Energy Trading: Out of Power?
N E W Y O R K, June 20 -- For years, electricity trading has been described as the future of the power business. Now companies can't get out of it quickly enough.
Any business in which the now-fallen Enron Corp. was considered a trailblazer would seem likely to be suffering tough times at the moment. But recently a wave of developments has raised serious questions about the direction of the entire power-trading industry.
Consider this:
In recent weeks, major energy traders like El Paso and Williams have announced they are cutting their trading operations dramatically.
The government is looking into allegations of price-fixing stemming from California's power crisis.
Some firms, including Dynegy and Reliant, have acknowledged swapping quantities of electricity with each other to boost revenues.
And many states pondering electricity deregulation — a crucial aid in helping the trading business grow — have dropped the idea.
On top of all that, stricter government regulation of energy trading is on the way. The General Accounting Office, the federal government's watchdog office, issued a sharp report Wednesday calling for the Federal Energy Regulatory Commission to monitor the business more closely and further regulate a business once thought to represent the cutting edge of the free-market system.
"The industry is hemorrhaging right now," says Jim Walker, an analyst at Forrester Research in Cambridge, Mass.
A Commodity Like Any Other
It's all a far cry from the vision described by former power company executives like Kenneth Lay, the ex-Enron CEO, who told Congress in 1996 that deregulating the electricity business would "bring it into the modern age, and give American consumers the equivalent of one of the largest tax cuts in history."
Energy trading, while complicated in its details, operates via the same principles as other types of older commodities trading, from wheat to gold or oil. Companies like Enron — the industry pioneer in the United States — would try to anticipate fluctuations of the energy supply and demand around the country and trade quantities of power accordingly.
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