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Fortnightly Magazine - May 15 2001

the same, known quantities. A Net market immediately opens up a new spectrum of bidders without necessitating the kind of extra legwork buyers would have to do to identify and screen new suppliers on their own.

Online hubs reduce transaction costs by taking much of the redundancy out of the RFP process. Energy managers must still fill out forms online, but the data is housed in an easily accessible format, and because they are stored in a central location, there's no need to send the same information out to multiple suppliers.

Bid/ask cycles also are reduced online. In volatile commodity markets, buyers need to lessen the procurement cycle time and speed up communications with sellers. "Under the conditions of the current RFP process, the market can change 15 times by the time you receive responses to your RFP," said one energy manager who procures energy for a chain of supermarkets in the Northeast and Mid-Atlantic states.

One perception in the market is that pure transactive capabilities are not "sticky" enough to capture users. Analytical energy information services and other management tools are becoming as important as the transactions themselves. Net marketplaces are touting a variety of value-added services as accompaniments to the automated RFP and auction services at their sites, such as energy information services (EIS) like bill disaggregation, benchmarking, load profile analysis, and bill history; risk management and insurance services; transmission scheduling; and information on market conditions, including typical portal offerings such as weather and news. Online hubs are quickly moving to add these services to enhance their offerings and to differentiate themselves from competitors.

Most energy managers agree it would take several years before there was enough liquidity to keep these online hubs viable. As Cargill Energy's J.F. Muse pointed out, existing long-term contracts would have to expire before the total amount put out for bid online could increase. "If we plan to have all our load in the online system, it could take another two years," Muse said.

Many signs point to an inevitable future for online energy retailing. The crowded field of players will inevitably be narrowed, as various exchanges merge with one another in an effort to build liquidity. And, of course, the status of restructuring will have an enormous impact on whether enough load becomes competitively available.


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