Companies embrace electronic trading faster than expected
AmerenEnergy, the energy marketing and trading affiliate of Ameren Corp., is doing about 40% of its next-day trades and about 30% of its forward market trades electronically, says C. Joe Hopf, vice president of energy trading. Industry panelists, speaking at a Houston energy conference, said what is most surprising is the speed at which companies are embracing electronic trading.
AmerenEnergy, the energy marketing and trading affiliate of Ameren Corp., is doing about 40% of its next-day trades and about 30% of its forward market trades electronically, says C. Joe Hopf, vice president of energy trading.
Speaking at PowerMart in Houston, Hopf said he expects the percentage of trading done electronically by his company to keep rising.
"W are very much a traditional utility, but our traders recognize it as the wave of the future," he said during a session assessing the outlook for electronic trading. Among the top 20 US utilities, Ameren has more than 11,000 Mw of generating capacity.
Other industry panelists said what is most surprising is the speed at which companies are embracing electronic trading. They pointed to the success of Enron Online as the biggest catalyst for the change. Nearly 60% of Enron's trades or about 2,000 trades/day are conducted electronically, said Frank Getman, CEO of HoustonStreet Exchange Inc., which is linking with EnronOnline to show its bids and offers.
After the electricity price spikes of 1998 squeezed liquidity, the New York Mercantile Exchange was never able to deliver the price discovery traders crave, Hopf said. On the plus side, electronic trading is delivering price discovery, more market depth compared to phone brokers, improves counterparty and credit management, and is less expensive, he explained.
But with 24 trading platforms available or announced, the market is bound to consolidate, speakers concluded. Among the three models operating today�proprietary ones such as Enron's, exchanges, and consortiums�many panelists predicted the exchange has the best chance of being the surviving model.
"We think the exchange is the way to go," said Dave Sharp, vice-president, e-commerce, Coral Energy LLC, an affiliate of Royal Dutch/Shell. Exchanges will stand behind transactions, there is multiple party price discovery in a liquid market, there is neutrality, and trades are anonymous.
Among the biggest drawbacks to the electronic market today, speakers concluded, is the absence of standardized products and contracts�especially in the electricity markets�and a standard XML protocol.
Vincent Di Cosimo, CEO of RedMeteor.com, said he expects a protocol to become available for review within the next 6 months and that will lead to greater efficiencies. Standardized products and a standard protocol will permit allow back office integration of the process and eventually cross commodity trading, Sharp explained.
Speakers representing the online trading industry said they are experiencing a high level of growth in their businesses. Altrade Power set a daily volume record Tuesday when 4.2 million Mw-hr was traded on the system, said Dixie Barrett, vice-president, Altra Energy Technologies Inc.
HoustonStreet.com traded $1 billion in crude and refined products in May, Getman said, RedMeteor.com has traded $10 billion in crude and $13 billion in refined products, Cosimo said, but the number includes its broker trades.
Most agreed the market will continue to evolve and some surprises could lie ahead. As electronic trading of energy products increases, "there are giants who are watching this market," Cosimo said, "who can provide clearing but not necessarily liquidity."