January 1, 2001

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Innovators And Influencers 2001

Energy Exchange Chairman Rocks

In music or business, Altra Energy's Rusty Braziel has to maintain harmony

By Saroja Girishankar

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or Rusty Braziel, kicking off a nearly $40 million online energy exchange has turned out to be the best gig of his life. It's even better than his next-favorite stint as bass guitarist with Sutter's Mill, a Los Angeles rock band.

"Computer programming by day and rock 'n' roll at night and weekends has worked for me," says Braziel, the founder and chairman of Altra Energy Technologies Inc., a spot exchange that handles billions of dollars in natural gas and electricity trades online. But although he's casual about his success, Braziel's day job was no coincidence. He blended 11 years of experience in the energy arena--he was senior VP of trading and marketing in Texaco Inc.'s Gas Marketing Group--with innovative technology and a trillion-dollar commodity market potential.

Braziel can't afford to miss a beat with Altra Energy. He hopes his business model, which includes fees from software licenses and transactions, will secure his staying power in what has become a shaky E-marketplace sector.

Many think he can do it. "Rusty was always a year ahead of his industry, translating his vision into a technical solution to solve the inefficiencies in the natural gas business," says Callie Mitchell, a former colleague and now VP of marketing at the Williams Cos., which uses the exchange. Braziel formed Altra Energy in 1996 by combining the transaction management system of Texaco with Panhandle-Eastern's electronic trading system.

At age 50, Braziel is no novice to the industry. He's one of a handful of innovators who spearheaded the public online marketplace trend four years ago--a concept that was quite revolutionary. It required new business and revenue models in the face of skittishness about disintermediation of traditional middlemen.

But unlike other marketplace trailblazers such as Ventro and VerticalNet, which considered software licensing for additional revenue streams only recently, Altra Energy has licensed its transaction management and risk-management software to more than 150 buyers and sellers on its Web site from day one. Those fees generated more than half the company's estimated annual revenue of $40 million in 2000. Considering that a one-time software licensing fee ranges from $500,000 to $2 million, Altra Energy has an installed customer base for ongoing sustainable revenue to complement transaction fees.

Braziel recognized early on that scanty transaction fees of less than 1% couldn't generate sustainable revenue unless purchases were in billions of dollars. Moreover, he was going after a high-volume market. The global natural gas and electricity market is estimated to be nearly $6 trillion, in contrast to the $10 billion market for chemical and biological products that Chemdex went after. Ventro shuttered Chemdex last month because it couldn't attract sufficient numbers of buyers and sellers, the market size was comparatively small, and the business model relied solely on transaction fees for revenue.

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However, Braziel is a realist as he moves into the new year. He concedes Altra Energy has serious competition and first-mover advantage is evaporating. As many as 25 competitors, including Intercontinental Exchange, owned by Morgan Stanley, Goldman Sachs, and some energy providers, as well as a private exchange operated by Enron Corp., pose a substantial threat to Altra Energy. More than once, the company has pulled back its plans for a public stock offering, citing poor market conditions.

But Braziel keeps thinking ahead. Unlike the natural gas and electricity sectors where thousands of buyers and sellers interact anonymously to get lucrative deals, bids in unique substances, such as butane, involve one-to-one interactions among a handful of partners. That's an area on which Braziel will focus this year.

Even while strumming chords with the band, Braziel used his programming skills to develop the energy sector's first back-end transaction system. He's now back at the drawing board considering new technology architectures and business models that support intermediaries, mirror existing spot market processes, and are simple and inexpensive to implement. Braziel says many marketplaces have spent tens of millions of dollars on their architectures, but haven't amortized that cost by generating bigger revenue. Though Braziel's initial target will likely be the energy arena that requires peer-to-peer interactions such as butane, he says his one-to-one concept can be applied to other products as well.

In the meantime, Braziel is looking for new ways to generate revenue on the site as well. He plans to add derivatives--financial transactions that don't require actual delivery of products--to Altra Energy to complement revenue generated from the delivery of physical orders.

For now, experts are giving Braziel the benefit of the doubt. "Rusty is in the ultimate commodity market. If I had to pick one marketplace in B-to-B that can make it, it's energy," says Bruce Richardson, senior VP of research at AMR Research. "When you combine that with sound revenue models and technology, it has as good a chance as any." Just as in his band, Braziel's Altra Energy has to please many audiences and keep harmony among all the players.

Photo by Bill Kennedy

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