Peter Fusaro, president of Global Change Associates, examines the leading electronic energy trading platforms for oil, gas, power and emissions.

Electronic trading for the energy complex has finally arrived. In the past few months, a number of systems have been launched—and others are waiting in the wings. Inevitability, in the next two years there will be a shakeout in the marketplace, with one or two systems becoming dominant. But right now, here’s the list of the latest players in this fast-evolving area.

The New York Mercantile Exchange’s ACCESS system (www.nymex.com) is an interactive data network for bidding, offering and trading commodity futures and options offered by Nymex. Users can trade crude oil, heating oil, gasoline, natural gas, propane, and the Palo Verde and COB electricity futures and options contracts after hours. Terminals can be used in the United States and London, and on the Sydney Futures Exchange, Hong Kong Futures Exchange and, soon, on the Singapore International Monetary Exchange. ACCESS 2000, which is being jointly developed with the International Petroleum Exchange’s revised ETS, is scheduled to be launched next year and will trade all Nymex energy futures contracts.

The California Power Exchange (www.calpx.com) was mandated by law by the California Public Utility Commission as part of the state’s deregulation process. A public company, CALPX became active on March 31, 1998, and uses primarily a power pool model. Energy pricing is not actually known until electricity is dispatched. CALPX functions as a central power exchange and uses a computer-based auction process that provides a market clearing price for qualified buyers and sellers or electricity within the state of California.

The Automated Power Exchange (www.energy-exchange.com) is an Internet-based electricity trading exchange that first became operational in the California market on March 30, 1998, when California opened its power market. It is privately held and backed by Bechtel Enterprises. The APX is a certified power-scheduling coordinator between the California Independent System Operator and electricity generators, retailers and end-users active in the California markets. APX develops and operates exchanges for electricity and its transmission up to hourly, day-ahead-, and 30-days-forward pricing. The minimum trade is for 1 megawatt hour of power. The 50 market participants include utilities, energy retailers, aggregators, power aggregators, power marketers, generators and municipalities. Fees run 3 cents per MWh, which is substantially less than the 18 cents per MWh charged by the California Power Exchange.

Altra Energy Technologies (www.altranet.com) was formed by two pipeline companies, Williams Energy and PanEnergy (now Duke Energy), in January 1996 to combine the electronic trading systems of the former with the back-office management of the latter. Under this combined platform, users can trade natural gas, crude oil and natural gas liquids electronically, as well as schedule and manage their entire back office on one desktop computer. During 1999, Altra acquired competitors Quicktrade and TransEnergy Management. Today, Altra serves more than 4,000 users and is clearly the leader in electronic energy trading.

On October 14, 1999, Altra Energy Technologies and over-the-counter energy brokers Amerex Power and Prebon Energy announced the launch of Altrade Power, a real-time, on-line electronic power trading system. The launch represents the first business-to-business e-commerce site to unite new on-line trading exchange technology with the strength and reach of the traditional voice broker market. During its first two days of trading, Altrade Power achieved liquidity of $24 million in transactions. In effect, the new system combines Altra’s on-line electronic exchange with the market knowledge of brokers Amerex and Prebon. This hybrid solution gives customers the ability to execute orders electronically without having to forgo the benefits of voice brokering.

Houston Street Exchange launched an on-line electricity trading floor for wholesale energy traders on July 8, 1999, tailored for the Internet. The system initially covered the NEPOOL (New England), PJM (Pennsylvania, New Jersey and Maryland) and New York state markets. Plans are to roll it out nationally in the future. It is a separate subsidiary of BayCorp Holdings, which owns physical generation assets in New England. Houston Street is positioning itself as an on-line broker for U.S. wholesale power markets, posting bids and offers as well as completed trades. This would enhance price discovery for an extremely illiquid market. Sapient, an energy software developer, built the system. It is a relatively unknown entity that has spent a considerable amount of money creating an advertising buzz. How well it will work is anybody’s guess, since it already has direct competition from Altra and others.

Enbridge Petroleum Exchange (www.iplenergy.com), launched in January 1999, was created as an electronic marketplace for the physical trading of crude oil in the North American markets. The exchange is wholly owned and independently operated by Calgary-based Enbridge Inc., formerly called Interprovincial Pipeline, which operates the world’s longest crude oil and liquids pipelines and Canada’s natural gas distribution system. Canada’s first Internet exchange for crude oil, the service was designed to facilitate the purchase and sale of western Canadian crude oil. The system offers real-time market information and other capabilities, and also facilitates the physical and financial clearing of the transaction once the deal has been completed.

Enermetrix (www.enermetrix.com), formerly North American Power Brokers, began trading operations in January 1998, initially targeting commercial and industrial energy customers for Internet-based electricity trading. On August 23, the firm changed its focus to become an energy procurement exchange that uses the Internet to match buyers and sellers of energy and energy products. The system allows on-line purchasing confirmation, financial reporting, branding of channel partners and on-line documentation. The company believes it provides a missing link between wholesale power trading and the retail energy service markets, and can provide significant energy savings for its customers through the use of the Internet. In effect, Enermetrix is an Internet-based auction service similar to Ebay but targeted to energy buyers and sellers.

Enron launched a global Internet-based transaction system for wholesale energy and other commodities on October 26. EnronOnLine (www.enron.com) will allow participants to view and trade these commodities in real time with Enron, which acts as a market-maker, over the Internet—with no commissions. The transaction system was scheduled to go live on November 29 for North American natural gas, with other products to follow by the end of the year. Enron’s customers will have access to several hundred traded products around the world. The company will publish wholesale real-time prices for electric power, natural gas, coal, weather, liquids, petrochemicals, pulp and paper, emission credits, and other commodities in North America, Europe and Asia. EnronOnLine does not match buyers and sellers.

Emissions trading

Three systems are focusing on the emerging North American emissions trading market—Bloomberg, Natsource and Cantor Fitzgerald. These efforts will accelerate beyond the current sulfur dioxide (SO2) and nitrous oxide (NOX) efforts as greenhouse gas (GHG) emissions (including carbon dioxide) become more important to meeting corporate emissions-reduction schedules.

Bloomberg’s Powermatch (www.bloomberg.com) was launched in September 1998 for wholesale power trading, and recorded more than $10 billion in transactions its first year. This electronic broking system allows multiple bids and offers for the same trade to be visible over the Bloomberg system. Responding to the growth in emissions trading allowances by power marketers, Bloomberg added emissions allowance trading to its PowerMatch system on October 18. The emissions market allows spot trading of sulfur dioxide and nitrogen oxides.

During October, OTC broker Natsource (www.natsource.com) launched a web-based SO2 and NOX quote system that provides traders with real-time updates and indicates when a trade is made. Natsource also offers a live quote screen system for coal trading on the OTC markets. The system is accessed through Moneyline, a financial service provider on the Internet. It provides the e-commerce interface for Natsource. Natsource’s on-line platform supplements its traditional voice broking system.

The Cantor Exchange (www.cantor.com), launched in 1998 to develop an electronic exchange for the trading of U.S. Treasuries, has expanded its services into emissions trading. Cantor Fitzgerald’s environmental brokerage services include the buying and selling of SO2 allowances, OTC NOX allowances, greenhouse gas reduction and other environmental credits. It has also launched an electronic platform for trading credits, located at www.emissionstrading.com.

Excerpted from Electronic Energy Trading by energy trading experts Peter Fusaro and Jeremy Wilcox. The report is available for purchase at $995 at www.global-change.com.

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