http://www.consultrci.com

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Editor's Note:

I am extremely pleased to see today's launch of SourceBook Weekly.

Every Monday morning, SourceBook Weekly will provide analytical summaries
of the key issues facing the energy industry, ensuring that you stay informed
of the developments that are impacting your business. Within SourceBook
Weekly, we are tracking the full array of issues related to the energy
industry: deregulation, trading, T&D, generation, new technologies, 
e-commerce,
and international privatization (just to name a few).

I have managed SourceBook as a monthly print publication for the past three
years. By transforming the publication into a weekly e-zine, I can continue
to guarantee that SourceBook Weekly brings you the information you need,
when you need it. You can be assured that, as major news and issues develop
in the energy industry, SourceBook Weekly will be covering them with the
in-depth analytical perspective you've come to expect.

Best regards,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
http://www.consultrci.com

The following are the titles of the articles appearing in this SourceBook
Weekly Issue. Today's IssueAlert follows these SourceBook Weekly hotlinks.
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SourceBook Weekly December 4, 2000 Issue: 
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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MISO: WHAT IS THE FUTURE OF THE MIDWESTERN TRANSMISSION GRID?
The Midwest Independent Transmission System Operator (MISO) has been in
a state of flux as of late, as its expansion efforts have taken some dramatic
turns with major players announcing to withdraw from membership.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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FERC UNDER FIRE: CALIFORNIA IOUS RESPOND TO PROPOSED ORDER WITH SHARP 
CRITICISM
The Federal Energy Regulatory Commission's (FERC's) concession that the
market rules and structure for wholesale of electricity in California are
"flawed" resulted in a 77-page proposal early in November to repair the
situation. The reaction from California's three investor-owned utilities
(IOUs) was immediate and overwhelmingly critical.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ESSENTIAL.COM PARTNERS WITH SHELL: ALLIANCE MAY PROVIDE EDGE OVER UTILITY.COM
In a small step forward for its Internet energy services, Essential.com
has partnered up with Shell Energy to offer a lower-cost natural-gas choice
to customers of Atlanta Gas Light. It appears that both companies will
benefit immensely from the partnership, but in very different ways.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ALLEGHENY ENERGY: FORGING AHEAD IN GENERATION DEAL WITH ENRON
Allegheny Energy's recently announced purchase of three gas-fired merchant
plants from Enron North America reaffirms its strategy of expanding its
geographic footprint and strengthening its unregulated generation capability.
From Enron's point of view, the sale confirms its stated policy of pursuing
"contractual" rather than "physical" assets.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ENERGY PRIVATIZATION IN MEXICO: THE FUTURE RESTS IN THE HANDS OF A NEW
ADMINISTRATION
Energy privatization and the future of electric supply and demand are issues
to be dealt with by Mexico's new president, Vicente Fox, as he took over
the helm of the country on Dec. 1.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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WILLIAMS COMMUNICATIONS CONTINUES SPIN-OFF TREND
Williams is planning a spin-off of its Williams Communications (NYSE: WCG)
subsidiary, which should take effect the first part of next year.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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===============================================================
SCIENTECH IssueAlert, December 5, 2000
Trends for Commodity Trading, Supply Chain Exchanges Explored at Conference
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

Approximately 200 industry executives were in attendance at the first day
of the Energy Exchanges Online conference, held Monday through Wednesday
of this week in Scottsdale, Ariz. The conference was presented by London-based
EyeforEnergy. In morning keynote presentations from Mark Crosno, executive
vice president of Altra Energy Technologies, and Keith Butler, COO, 
DukeSolutions,
issues of how deregulation and the Internet have spawned a new species*the
e-utility*were discussed. A key focus of the conference was the growing
focus on online exchanges and how the entire value chain for the wholesale
energy market is being impacted by new technologies.

ANALYSIS: I attended and also spoke on a panel discussion during the first
day of this conference. What I found particularly noteworthy about the
dialogue taking place was that, despite participation from diverse sectors
of the energy industry*utilities, regulators, consultants, ESPs, IT 
infrastructure
providers, and others*several key points were reiterated throughout the
discussion.

