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Before the industry can tap into the Web's full potential, it needs to remove some roadblocks - without regulating itself into a corner.

Everyone involved in energy recognizes that deregulation is driving major changes in how the industry operates. What some may not recognize is that the evolution of e-commerce is compelling even greater changes in the way energy is marketed and purchased in both wholesale and retail markets.

A recent report by Forrester Research Inc., an independent research firm that analyzes the impact of Internet and other emerging technologies on business, consumers and society, projects that 25 percent of business-to-business sales of natural gas and 11 percent of business-to-business sales of electricity will be conducted online by 2004. Most of the transactions are short-term contracts with standard provisions.

Branding and customer convenience drive the retail market. Internet energy stores allow residential and small commercial customers to purchase and pay for services online.

"People are not using the Internet because it is cool," says Frank Getman, president and chief executive officer of Houston Street Exchange Inc. "They are using the Internet because it is helping them do their jobs more efficiently and effectively."

The energy business is high-tech in terms of the generation and delivery of energy but not in terms of customer service and marketing. The Internet is the medium for changing that.

"The Internet enables companies like Altra to use new technology to make communications easier, making it easier to consummate, manage and settle transactions," says E. Russell "Rusty" Braziel, chairman of the board of Altra Energy Technologies Inc. Altra provides business-to-business e-commerce products and services to the energy market.

"That improves the industry overall in terms of efficiencies and in terms of costs."

The Regulator's Role: Online or Out of the Way

HoustonStreet, Altra and Essential.com are examples of a new type of Internet company called a metamediary, which furnishes information-based services. The metamediary brings together many different buyers and sellers, and provides complementary support services such as risk assessment and scheduling. A recent report by technology analysts at Bear Stearns predicts that energy metamediaries will transact nearly $90 billion in e-commerce in 2003, making energy one of the largest Internet markets.

Despite progress in customer service by energy metamediaries (see sidebar, "Early 'Dot-Coms' Eye Big Potential Markets"), some impediments to achieving the full benefits of e-commerce in the energy industry remain. In the electric segment, regulatory issues continue to dominate.

"The best thing that regulators can do for this market is to open up markets as quickly as they can," says Getman. "They should stay out of the competitive energy markets and leave that to market forces."

Braziel agrees. "We would see faster progress on the industry's ability to use all information technologies, including the Internet, if we were moving faster toward a truly open-ended deregulated system," he says. "There is still a relatively small number of states that have full open access to retail customers."

Commissioner Curt Hébert Jr. of the Federal Energy Regulatory Commission says the best thing his agency can do for the energy sector