Energy Industry's Enporion Gets Past Its First Auction
Fully integrated supply chain is next
November 27, 2000 12:00 PM ETComputerworld -
With Enporion Inc.'s first auction under his belt, Michael Johnson sounded relaxed and confident. But the CIO of the energy industry's fledgling business-to-business exchange said he knew he had just edged beyond the proof-of-concept stage.
"We have to bring liquidity to the marketplace," Johnson said. "We need to continually add buyers to attract sellers."
Johnson's challenge of creating liquidity is one that confronts most business-to-business exchanges. It's also one that's held in check by Web-based systems that lack the ability to handle basic business processes such as financing or insuring deals.
Chicago-based Enporion's advantage is that its initial customer base is made of its seven founding members - Allegheny Energy Inc., Allete (formerly Minnesota Power), Ameren Corp., CMS Energy Corp., KeySpan Corp., PPL Corp. and UGI Corp. - which form a large buying block to attract sellers.
The idea for the exchange sprang from these major energy producers' internal review of what commodities they bought and from whom.
"We established spending profiles of key commodities among the seven founders and placed the spending in the relative commodity buckets," Johnson said. With those commodity spending levels in hand, Enporion was able to determine the important suppliers in categories such as coal and oil.
That kind of detailed information last month helped one of the founders buy in a competitive auction 150,000 dekatherms of natural gas.
But that's only a small first step on a long road to a fully integrated supply chain that embraces more buyers than the seven founders and more sellers than preselected commodity suppliers.
Johnson said he envisions Enporion as the energy industry's commodity and direct-goods marketplace. For it to get there, he said, he must woo suppliers to make their product information accessible from a Web browser to reach more buyers. Only after that happens can he turn his attention to deploying the complex middleware necessary to bring buyers' and sellers' supply-chain systems together so that true commerce can occur.
Craig Johnson, a director at Cap Gemini Ernst & Young in Paris who is helping to implement the Enporion site using technology from SAP AG and Commerce One Inc., acknowledged that business-to-business exchanges are poor reflections of the complexity of business processes in one-to-one trading today.
"When you're talking about business-to-business exchanges today, what you have enabled are buy-sell commitments. That's it," said Craig Johnson. "Buyers and sellers must go off-line to complete the deal."
One business-to-business shortfall has been the financing and insuring of deals done online, said David Chen, the CEO of Portland, Ore.-based GeoTrustInc., which authenticates users on the Web.
Once companies on an exchange agree to trade, they need to withdraw to paper-based or proprietary electronic data interchange-based financing systems to fund and approve the agreement.
Emily Freeman, a senior vice president at New York-based Marsh Inc., agrees. Her company issues bonds to cover commercial transactions. She said online exchanges are "new vehicles" and need tailored programs.
Freeman's company joined The Hartford Financial Services Group Inc. in Hartford, Conn., to underwrite $100 million worth of exchange trading.
"If trade is going to get off the ground in these online exchanges," she said, "they'll need the financial instruments to get them launched."
E-business
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