Jolting an Industry

Jolting an Industry

PJM has always been ahead on the problem-solving front. It was founded in 1927 to help regional utilities handle outages and problems with peak demand. With the deregulation of utilities in the early 1990s, PJM was converted into an independent system operator, with a mandate to establish an open market for electric power. To do that quickly and cost-effectively, it turned to the Internet. Computer Power

Its market is now moving at Net speed. At first, PJM tried posting prices hourly, Harris says. But customers began complaining that wasn't fast enough. "Now we post every three to five seconds," he says, "and I think ultimately we'll get it down to one-eighth of a second—the time it takes for electricity to circle the globe."

PJM's Web initiative has sent a wake-up jolt through the energy industry. Companies like Houston-based Enron—which creates markets for commodities, including electricity—have followed PJM onto the Web. Today, 60 percent of Enron's trades are done electronically. Meanwhile, Williams Energy Marketing and Trading Co., the power trading arm of Tulsa, Okla.-based Williams Companies, Inc., has shifted from a business largely done by phone and fax to one that uses the Web.

Besides developing various software programs that assign electric capacity, facilitate transactions and house auctions, PJM offers its proprietary software to other grid operators, helping to move the whole national grid toward a unified electric market. In 1999, ISO New England Inc., which manages the grid serving six states, bought and adapted PJM's software and has been running its own Web-based market ever since. Up to 28 percent of its power is traded on the site.

But Net-based energy trading is still a pipe dream for most. Although the 10 grids covering 48 states have deployed Web-based marketing systems, only a small percentage of all electric power is traded on them. Even at PJM, most of the approximately $600 million in online deals last year were between power generators and distribution companies, not with end-users. And even that trading represented only some 18 percent of the total deals made (most were two-party power contracts negotiated over the phone or at a table).

The problem: While it is possible for a company to buy and sell power online on PJM's site, for example, companies say that liquidity is still so poor that they can't really use it that way. "There are very few contracts trading at this point," says Gary Groner, vice president for energy at Ford Motor Land Services Corp. "You see extreme volatility in pricing, but you can't really manage that volatility because very little of it trades."

This article was originally published on 07-01-2001
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