The euro-invasion of trading platforms departs U.S. soil

By Roxane Richter, Energy Marketing Editor

Much like the California Gold Rush (only with better-dressed players), electronic trading platform vendors are beating a fast path to consult and sell deregulating European markets their brand of e-exchange.

Backed by millions in capital venture funds, these e-players are sharing the knowledge and pain of U.S. deregulation efforts, and launching various trading platforms in Germany, Belgium, the United Kingdom, Holland, Australia and even Russia. Here’s a look at how, where and why some major industry players went overseas in 2000.

Pan-European push for HoustonStreet Exchange

In September of 2000, Portsmouth, N.H.-based HoustonStreet Exchange extended its fully Web-based wholesale energy trading platform to Europe. Electrabel, RWE and Vattenfall, listed among the top energy companies in Europe and the world, have established leadership roles in the rapidly deregulating European marketplace by helping to establish a liquid over-the-counter marketplace for trading energy commodities, and plan to integrate HoustonStreet into their overall e-commerce strategies.

RWE is the third largest multi-utility energy enterprise in Europe, ranking as one of the six largest electricity companies in the world. Vattenfall is the fifth largest electricity provider in Europe, ranking among the world’s top 30 electricity companies. Electrabel, affiliated with Tractebel and the energy pool of Suez-Lyonnaise des Eaux, ranks sixth in Europe among Europe’s electricity companies and is one of the world’s 25 largest energy companies.

HoustonStreet will initially provide traders with a single, pan-European marketplace for buying and selling electricity. The company will roll out the platform to different European regions in stages, beginning with England and Wales, the Netherlands, Switzerland, Austria and Germany. With the support of the partner companies, HoustonStreet will also offer other services through its portal, and facilitate integration of HoustonStreet with trading companies’ mid- and back-office systems to enable near real-time risk management.

“This venture will enable us to extend the leadership we’ve established in the Nordic markets to Europe. We will, together with Hamburgische Electricitàƒ¤ts-Werke AG, (HEW) and through our joint trading operation Nordic Powerhouse, continuously work towards achieving effective energy markets in Europe to improve our customers’ competitiveness,” said Jan C. Johansson, executive vice president of Vattenfall.

Hans-Dieter Erfkemper, managing director of RWE Energy Trading, said, “HoustonStreet has the right technology at the right time to seize the opportunity of Europe’s deregulating energy markets. This combination of timing and technology will boost liquidity and help us serve our customers.”

Bart Pycke, head of power and gas trading for Electrabel, said, “We are impressed by HoustonStreet’s advanced functionality, ease of use, neutrality and other value-added services. We believe that HoustonStreet has the technical capability and the business strategy to attract support throughout the industry and bring liquidity to their platform.” Based in Belgium, Electrabel is one of Europe’s largest utilities. Its core business is generation of electricity; trading of gas and electricity; building, managing and serving the networks used for the transmission of electricity and natural gas.

HoustonStreet has expanded into Europe with the help of Andersen Consulting and the members of HoustonStreet’s “web for the Web,” a virtual network of business and technology companies that continue to support the company’s delivery of wholesale energy trading platforms. This virtual network includes companies such as Equiva, Conoco, Williams Energy Marketing & Trading, Sapient, Bowstreet, MicroArts and Thomas H. Lee Company. Other relationships include HoustonStreet’s recently announced memorandum of understanding with Enron whereby North American electricity and natural gas prices posted on EnronOnline will automatically be posted on HoustonStreet.com in the U.S.

“The time is right for online wholesale power trading in Europe with electricity markets deregulating virtually overnight,” said Tomas Zikas, managing director of HoustonStreet Exchange Ltd. “We are excited to leverage what we have learned in the U.S. markets, and serve a spectrum of European energy companies with a cost-effective, high-performance trading vehicle. We are extremely delighted with our partners who are all leaders in the energy business and innovative pioneers in bringing energy business and transactions online, and we hope to continue to build on this community of companies by focusing on creating a vibrant European marketplace.”

Through its joint venture with EnMo Limited, Houston-based Altra Energy Technologies pioneered the establishment of Europe’s first online trading platform, addressing the needs of the market for next-day natural gas in the United Kingdom. In July of 1999, Altra teamed up with Sema Group, an international IT and business services company, to be Altra’s exclusive European distributor.