First, there is little doubt left that e-commerce and new technologies
are changing the entire complexion of the energy industry. Resulting from
that dynamic, energy companies presently find themselves in a transformation
related to how they will and should conduct their businesses. While new
technologies certainly offer new opportunities for companies to expand
information and services that already exist in an electronic form, questions
still remain about how much the market itself will bear in terms of building
new online exchanges for e-commerce.

As noted, the conference focused on online exchanges. Within my presentation,
I discussed that essentially four different kinds of exchanges have emerged
within the last 20 months: supply chain, commodity trading, transmission,
and retail exchanges. A supply chain exchange exists primarily to line
up buyers and sellers of parts related to the energy industry, with the
end goals of lower product prices and procurement processing costs, exposure
to a worldwide audience, and shorter order and fulfillment cycles. A commodity
trading exchange exists for companies engaged in bulk wholesale trading
to buy and sell energy packages. A new form of exchange is emerging with
transmission exchanges. We don't know a whole lot about them yet, but a
group of utilities in the Midwest recently proposed a transmission exchange
that would "be the electronic clearinghouse of information flow around
transmission assets and the market." How a transmission exchange would
correlate with an RTO*which also manages transmission flow*is not yet clear.
Finally, the retail online providers could also be considered a form of
exchange in that they are operating exclusively across the Internet.

With that established, several key issues will rise to the forefront in
2001 as many exchanges finally come online and the new business segment
enters its second year. First and foremost, establishing neutrality seems
to be the primary challenge. Questions were raised at the conference about
trading exchanges established by a proprietary participant that is involved
in every buy or sell on that particular exchange. The general consensus
among those present at the conference was that, although concerns about
neutrality have not prevented exchanges such as EnronOnline from becoming
very successful, regulatory pressure from the FTC may eventually make 
neutrality
a requirement. In addition, when given a choice over various exchanges
on which to participate, the sense that I got from the dialogue was that
traders would arguably prefer to participate on an exchange where issues
of disclosing competitive information are not a concern.

The second trend as we move forward is liquidity. With regard to commodity
exchanges, what participants want and what makes an exchange the most 
successful
is liquidity (meaning, essentially, the amount of transactions on the exchange
and, consequently, the opportunity to access beneficial deals). A point
that I made in my presentation is that the larger exchanges naturally seem
to have the most liquidity. Again, the example of EnronOnline, which 
reportedly
has now logged over $200 billion in transactions, cannot be overlooked.
This raises the question of whether or not smaller exchanges will even
find opportunities to move into such a saturated market. As a result, a
related trend that I see is the consolidation of existing exchanges, along
with a blending of current business models into one exchange format. As
companies realize that it is already fairly late in the game to be building
an exchange, the smart move may be to join or merge with an already-existing
format. I think we will also see multiple exchanges merging into one to
gain a lock on various market niches.

The third trend that should emerge over the next year is the separation
of commodities. Traders will want the flexibility of having separate platforms
for different commodities, including power, natural gas, bandwidth, etc.
Dynegydirect is already moving in that direction by offering separate trading
floors that allow traders to group products in a customized way. I think
we will see more and more of this trend as traders demand this option.

The trends I mentioned here have focused mostly on commodity trading. That
is primarily due to the fact that we simply don't know enough about how
several prominent supply chain exchanges will operate. Enporion just last
week logged its first transactions (five reverse auctions in which UGI
was the buyer of natural gas). Pantellos still has another month or so
before it comes online. Of course, there are many smaller supply chain
exchanges like UtilityFrontier (municipal-oriented), RAPIDpartsmart and
Bex.com, but the general consensus at the conference was that all supply
chain exchanges will need to provide significant cost savings for 
participants,
and that has yet to be universally demonstrated. Most observers of this
particular trend are reserving judgment until next year when real-time
results are disclosed.

Moreover, the evolving energy marketplace is providing many new opportunities
for energy companies to redefine themselves and develop new business models.
However, much of the water that energy companies may be venturing into
is uncharted territory. The risks and competition associated with building
an online exchange can be formidable, and may dissuade some energy companies
from developing in that direction. The question is, as we move further
down the path of an e-based energy industry, can energy companies avoid
participation in some form of an exchange? As always, the answer will probably
be found along the bottom line, which for many of these exchanges should
emerge sometime over the next year.
===============================================================
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SCIENTECH's IssueAlerts are compiled based on independent analysis by 
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