Marketers And Brokers

With the opening of retail electricity markets in several states, new suppliers of electricity have developed beyond the traditional vertically integrated electric utility. Energy marketers and brokers are the new companies that are being formed to fill this need. An energy marketer is one that buys electricity or gas commodity and transmission services from traditional utilities or other suppliers, then resells these products. An energy broker, like a real estate broker, arranges for sales but does not take title to the product. There are independent energy marketers and brokers as well as unregulated subsidiaries of the regulated utility.

According to The Edison Electric Institute, the energy and energy services market was $360 billion in 1996 and was expected to grow to $425 billion in 2000. To help put these numbers in perspective, this market is over six times the telecommunications marketplace. As more states open for competition, the energy marketers and brokers are anticipating strong growth. Energy suppliers have been in a merger and consolidation mode for the past few years. This will probably continue at the same pace as the energy industry redefines itself even further. Guidance on how to choose the right supplier for your business or clients will be offered later on in this chapter

The trading of electricity on the commodities market is a rather new phenomenon. It has been recognized that the marketers, brokers, utilities and end users need to have vehicles that are available for the managing of risk in the sometimes-volatile electricity market. The New York Mercantile Exchange (NYMEX) has instituted the trading of electricity along with its more traditional commodities. A standard model for an electricity futures contract has been established and is traded for delivery at several points around the country. As these contracts become more actively traded, their usefulness will increase as a means to mitigate risk. An example of a risk management play would be when a power supplier locks in a future price via a futures or options contract to protect its position at that point in time. Then if the prices rise dramatically, the supplier's price will be protected.

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