“Sema Group will provide Altra optimum representation throughout Europe,” said Paul Bourke, president and CEO of Altra. “With Sema Group providing both pre- and post-sales and post-installation support in local languages, we will have every opportunity to meet a variety of customer needs. Above all, both Sema Group and Altra are well-positioned to benefit from the changes occurring in the energy industry.”

Altra chose Sema Group for its expertise in energy and utilities and understanding of the deregulating marketplace, as Sema Group’s product line is used by both the Amsterdam Power Exchange and Spanish Electricity Pool.

“This relationship creates an unbeatable proposition for the market and reinforces Sema Group’s position as a leading provider of IT and business services to the energy industry,” said Frank Lee, director of energy and utilities for Sema Group UK. “We can harness Altra’s expertise, specifically its leading role in e-commerce, and enhance our own offering in the energy sector to the benefit of both our customers.”

RedMeteor in Russian oil

Houston-based RedMeteor.com, a global, Internet-based, open commodities exchange, has been selected to provide a modified energy exchange platform and hosting services Trade System (TS), a venture uniting a group of key energy players in the former Soviet Union (FSU). The platform will allow TS to launch trading platforms for refined products exported through the Baltic Sea ports of FSU countries. The founding partners of TS are Sibneft, the Russian Ministry of Railways, pipeline operator Transneft, product pipeline operator Transnefteproduct and fiber optic cable operator TransTeleCom Company. The agreement is sure to extend RedMeteor’s (www.redmeteor.com) technical capacity in enabling energy and non-energy commodity trading platforms around the world. Vincent DiCosimo, RedMeteor’s CEO said, “We are very pleased to provide platform licensing and hosting services to TS. RedMeteor’s platform configuration is designed to be highly scalable and capable of adapting to any commodity type quickly. This transaction confirms our expectations in that regard.” DiCosimo further stated, “Key components of any licensing agreement are factors providing savings and up-grades in the future to our customer. The customer wants to always have “state of the art” technology and RedMeteor can provide this benefit.”

Sibneft President Eugene Shvidler welcomed the signing of the agreement. “This agreement with RedMeteor will help TS meet its goal of providing round-the-clock reliability, ease of use, superior response time and the best transaction security available. Through the creation of new Internet-based platforms, TS aims to revolutionize the way that energy is bought and sold, both in FSU export markets and on the Russian domestic market. RedMeteor was selected because they provided an excellent platform and a speed to market that we were unable to find anywhere else. RedMeteor’s unique ASP model and hosting capabilities provide both high-end customization and cost-effective solutions for Sibneft’s commodity trading functions.” Sibneft (www.sibneft.ru) is one of Russia’s largest oil companies, with operations spanning exploration, production, refining and marketing of petroleum products. Judged by reserves, Sibneft is one of the world’s top twenty private-sector oil companies.

Going Dutch: Reliant targets Netherlands electricity market

Signaling the beginning of Structure Consulting Group’s entrance into European energy markets, the company was recently selected by Reliant Energy to provide an energy trading solution for the Dutch electricity market. Structure was contracted to enhance its existing Internet-ready nMarket business solution to support Reliant’s energy scheduling, dispatch and settlement processes overseas.

“Many of the major energy players in Europe are the same players in the United States. Industry leaders like Reliant have chosen us to provide business solutions for deregulated markets,” Structure Consulting Group CEO and founder David Hallam said. “The lessons learned in the states the last few years can be a great benefit for the European markets. Through our business consulting expertise and technology solutions like nMarket, we are able to make the transition to a deregulated market smoother for our global clients.”

Structure Consulting Group’s nMarket integrated business solution is designed to support energy trading capabilities across multiple competitive markets. The nMarket solution provides e-business capabilities to generation companies, energy marketers and retail companies to streamline trading, asset management, settlement and information management activities.

Having it all: Enron’s global power

In March of 2000, Enron (www.enron.com) announced the launch of Australian power as the newest commodity available on EnronOnline. EnronOnline, an Internet-based transaction system for wholesale electric power and other commodities, provides real-time prices for power, natural gas, coal, weather products, petrochemicals, pulp and paper, emissions credits and other commodities in the Americas, Asia and Europe.

“This is a significant step for Enron Australia, which builds upon our existing trading operations,” said Paul Quilkey, managing director of Enron Australia. “EnronOnline offers users a new level of price discovery for energy-related products around the world. We already have a strong interest in the service from Australia-based counterparties.

