But Wait! There's More! Another OnLine Exchange Launches - by Jon T. Brock Published / Released:
Today a new energy trading marketplace was formed when eSpeed, Inc. signed an agreement with Coral Energy, Dominion, Koch Energy Trading, TXU Energy Trading, Williams Energy Marketing and Trading, and Cantor Fitzgerald. Dynegy plans to be a future member as well as Entergy, who plans to invest through its Entergy-Koch venture once it is closed later this year.
Analysis: OK, maybe I am exaggerating by calling this another "exchange". Let me clarify the exchange arena. First, we have supply chain exchanges, of which there are several going. Pantellos is the best known while Enporion recently joined the fray, and smaller bex.com which is also worth noting here. These supply chain exchanges focus on matching the buyers and sellers of equipment, mainly large ticket items such as wire, transformers, etc.
Another type of exchange in the energy marketplace is a recently announced exchange for transmission, founded by American Electric Power, Carolina Power & Light, Duke Energy, and Unicom. The four plan to launch an independent, Internet-based electric transmission business-to-business exchange that offers a single gateway, or portal, for arranging transmission capacity.
And finally, we have our trading exchanges. Last year, Enron began the frenzy by launching EnronOnline. In less than one year, EnronOnline has logged transactions in excess of $100 billion. On April 13, 2000, six of the largest gas and electricity marketers in the U.S. announced they have formed a new independent energy trading consortium, which will own and operate an Internet-based, business-to-business, over-the-counter energy trading platform. The new trading platform, which is expected to be in operation by the end of the year, will be open to all wholesale energy industry participants and is known as the Intercontinental Exchange. The consortium's members are American Electric Power, Aquila Energy, a subsidiary of UtiliCorp United, Duke Energy, El Paso Energy, Reliant Energy, and Southern Company Energy Marketing, a unit of Southern Company. And now we have TradeSpark.
TradeSpark plans to create electronic marketplaces for natural gas, electricity, coal, weather derivatives, nitrogen oxide, and sulfur dioxide emission credits. What makes TradeSpark different? I attended an analyst conference call this morning to learn more. Here's what I discovered. TradeSpark is actually a venture that plans to utilize the infrastructure and capabilities of eSpeed, Inc. eSpeed claims several differentiating factors. First, it is in place. Most earlier announcements speak of a launch date some time in the future. TradeSpark will open for business next Monday, October 2. Secondly, TradeSpark is creating one large liquidity pool by bringing together several mediums, the Internet, voice brokering, and eSpeed's 300 millisecond private global network. eSpeed made it clear that it is different from the Intercontinental Exchange, which appears to be Internet-based and has yet to launch. And finally, TradeSpark appears to have some attractive financial incentives in place to encourage its use.
eSpeed announced a $2 million investment in TradeSpark for a 5% equity stake. That would give TradeSpark a pre-launch market valuation of $40 million. Should TradeSpark hit $250 million in revenue by year five, eSpeed would make available 8 million warrants at a strike price of $27.94. TradeSpark has no infrastructure expenses. It is based solely on revenues. eSpeed collects all revenues and pays TradeSpark 35% of them, consistent with its financial market arrangements.
eSpeed estimates the market size to be somewhere between $750 million to $1.250 billion. These are "real" revenue numbers, and I commend eSpeed for using them. Most companies "blur" the numbers by reporting notional numbers (please note EnronOnline's $100+ billion). eSpeed did make reference to moving over $10 trillion notional value last year.
Prior to this announcement, Dynegy and Williams agreed to invest $25 million each in eSpeed to develop at least four new commodity specific electronic spot and futures trading marketplaces. Such products included natural gas, electricity, natural gas liquids, petrochemicals, crude oil, and bandwidth.
So where does this leave us? It appears that three different business models are appearing on the energy trading front. EnronOnline's model has had early success for moving Enron-trader product only. The Intercontinental Exchange is made up of some heavy-hitters but appears to be Internet-only and has yet to launch. And now we have TradeSpark, which also has some heavy-hitters and appears to be leveraging the experience of a seasoned player and "enabler" in eSpeed. Each has its merits. Can all three survive in the long run? Will we be trading air in the near future? Stay tuned…
..ich setzte auf espeed...we will see...