The proliferation of energy trading Internet sites continuedlast week with Dynegy and Williams teaming up to invest $25 millioneach for a minority equity stake in eSpeed Inc., an interactiveelectronic marketplace engine for business-to-business (B2B)e-commerce. It’s another sign the energy industry’s migration toe-commerce is speeding toward an eventual shake-out. Right now,players are beginning to place their bets on who the winners maybe.

Nancy Gustine is director of e-business for Williams EnergyMarketing and Trading, which recently made an investment in tradingsite HoustonStreet.com (see NGI March 13). While she said thecompany sees other e-commerce opportunities besides energyexchanges, “at this point I think we’re just going to sit stillwith what we have [eSpeed and HoustonStreet] and see what themarket does.”

A report released last week by Global Change Associates, titled”Electronic Energy Trading,” makes a pretty plausible predictionfor the near-term future. “The intense competition now underwaywill lead to a period of consolidation and electronic platformdominance by the end of the year 2000,” the report says. “It is tooearly to determine the winners of that competitive process at thepresent time.”

Since the first edition of the Global Change report onelectronic trading was published in December, more than 30 newplatforms have been launched. The latest report includes recententrants Redmeteor.com and IntercontinentalExchange, for instance.Other notables in the energy e-commerce race are Altra EnergyTechnologies, NYMEX and EnronOnline, which only offers Enroncommodities.

Williams and Dynegy are betting the neutral site is the way togo. That is the eSpeed-operated site will offer commodity from bothcompanies as well as that from whoever wants to participate in theventure. “Our perception is that the neutral exchange is where youwant to be,” Gustine said. “It’s run by the market operator, not byWilliams, not by Dynegy. It creates the anonymity and neutrality ofthat site. eSpeed is the operator. [With EnronOnline,] they’realways the counterparty. They certainly are a market-maker, butit’s not a neutral site.”

The Williams- and Dynegy-backed eSpeed technology will serve asthe platform for at least four commodity-specific electronic spotand futures marketplaces in which the marketing subsidiaries ofDynegy and Williams will participate. Trading could include naturalgas, electricity, natural gas liquids, petrochemicals, crude oiland bandwidth. eSpeed anticipates that an electronic marketplacefor gas and electricity will be made available to marketparticipants, such as Dynegy and Williams, in the third quarter,with the development of additional marketplaces by the end of 2000.

eSpeed operates global electronic marketplaces for low-cost,instantaneous trading of financial instruments and other products.The eSpeed proprietary software is scalable to accommodateadditional trading instruments and commodities.

“The future of commodity trading is in neutral electronicmarketplaces,” said Dynegy CEO Chuck Watson. “After months ofcareful evaluation, we concluded that eSpeed with its provenstate-of-the-art technology, along with its track record ofdeveloping marketplaces in the financial arena, is the idealpartner to develop the energy and bandwidth marketplaces of thefuture. eSpeed technology can be applied and scaled to accommodateother energy commodities. We welcome and expect to attract multipleindustry participants to achieve the liquidity necessary to createa robust, neutral exchange.”

The topic of e-commerce in energy has become a familiar one overthe last several months as new trading sites are announced weekly.Perhaps the most notable announcement, at least one of the firstones, was for EnronOnline. Enron announced its online offering latelast year, saying it eventually would be able to transact deals inany commodity it plays in worldwide.

In a conference call, Williams CEO Keith Bailey said there isroom for both exchanges such as EnronOnline and exchanges open tomultiple sellers. “These are not mutually exclusive markets. Therewill be some markets that are adapting to the structured sorts oftransactions that do have high specialization associated with them.But there will also be, in our judgment, a significant volume thatlends itself to this type of exchange that depends on speed, easeof use, liquidity, neutrality and the low transaction costs thatscale bring. They will both continue to exist, and I think of thetype that lend themselves to the type of system that we’re creatingand the type of marketplace we’re creating, this can and shouldbecome the marketplace of choice. But it will not cause the othertype of business opportunities to go away.”

“This is for the traditional, general transaction and for thecommodities that we choose to include, Watson said. “This does notin any way replace or eliminate the requirement for Dynegy to haveits own portal, to be able to customize those products and servicesfor our customer, just like EnronOnline does for theirs.” Watsonsaid he expects his company, Williams and others to offer their ownportals that offer customers greater customization of deals thanwhat is available on a multiple-seller exchange. Other partnerswill be encouraged to join Dynegy and Williams, Watson said. Theparticipation of other players will be structured to encourageincreased utilization of the system, he added.

“Our system currently handles $150 billion of transactionsdaily,” said eSpeed CEO Howard W. Lutnick. “It is designed so thatvirtually any product can be traded over our global network or theInternet. We are confident that we can quickly create multiple B2Bmarketplaces including energy, bandwidth, petrochemicals, crude oiland natural gas liquids that meet the needs of industryparticipants.”

Joe Fisher, Houston

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.