“Enron Australia has been operating in Australia since July 1998 and has developed a leading presence in delivering risk-management products to the Australian market. With this service, Australian electricity now will be added to the extensive selection of traded products available through EnronOnline. Clearly, this will add depth and liquidity to the local market.”

A few months after its Australian announcement, in June, Enron was declaring that that the transaction value on EnronOnline had passed the $50 billion milestone for calendar year 2000. In less than 6 months, EnronOnline has grown into the world’s largest e-commerce Web site,” said Louise Kitchen, managing director of EnronOnline. For the past several days, transaction value has exceeded $1.5 billion per day. Enron launched EnronOnline on Nov. 29, 1999, and currently more than half of Enron’s wholesale transactions are conducted online. As one of the industry’s heaviest hitters in energy, the company owns approximately $37 billion in energy and communications assets, produces electricity and natural gas, develops, constructs and operates energy facilities worldwide, delivers physical commodities and financial and risk management services to customers around the world, and is developing an intelligent network platform to facilitate online business.

Slow going: U.S. energy groups tough it out

But if you think trading power or selling your power-trading platform is tough, just try buying European assets. Hindered by cultural differences, regulatory uncertainty and fierce competition for assets from local utilities, firms like AES, Entergy and TXU are struggling to make the jump from energy trader to true market player in Europe, Reuters reported.

“It’s a sellers’ market. There are a lot of companies keen to get hold of assets in Europe bidding up prices,” said David Thomlinson, head of Andersen Consulting’s European utilities practice. “If you couple that with regulatory concerns, then Europe is seen as pretty high risk for U.S. companies.”

And while the U.K. power market started opening up a decade ago, continental Europe only began the liberalization of its markets last year under a European Union directive and deregulation has proven to be tougher on both prices and wannabe players.

Reuters reported that only one U.S. group, Reliant Energy Inc., has managed a significant acquisition, buying UNE, one of the Netherlands’ biggest generators, and paying an unbelievable $675,000 per megawatt hour-setting a trend for future assets sales, analysts say.

Insiders say the chase for assets is currently focused on southern Europe and Germany, Europe’s biggest power market.

“The ICE” sets one-day trading record of over 2 million MWhs

Atlanta-based IntercontinentalExchange (ICE), a marketplace for over-the-counter (OTC) energy and metals products, traded more than 2 million megawatt-hours in a single day, only one month after going live with its energy complex. ICE trading volumes have been growing rapidly since the launch of energy trading on October 12 and precious metals on August 24. As of November 16, “The ICE” has traded 15 million gold and gold equivalent ounces; 150 million barrels of crude and refined oil derivatives, 800 million mmBTUs (million British Thermal Units) of natural gas and natural gas derivatives, and 22 million megawatt-hours of firm power (as of close of trading November 16). The total notional value for all OTC products traded to date on “The ICE” is over $13 billion. ICE participation continues to expand at a rapid rate and currently includes 85 of the world’s largest energy and financial commodity firms.

We’re in the money: APX grabs $36 million in venture capital

Automated Power Exchange (APX), a provider of e-commerce services for the electric power industry, recently announced that it has closed its third financing round with $36.1million from venture capital and corporate investors. Six investors led this equity-financing round from previous rounds that have increased their investments in APX. They are: Bechtel Enterprises Inc., San Francisco; Woodside Fund, Woodside, Calif.; FirstEnergy Corp., Akron, Ohio; Onset Ventures, Menlo Park, Calif.; Kinetic Ventures, Chevy Chase, Md.; and Technology Partners, Palo Alto, Calif. Seven energy industry and trading corporations have made first-time investments in this round. They are: Tokyo Electric Power Company International B.V., Amsterdam, The Netherlands; Hydro-Queb

Ernst & Young awards cyber-certification to FAME Energy

FAME Energy, a provider of data management and decision-support solutions for energy trading and risk management, announced that it has received cyber-certification by Ernst & Young for its advanced quality data services. Ernst & Young awarded the cyber-certification to FAME Energy’s data aggregation and data quality service, SIS, which currently consolidates and delivers over 37 global energy market data sources, covering oil, gas, petrochemicals, power and weather in a single feed. Data quality and reliability is at the core of derivative reporting and value-at-risk (VaR) calculations in today’s capital markets. New government regulations, such as FASB133, will make the reliance on high quality pricing data more imperative.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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