House Holds Hearing on E-Commerce in the Energy Industry
(July 16, 1998) While the web bookstores like amazon.com and online porn may be some of the better known examples of electronic commerce, data from Forrester Research shows the 25% of the dollar value of all electronic commerce is in the natural gas sector alone. The House Commerce Committee's Subcommittee on Energy held a hearing on Wednesday on how this e-commerce is furthering deregulation and competition in the energy industry.
The Subcommittee heard from the following witnesses:
Russell Braziel provided background on the scope of e-commerce in energy transactions. "Forrester projects that over $4.9 Billion in physical natural gas will be traded via electronic trading systems in 1998, approximately 25% of the total Internet-based electronic commerce economy for the entire year. By the year 2002, Forrester projects a transaction value surpassing $30 billion in electronic trading of natural gas and electricity."
Braziel is Chairman of Altra, a company which provides electronic commerce services and enterprise application software for buying, selling and transporting energy. "Electronic commerce has been and is continuing to be a key enabler of the transition of energy from a regulated industry to a competitive marketplace."
He explained that, "Today, electronic commerce operational transactions on the Internet and private networks are used to schedule the majority of interstate natural gas shipments in the U.S. Open Access Same-Time Information Systems (OASIS) nodes on the Internet are actively used to reserve electronic power transmission capacity on utility systems and post rate discounts."
In contrast, Richard Tabors, an energy consultant and MIT professor, was critical of the OASIS system. "OASIS nodes are neither accurate nor timely; as a result, access is less than open and nondiscriminatory." There is not "an open and unbiased market" in the electric sector, said Tabors, because the "very technology that is allowing this revolution to occur is being applied to slow the progress from natural monopoly to competitive market."
Braziel concluded that, "In the business of buying and distributing books, companies like Amazon.com are using the Internet as a medium to change the fundamental economics and competitive structure of the industry. Just as Amazon.com does not own stores and warehouses made of bricks and mortar, it is no longer necessary for successful energy marketing companies to run wires and pipes. With unbundled energy markets, someone else actually produces, stores and delivers the energy itself. The energy marketer just manages information. So is energy really like Amazon.com's book business? Probably in more ways than we can imagine."
NYMEX SVP Robert Levin testified about how electronic commerce could further the progress in electricity deregulation. E-commerce could improve "price transparencies for some transactions," lower "costs associated with some transactions," and "increase competition for some markets." NYMEX is an energy futures exchange, providing a regulated forum for price discovery and risk shifting in crude oil, heating oil, unleaded gasoline, propane, natural gas and electricity.
Sheila Hollis, an Washington DC lawyer specializing in energy regulation law, testified that "the electricity, natural gas and financial industries are in the midst of massive restructuring, divestitures, asset trading and monitization, and an historic convergence of these worlds is occurring at break-neck speed. ... A key solution to making the dramatically altered structure work is the growing reliance on electronic commerce."
She advocated that the Congress should "urge regulators and gas and electric industries to adhere to their commitment to integrating electronic commerce into their operations and to developing a seamless communications system using Internet technology where appropriate and secure."
Rae McQuade testified for the Gas Industry Standards Board (GISB), a corporation formed in 1994 to create standards to promote electronic commerce and streamline the marketplace for natural gas.
According to McQuade, standardized e-commerce has enabled the gas industry to "transact business in shorter time frames, with less ambiguity, and with more accessibility to information." GISB is presently developing standards for transactional websites.
All witnesses agreed that e-commerce was helping to revolutionize the energy industry. However, residential retail consumers would not likely make significant use of the Internet, other than to obtain price information, which in turn might influence their consumption levels.
Witnesses also said that the energy industry had not experienced problems with security.
While the subject matter of the hearing was e-commerce in the energy industry, and witnesses devoted their opening statements to the subject, several Subcommittee members also asked questions regarding the progress of deregulation in the energy industry.
The hearing was chaired by Rep. Dan Schaefer (R-CO). Other members who participated included the Ranking Minority Member Ralph Hall (D-TX), Rick White (R-WA), John Shimkus (R-IL), Steve Largent (R-OK), Albert Wynn (D-MD), and Thomas Sawyer (D-TN)
The hearing was the ninth in a series of House Commerce Committee hearings into various aspects of e-commerce. Prior e-commerce hearings, and Tech Law Journal stories, include the following: