner," one ERCOT trader responded to the survey.
On the whole, the survey revealed that traders' choices of mediums were largely determined by who had the best price at any given moment or who was offering a particular product. For more information on the survey, contact Peter Rosenthal at firstname.lastname@example.org.
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