Benchmarks

Although online energy procurement has yet to be adopted widely among end-users, the Internet is seen as the wave of the future, according to corporate energy managers interviewed by E Source, the retail and consulting arm of Financial Times Energy in Boulder, CO. E Source asked energy managers about the role of the Internet in their energy-purchasing decisions and their experiences using online hubs. For the most part, energy managers believe buying energy online offers many potential benefits in terms of time and cost savings.

The flow of energy transactions through retail e-hubs remains relatively insignificant compared to the potential for such interactions. The same is not true of online wholesale energy trading. Since its launch in November 1999, EnronOnline, the undisputed leader among wholesale trading exchanges, has hosted more than $500 billion in transactions.

By contrast, e-marketplaces in the retail energy space, such as Amdax, eChoicenet, EnergyGateway, eBidenergy, Enermetrix, UniGridenergy, and Powerspring haven't yet seen anything close to this volume of transactions. Enermetrix, one of the more active retail energy exchanges in the U.S., claims annualized trades in excess of $400 million for 2000.

All of these companies are struggling to build the critical mass of energy buyers and sellers to establish the necessary liquidity, a task that is proving to be a classic "Catch-22" assignment. Energy managers are reluctant to post their load if there aren't enough suppliers online to bid on it, and suppliers aren't convinced there's enough load out there to bid for, so they hesitate to sign on.

Joe Main, national energy manager for Tricon Global Restaurants in Louisville, Ky., said he's decided to wait to participate in an online energy buy until the situation changes. "Although the Internet is pretty good at providing price transparency, the problem is that some of the more competitive regional suppliers have not participated in the auction. Given the regional nature of the marketplace, you need everyone on the portal. If you think you're not getting the best price, you're not going to participate," he said. The result? Insufficient liquidity and few deals.

Nevertheless, E Source believes energy managers will come to see e-marketplaces as a standard channel for procuring the commodity and as a means of supporting their energy management decisions. When market conditions improve and allow for healthy competition in retail energy markets, the Internet should come into its own as the most efficient and flexible way for commercial and industrial customers to conduct commodity transactions and make energy management decisions.

Managers articulated five benefits they see arising from the use of Internet hubs: exposure to competitive, sophisticated energy pricing; lower transaction costs; shorter bid/ask cycles; wider reach to suppliers; and simplification and convenience.

Nearly all respondents believe in the potential of the Internet to lead them to the most competitive prices. That confidence is closely tied to the Internet hubs' ability to help buyers reach a wider spectrum of suppliers than ever before, which is a fundamental benefit offered by Net markets. The traditional RFP process tends to limit the number of vendors reached. Companies interact with