---------------------- Forwarded by Greg Whalley/HOU/ECT on 09/13/2000 09:28 
AM ---------------------------


Andy Zipper@ENRON
09/13/2000 09:24 AM
To: Greg Whalley/HOU/ECT@ECT
cc:  
Subject: From today's NGI

I think we should discuss our response to this.
---------------------- Forwarded by Andy Zipper/Corp/Enron on 09/13/2000 
09:16 AM ---------------------------
From: Bob Shults@ECT on 09/13/2000 09:03 AM
To: Andy Zipper/Corp/Enron@Enron, Louise Kitchen
cc:  

Subject: From today's NGI

FYI
---------------------- Forwarded by Bob Shults/HOU/ECT on 09/13/2000 08:57 AM 
---------------------------
   


From:  Rahil Jafry                                                            
 09/13/2000 08:57 AM	
	
	
	                           
	

To: Bob Shults/HOU/ECT@ECT, Daniel Diamond/HOU/ECT@ECT
cc:  
Subject: From today's NGI

EnronOnline Market Power Under Fire

The simmering pot of market concerns regarding the market power of 
EnronOnline finally boiled over in public yesterday at Chicago's LDC Forum. A 
representative from EnronOnline had to fend off verbal attacks from 
competitors and from the audience, who criticized the system as giving Enron 
the ability to manipulate prices and provide it with an unfair advantage over 
competitors. 

Scott Coleman, an official at Altra Energy Technologies, said proprietary 
systems like EnronOnline, and systems being developed by a consortium of 
large market players, represent a danger to the health of the energy industry 
because of their current or potential market power. Altrade operates its own 
independent online exchange that is one of Enron's biggest electronic 
competitors. It differs from EnonOnline in that various buyers and sellers 
trade with each other with Altrade serving to clear the transactions. On 
EnronOnline, Enron posts bid and asked prices and is a party in every 
transaction. 

The proprietary EnronOnline trading system has been accused of market 
manipulation mainly because of its tremendous growth since going live last 
November and because of the market strength of its operator, Enron Corp. 

Enron is the energy industry's largest marketer/trader/risk manager and one 
of the largest natural gas pipeline operators. About 60% of its marketing and 
trading business today is done over the EnronOnline system. Critics charged 
that EnronOnline provides a tremendous advantage to its parent because all of 
the transaction data is thrown into a historical database that is available 
only to Enron. 

EnronOnline has handled more than 280,000 transactions worth $140 billion 
since going live. The proprietary system handles about 2,000 transactions 
every day with a value estimated at $1 billion, and most of its online 
business is natural gas and power sales and purchases. 

Why has the system been so successful? It's free, easy to use, low risk and 
there is a tight bid-ask spread, both EnronOnline and its competitors note. 
There's no special hardware required; everything is on the web and a 
transaction is as simple as a couple clicks of the mouse. It also provides a 
broad variety of information, including prices on 1,000 products, and is 
supported by the largest energy marketing firm. Although there are many other 
systems out there, few if any have the content, ease of use and price 
discovery of EnronOnline. 

Critics claimed that power enables EnronOnline to "soak up liquidity" in the 
marketplace, and in doing so give itself a tremendous advantage over its 
competitors. With each trade, Enron gains a little bit more information about 
its competitors' positions in the market. 

"Over the long term I think the market will always correct itself," said 
Altra's Coleman. "But in the short term, I think if any one player has enough 
of a presence in any one market they can cause prices to move in one 
direction or another." 

EnronOnline Director Bob Shults said the company is simply "providing a 
service for our customers, particularly a bid and ask. But I don't think 
Enron has the ability to move markets. We are just putting a bid and ask out 
there, and if people want to buy at our prices, then fine. If people want to 
sell at our prices, fine then sell it. I don't think we have the market 
manipulation capability people suspect... We are not bigger than the 
marketplace." 

When asked specifically about historical data collected on those who use the 
system, Shults denied the company studies the buying and selling patterns of 
its competitors with an eye toward manipulation --- sort of the "Big Brother" 
of the energy marketplace. 

"The historical information is not available," EnronOnline's Shults admitted. 
"We just started calculating the indices and price reports... We are now 
providing that information to the market so everyone else has that 
information as well." He said Enron does not retain information about those 
who use its system. 

Shults did, however, warn that the system will make the U.S. energy market 
much more closely connected to the global marketplace in the future. With 
increasing demand for LNG imports and rapid price discovery of worldwide 
commodities on EnronOnline, for example, market activity in Africa and the 
Far East could have a more immediate impact on domestic markets. 

Quoting analysis conducted by Forester Research Inc., Shults also predicted 
electronic exchange revenues could grow from $500 billion this year to more 
than $3 trillion in 2004-2005. 


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