And in the last few months, Michigan-based CMS Energy, Houston-based Dynegy and Reliant, also of Houston, have admitted making "wash" trades — swapping electricity to pump up revenues.
Shares Plunging, Some Firms Limiting Trading
Share prices have plummeted across the industry, and some big names are reducing their energy trading.
In late May, the El Paso Corp., based in Houston, announced a "strategic repositioning" in which it would "limit its investment in and exposure to energy trading." And the Williams Companies, headquartered in Tulsa, Okla., said on June 10 it would be "reducing its financial commitment" to "providing energy risk management services."
Translation? Less trading and a greater concentration on the hard assets — pipelines, power plants — that industry leaders deemed old-fashioned until the Enron implosion occurred. Although that doesn't mean the trading business will evaporate altogether.
"Energy companies still need to trade," says Walker. "The question is, to what extent will they trade to make short-term gains because of arbitrage price opportunities, as opposed to business reasons to help a power plant they own or a customer they need to serve."
That means fewer companies may try to exploit short-lived differences in energy prices, the way a stock trader would try to profit from brief changes in stock prices. Instead, they may take a more defensive approach to trading, doing it simply to ensure a steady supply for the facilities many of the companies also own.
States Shun Deregulation
Another long-term impediment to the industry's growth, however, is the stalled movement toward deregulation after the California power fiasco of 2000 and 2001. Currently 16 states have deregulated their electricity supplies to some extent, but that number does not figure to grow soon.
"It is unlikely that additional states will move forward with deregulation," says Adam Goldberg, a policy analyst at Consumers' Union in Washington, D.C. "Everything is going to be on hold."
Then too, greater federal oversight could put a damper on the trading business as well. This week's GAO report calls for FERC to drastically improve its oversight of the energy traders: "FERC lacks assurance that today's energy markets are producing interstate wholesale natural gas and electricity prices that are just and reasonable."
In an attempt to address those problems, FERC is demanding that energy traders disclose basic information about their activities — including volumes, prices and deal dates — with a first filing date of July 30.
"We would love to see transactions of energy transmission made in a similar manner to prices on the stock market, with prices being quoted and record, so everybody knows what the going price is," says Goldberg.
"Sellers and traders don't like to share their information," adds Walker. But between the market's skepticism about energy traders and the promise of new regulations, he adds, "at this point in time, they don't have a choice."
Can Consumers Benefit?
Ultimately, the future of energy trading may depend on the extent to which consumers can be shown to benefit from the practice.
In his 1996 appearance before Congress, Lay said "every household and business that pays utility rates could save 30 to 40 percent on their utility bills" because of deregulation.