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Slower Marketing Revenue Growth Expected

Slower Marketing Revenue Growth Expected

Price spikes, volatility, tight margins and stiff competition have prompted many energy marketers to reconsider their positions and strategy, and this is causing changes in the energy marketing arena as a whole, according to a new report by Frost & Sullivan.

The report finds that although energy marketing revenues are expected to show continued strong growth over the next five years, that growth will begin to decline this year. In contrast to the 46% growth in 1997 and 30% growth in 1998, the study predicts that marketing revenues will grow by 17.2% this year to $196.7 billion but will show 14.5% growth next year, followed by 10.5% in 2002, 8.4% in 2003, 8.3% in 2004 and only 7.3% in 2005. By 2005, revenues are expected to reach $313.7 billion.

Three primary issues have been driving market growth: tight industry competition between top-tier marketers; dramatic growth in merchant power generation; and online trading, which has increased efficiency allowing marketers to execute more trades, the Frost & Sullivan report explains.

However, several other offsetting forces are beginning to restrain market growth, including increased focus on profitability rather than larger volumes; increasing need to acquire assets to support trading, which has erected barriers to entry and forced some players to exit; and regional transmission constraints, which have hindered wholesale power market competition.

The report notes that energy marketing has become an extremely difficult business with low operating margins of only about 0.4% of revenues, down one-third from 1997 levels of 0.6%. Low margins are forcing re-evaluations and restructuring. Industry consolidation and convergence also have resulted in tougher competition, and high customer acquisition costs have shrunk bottom lines.

These difficulties have led marketers to adopt several new trends. They are focusing more on profitability than on volume growth. They also are more actively buying power generation, transportation and storage assets to protect themselves against risk. In addition, they are increasingly focusing on regional markets rather than national markets.

To order a copy of the report visit Frost & Sullivan's web site, www.frost.com

Rocco Canonica

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