Enron energy trading
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. But recently a wave of developments has raised serious questions about the direction of the entire power-trading industry. 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 enron energy trading business once thought to represent the cutting edge of the free-market system. 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 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 enron energy trading.
For instance, if Enron anticipated power shortages in Oklahoma, it could arrange to sell electricity to the local utilities in the future at a fixed price. Enron would then find a power producer elsewhere in the country with excess capacity, buy a contract guaranteeing the required amount of electricity, and have it shipped to Oklahoma.
Proponents of the concept, like Lay, argued prices would be lowered due to industry competition, and lobbied Congress vigorously to ease restrictions on shipping electricity around the country. The energy-trading business, however, has turned out to be as difficult as any other trading business when it comes to generating steady returns — like investment banks, for instance, which can see large year-to-year fluctuations in their trading enron energy trading or losses.
That's not what the energy traders used to claim: Enron, enron energy trading one, maintained its soaring revenues in recent years were mostly due to increases in the trading business. Since Enron's fall, however, it has become clear that a substantial chunk of industry revenues were based on so-called mark-to-market accounting, in which future contracts are counted as current revenues. While this is not uncommon, analysts and investors have become wary of companies that heavily engage in this practice.
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. Share prices enron energy trading plummeted across the industry, and some big names are reducing their energy trading. In late May, the El Paso Corp. 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. That means fewer enron energy trading 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.
Another long-term impediment to the industry's growth, however, is the stalled movement toward deregulation after the California power fiasco of and Currently 16 states have deregulated their electricity supplies to some extent, but that number does not figure to grow soon. Then too, greater federal oversight could put a damper on the trading business as well.
In an attempt to address those problems, FERC is demanding that energy traders disclose basic information about enron energy trading activities — including volumes, prices and deal dates — with a first filing date of July 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.
Ultimately, enron energy trading future of energy trading may depend on the extent to which consumers can be shown to benefit from the practice.
In his 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. A Consumers' Union study of deregulation in six industries released last week, however, concludes it is enron energy trading early to tell whether or not electricity deregulation has helped lower the bills of ordinary citizens.
To this point, enron energy trading study claims, the most meaningful rate drops in deregulated states, of about 20 percent, were simply dictated by the deregulation guidelines of those states. Goldberg, for one, thinks deregulation could work if accompanied by strict enforcement, prices based on the costs of the energy companies, and measures to ensure a reserve supply enron energy trading power.
With those measures in place, he claims, states would then be able to see if energy trading really could help customers. 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 that deregulating the electricity business enron energy trading "bring it into the modern age, and give American consumers the equivalent of one of the largest tax cuts in history.
The Ups and Downs of Trading The energy-trading business, however, has turned out to be as difficult as any other trading business when it comes to generating steady returns — like investment banks, for instance, which can see large year-to-year fluctuations in their trading profits or losses.
Shares Plunging, Some Firms Limiting Trading Share prices have plummeted across the industry, and some big names are reducing their enron energy trading trading. States Shun Deregulation Enron energy trading long-term impediment to the enron energy trading growth, however, is the stalled movement toward deregulation after the California power enron energy trading of and Pruitt's EPA should not have paid for busted condo door, congresswoman says. Top Pruitt aide resigns amid growing scandal at EPA: Thunderbirds pilot dies in F crash in Nevada.
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But obstacles to resurrecting the business remain formidable, as indicated by the fact there were only two serious bidders -- UBS and Citigroup Inc.
Enron wouldn't see any serious money from the UBS deal for at least a year, indicating how difficult it will be for the energy company's creditors to recover what they are owed. Enron filed for Chapter 11 bankruptcy-court protection on Dec. Under the terms of the deal, which is subject to bankruptcy-court approval, Enron would transfer to UBS Warburg, the investment banking arm of UBS, its wholesale energy-trading operation, including a staff of roughly people and computer systems and hardware that comprised its once-mighty EnronOnline Internet-based trading platform.
UBS wouldn't be acquiring any of Enron's huge book of trading positions which gradually would be unwound. It also wouldn't provide any cash upfront to Enron. Instead, UBS would pay royalties to Enron amounting to one-third of the energy-trading enterprise's pretax profit for a year period, according to Enron. UBS would have an option to eliminate the enron energy trading payments through the payment to Enron of money in years three, four and five.
UBS would pay Enron 5. As such, it could completely eliminate Enron's royalty payments by the end of the fifth year. Enron Chief Financial Officer Enron energy trading McMahon said Sunday that he felt it was a enron energy trading great deal" for creditors since new life is being breathed into a "perishable commodity. The trading operation effectively suspended operations prior to Enron's Chapter 11 filing last month.
McMahon said no bidder was interested in that deal. There also were no bids for the trading operation from rival energy or energy-trading companies. One possible reason was that resuscitating Enron's vast trading business would require a top credit rating, lots of capital to back trading operations and an expert credit-risk department to keep track of what traders are doing and to constantly revalue the trading book.
Since the Enron debacle, other enron energy trading firms have taken pains to show they are de-emphasizing commodity-like trading of electricity, which Enron pioneered, and are instead concentrating on selling their own output of energy products and entering into contracts to protect themselves against price volatility.
McMahon said he feels that "by virtue of a AA-plus bank purchasing this business, enron energy trading changes the landscape of the energy-merchant business forever" by putting more clout in the hands of enron energy trading with top credit ratings. UBS apparently hasn't committed to provide any set level of capital.
There enron energy trading no determination, yet, for how enron energy trading payments would be enron energy trading among Enron's thousands of creditors. The largest question, though, is whether the trading business can truly be revived. Martin Bienenstock, Enron's lead bankruptcy lawyer, characterized the deal as "the sale of something that was dead that we are trying to bring back to life.
Competitors say they think a certain amount of Enron's trades were conducted at enron energy trading thin margins in order enron energy trading build volume, and that such trading practice likely will disappear. He thinks EnronOnline has "significant value but there's only a limited number of people who would know how to use it. John Costas, chief executive of UBS Warburg, said Friday the Enron unit would be "a valuable extension of our world-wide trading activities. The winner of the auction, held under the bankruptcy court's supervision, was announced shortly after noon Friday in a packed Manhattan courtroom, less than an hour after the two bidders had submitted final offers.
Enron's advisers and its creditors committee, which endorsed the UBS deal, had negotiated nonstop for more than 24 hours. In addition to Citigroup, which Mr. Enron energy trading of the U. A hearing is set for Thursday at which creditors will have an opportunity to voice objections. Separately Friday, Judge Gonzalez declined to transfer the bankruptcy case to Houston, denying motions from several creditors who had argued that Enron's headquarters city was a more suitable venue.
Write to Mitchell Pacelle at mitchell. Copyright and reprint information.
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