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Top 10 Players Forming E-Trading Group

Top 10 Players Forming E-Trading Group

While incumbents in the natural gas and power electronic trading fraternity were predicting eventual fall-out and consolidation in this exploding technology sector (see related story) a new entry --- The Energy Consortium, including American Electric Power, Aquila, El Paso, and Reliant Energy and Southern Company Energy Marketing --- entered the fray last week.

The new Internet-based, B2B, over-the-counter energy trading platform is expected to be in operation by the end of the year and will be open to all wholesale energy industry participants. Its members are among the top 10 (by volume) natural gas or electric marketers or both. (See NGI, March 15) Collectively the companies sold 1,062 MMWh, out of the total 2,658 MMWh marketed by the top 20 power marketers in 1999. Sales of natural gas were more than 40 Bcf/d, out of 134 Bcf/d sold by the top 20 gas marketers in 1999.

"The consortium members' trading volumes, coupled with their combined $61 billion in market capitalization, provide extreme liquidity and help to ensure that the new platform will have the size and staying power that's sometimes missing in a relatively new marketplace," noted Greg Jenkins, President of El Paso Merchant Energy.

"This Internet platform initially will offer an over-the-counter marketplace for natural gas and electricity in North America," said Paul Addis, President of AEP Energy Services, Inc. "But we expect to expand our business to include natural gas liquids, coal, weather derivatives, crude oil and other energy-related commodities and instruments as those markets develop."

"We believe that online energy trading 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," according to Brad Karp, President of Duke Energy Merchants.

"Collectively we have the market presence and diversity of commercial transactions, both geographically and in terms of customers, to ensure that open, unbiased transactions are available to everyone," said Gary Morsches, President of Southern Company Energy Marketing.

The six companies expect an increasing amount of their trading volumes will be migrating to the internet. AEP is definitely a believer, having signed deals in the last month to ally with (1) Altra Energy Technologies in its electronic trading system; (2) 15 other utilities in an electronic procurement cooperative; and (3) six other energy and telecommunications firms in a fiber optics venture to generate the bandwidth to carry increased traffic generated by the first two. A spokesman said the deal with Altra will not interfere with its participation in the Energy Consortium. (See NGI, April 2) The Consortium, so far just a gleam in the companies' eyes, expects to sign on other members.

While Altra has been building its online trading systems for natural gas and electric products for several years, there has been an explosion of interest and entrants into the field in the last few months. The movement accelerated last November with the start-up of EnronOnline and Coralconnect. (See NGI, Nov. 21, 1999 & March 27, 2000) It went into warp speed with the dissemination of a report by Forrester Research last fall --- quoted by almost every new entry --- predicting natural gas online trades would total $166 billion and online power trades would total $101 billion by 2004. According to Forrester Research, only 2% of natural gas trading and 0.2% of electricity trading was conducted on-line in 1999. Those figures are expected to increase up to 25% and 11%, respectively by 2004.

Also on the electronic energy trading front last week HoustonStreet Exchange of Portsmouth, NH, added a gas platform to provide real-time access to pricing information and industry news. Besides gas, traders can buy and sell wholesale electricity, crude oil, refined products (such as jet fuel, unleaded gasoline, diesel and heating oil) and now, natural gas., a newly-formed marketer-technology partnership, announced a B2B website aimed at bringing commercial customers up to speed with meters and price transparency at citygates across the country, and an online auction of oil and gas properties was scheduled for April 26 at (See following reports).

Ellen Beswick, Denver

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