----- Forwarded by Cindy Derecskey/Corp/Enron on 10/12/2000 01:01 PM -----

	Kal Shah@ECT
	10/12/2000 11:31 AM
		 
		 To: Mark Palmer, Karen Denne/Corp/Enron@ENRON, Meredith 
Philipp/Corp/Enron@ENRON
		 cc: 
		 Subject: EnronOnline: ENRONONLINE-STYLE TRADING PLATFORMS COULD HARM MARKET, 
ALTRA OFFICIAL SAYS

fyi.

Kal


ELECTRONIC TRADING
ENRONONLINE-STYLE TRADING PLATFORMS COULD HARM MARKET, ALTRA OFFICIAL
SAYS
Mark Davidson, Lincolnshire, Ill.

09/15/2000
Inside F.E.R.C.'s Gas Market Report
4
(Copyright 2000 McGraw-Hill, Inc.)

  Officials from the two predominant electronic gas trading systems squared
off this week after the head of gas trading for Altra Energy Technologies Inc.
accused proprietary systems such as EnronOnline of being ``potentially
dangerous to the long-term health of the industry.''

  Scott Coleman, Altra's director of natural-gas trading systems, told
Interchange Energy Group's LDC Forum in Lincolnshire, Ill., that proprietary
systems -- those run by market participants -- have the ``potential for
short-term price manipulation'' by the operators, which typically set the
bid/ask spreads and are on either the buy or sell side of every deal.
  And because those systems don't provide anonymity -- the operator knows the
counterparty's identity as soon as a deal is consummated -- they allow the
operator to gain market intelligence by monitoring the trading patterns and
market positions of its competitors, Coleman asserted.

  While acknowledging that he is ``slightly biased'' toward independent
systems such as his company's Altrade, Coleman said he fears that if one
proprietary system gains too big a share of the electronic trading market, ``I
think you can draw the conclusion that they will be able to control markets
short term.'' However, ``long term, the market always corrects itself.''

  Coleman did not assail EnronOnline specifically, although he did note that
Enron Corp.'s eight-month-old trading platform is by far the largest
proprietary system and is growing rapidly -- mainly because it's free of
charge and simple to use with its ``one-click'' approach to price discovery
and spot dealmaking.

  Coleman argued that independent electronic platforms such as Altrade -- most
of which charge a transaction fee -- are more reliable because they
essentially act as third-party brokers, matching up anonymous traders that set
the bid/ask spreads themselves. Altrade, unlike EnronOnline, does not take a
market position or assume title to gas traded on its system.

  EnronOnline Director Bob Shults rebutted Coleman's assertions regarding
proprietary systems. ``We provide liquidity in the marketplace. . . . I don't
think it's detrimental to the gas business at all,'' he insisted. ``I don't
think Enron has the ability to move markets; you don't have the market
manipulation that [Coleman] alludes to.''

  Shults maintained that if competitors thought price manipulation was
occurring, they would bail out immediately. Instead, competitors' use of
EnronOnline is soaring; the system now performs about $1 billion/day in
transactions, much of it in the gas and power sectors.

  ``We put the bid/ask spread out there and if you like it, you can use it. If
you don't like it, you don't,'' Shults added. Asked if EnronOnline tracks its
competitors' trading patterns in order to gain an upper hand in the market,
Shults simply answered, ``No.''

  Dennis Cornwell, senior vice president of risk management and trading for
Conoco Gas and Power Marketing, said his company -- which now does about 15%
of its gas deals electronically -- welcomes both proprietary and independent
systems and spreads out its trading activity among EnronOnline, Altrade and
other platforms.

  Cornwell, however, acknowledged that Conoco limits the number of deals it
does on any proprietary exchange in part because of the concerns Coleman
expressed.

  Meanwhile, Coleman asserted that a third type of e-commerce platform,
consortium exchanges, aren't likely to succeed in the gas and power industries
because of regulatory concerns about antitrust violations and because similar
multifirm exchanges in other industries have ``failed to materialize'' after
being announced. Also, Coleman cited the difficulty of several large companies
``agreeing on how to operate.''

  Several consortium systems have been proposed in North America, including
IntercontinentalExchange, an Internet trading platform founded by BP, Royal
Dutch/Shell Group, Totalfina Elf Group and four financial investment firms and
subsequently joined by six major gas and electricity marketers (IFGMR, 4 Aug,
20).

  As for electronic trading as a whole, Shults, Cornwell and Coleman all
agreed that while it won't entirely replace conventional methods, it will
become the dominant way of buying and selling gas and electricity within a few
years.

  Coleman said electronic trading ultimately results in saved time, lower
prices, better price discovery and ``just plain competition for the traders'
attention span. It's going to be tougher to get a trader on the phone. This
may depersonalize the business a little bit, but that is the way it's going to
go.''

  But Coleman added that the proliferation of electronic energy commerce will
create a whole new set of job opportunities. ``The human being will be what
holds all of this online trading together,'' he said.

  The speakers also agreed that most of the 20 or so electronic platforms
operating or in development aren't likely to survive the intense competition
and will either go out of business or be absorbed by another company within a
couple of years.



Folder Name: EnronOnline
Relevance Score on Scale of 100: 95

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