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Altra Streamlines Electronic Trading, Buys QuickTrade

January 18, 1999
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Altra Streamlines Electronic Trading, Buys QuickTrade

In an effort to boost liquidity at trading points, the industry's two major electronic energy trading systems, Altra Streamline and QuickTrade, announced last week they will become one system by the end of the year, possibly sooner. Altra is buying QuickTrade and QuickTrade Canada from subsidiaries of Dynegy, Sempra Energy and Nicor for an undisclosed sum.

The transaction "will create the world's largest electronic forum for conducting physical energy transactions," said E. Russell (Rusty) Braziel, Altra's chairman. But some traders worry the deal could lead to higher rates and fewer upgrades and innovations.

The combined system will handle 5-6 Bcf/d of gas, 500,000 b/d of liquids and a small but growing amount of electricity for a total of about $6 billion/year in energy transactions.

The two systems are similar from an operational and technological perspective so combining them will not be that difficult, said Braziel. Both Altra's and QuickTrade's trading applications provide real-time, anonymous, electronic trading forums and clearing services for energy deliveries. Both also provide client software, trading and brokering services via TCP/IP network connections through the Internet or the companies' extranets.

QuickTrade President Brian Soutiere said the Department of Justice and the Securities and Exchange Commission already have reviewed and approved the transaction. He said the DOJ concluded "there are many competitive alternatives for parties who transact gas to use, and any other competitor with [an electronic trading system] could enter the marketplace."

QuickTrade has only one other electronic trading competitor: the Natural Gas Exchange (NGX), which is owned by Westcoast Energy and actually dominates the electronic trading market in Canada with about 4 Bcf/d of gas traded on its system by up to 150 traders. One interesting aspect of this transaction is that Altra, a longtime partner with NGX now becomes a competitor through its purchase of QuickTrade. NGX and Streamline have been exchanging information for years but probably won't be doing that much longer. Altra's Matt Frye said, however, the companies hope to work out an agreement with NGX that is "mutually beneficial" over the next few months. He didn't elaborate.

NGX's Peter Krenkel said it is too early to tell what could be negotiated, but he didn't rule out a deal that would include buying QuickTrade Canada. NGX already holds 80% of the electronic trading market in Canada and could handle up to 20% of the entire physical wholesale market north of the border.

"[QuickTrade and Streamline] have hundreds of trading points across the U.S. and Canada. We only have two key points [AECO and Empress] that are very liquid. It's a different business philosophy," said Krenkel. "They are motivated to add liquidity. In December, we had 138 Bcf traded at our two points. That's about equivalent to what they had traded at their 140 points combined."

Soutiere admitted the most important reason for the transaction was to boost liquidity. "The real value traders get from these systems is the ability to buy or sell their gas at the market price, and they can only do that if there's a market. Combining the two will enhance the liquidity at the trading points and thereby provide the marketplace with greater value, better price discovery and a better ability to buy or sell."

The two companies expect an increase in system usage simply because there will be one single platform for the entire U.S. gas industry. "We think that will probably increase liquidity at not only the points where we're strong and they're strong, but other points as well," said Braziel. Chicago and the Henry Hub are expected to be the two most liquid points on the new system.

Trading Systems Growing in Popularity

Electronic energy trading systems have gained in popularity over the past several years following a slow start-up in the market. All of the trading systems were launched in 1994. Last year was a boom year. All three systems reported near 50% volume growth.

QuickTrade now carries more gas volume across its system than Altra, but Altra handles more total energy, including gas liquids, crude oil, power and gas, according to Braziel. QuickTrade's gas system is used by over 400 wholesale traders and enables physical forward trading at over 140 locations. Its major trading centers are in the Midwest, Appalachia, the western U.S. and Alberta. Altra's Streamline (gas and power) and Chalkboard (liquids) systems together serve more than 350 energy commodity traders. Streamline's most liquid gas trading points are located in the Southwest and the U.S. Gulf Coast.

Soutiere calculated that Streamline and QuickTrade combined could handle up to 10% of the North American gas market but more likely would handle less than 5%, an amount which clearly could not be considered a major market concentration.

Nevertheless, news of the Altra-QuickTrade combination irked some traders. "I liked the competition they had," said one Gulf Coast gas marketer. "People have become much too dependent on the trading systems. It's like they won't do a [fixed price] deal unless they can verify the price on one of the [electronic trading] boxes first."

"I wish we had two systems," said another marketer. "We have both systems in our office and utilize both systems. Altra buying [QuickTrade] is kind of like Jonah swallowing the whale in my estimation." One trader said the combination was "inevitable" because electronic trading has a well-defined niche in the marketplace.

"We are still only a small piece of the overall energy industry," said Altra's Braziel. "If people are not happy with our service either because of performance, price or anything else, they'll do business over the phone or through cash brokers. So the combined entity is going to have to be both price competitive and performance competitive with all the other alternatives available."

When the combination is consummated, which is expected by the end of the month, the new entity will begin working on a hybrid system that combines the best of both. The hybrid is expected to come out in 90 days but be replaced by a "next generation" system by the end of the year.

Officials from both Altra and Streamline indicated the company may go public sometime soon after the combination is complete. Altra Energy is owned by its employees and two venture capital companies, Battery Ventures and Austin Ventures, which purchased the company from Williams Cos. and Duke Energy on Sept. 5, 1997.

Rocco Canonica

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