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Internet Mavericks: Still Working Out of the Garage?

e-Commerce is consolidating, but there's room for the little guys too.
Fortnightly Magazine - November 1 2000

in supply chain. Public utility commissions are going to say, "Why aren't you in the state of X,Y,Z in a marketplace? You could be saving six to nine percent on materials and services and by not participating your rates are higher than they should be." The regulation issue is no longer a key on the success of Enporion to be a viable alternative. Sooner or later, if a utility in a regulated state isn't in an exchange, their commission is going to say, "Hey fellas, you are missing out on an opportunity here and our audit finding is that you should be in an exchange and saving ratepayers that money."

Some utilities will say, "I don't want to get into an exchange yet, because any savings that I enjoy I am going to have to pass back to the ratepayer, so why don't I wait." But sooner or later, when these exchanges are running, they are going to ask about those savings.

Andy Patterson
Vice president, strategic analysis,
American Electric Power
(Transmission Capacity)

With so much still up in the air about regional transmission organizations—and no RTO approved as yet—it's noteworthy in and of itself that American Electric Power, Carolina Power & Light, Duke Energy, and Unicom Corp. plan to turn RTOs into customers. They would plan to launch an Internet-based, electric transmission exchange that would offer a single portal for arranging transmission capacity.

While the exchange is to be open for use by any group in the industry, including power marketers, merchant generators, utilities, and aggregators, Andy Patterson, vice president-strategic analysis at AEP, acknowledges that the real market for its service would be RTOs.

There's no doubt that the stakes are high. According to the companies involved, more than $4.5 billion in revenue was generated industry-wide in 1999 from wholesale energy transported in the United States. Meanwhile, the four partnered companies alone transported approximately 100 million megawatt-hours of wholesale energy across their transmission systems in 1999, operating and managing more than 60,000 miles of transmission lines.

The spoke with Patterson about the RTO issue, the long-term vision for the exchange, how the exchange will work, and how it will make its money.

Why is the innovation from energy e-commerce coming from utilities partnered with technology companies rather than from single entrepreneurs with seed money?

There are a couple of reasons. I think the energy markets are generally not well understood, especially the information flow between the people that are participants in the sector and the people that have assets in the sector.

Take the exchange we are involved with. Reservations, scheduling, billing, and settlements for the transmission business is a bit of an arcane business. It is not one that is well understood, even within utilities. So for somebody to come from the private sector without a real strong background in the area, it would be difficult to do a startup. Not impossible, but difficult.

Will your exchange go public?

It has the potential for a public offering and that would be attractive. It is nice when you make these investments