Energy Firms Propose Trading Guidelines
Duke Energy Corp., Mirant Corp., Dynegy Inc. and other energy-trading companies Tuesday proposed voluntary guidelines for disclosing risks of buying and selling electricity and natural gas.
The coalition of 31 energy companies said the new standards were devised to make the industry more transparent for investors, credit-rating companies and regulators.
Federal energy, securities and commodities-trading regulators are investigating sales and trading practices at energy companies after profit restatements and disclosures of sham trades.
Executives at Dynegy, CMS Energy Corp. and Reliant Resources Inc. have resigned under pressure.
Mirant, Duke, Williams Cos. and others with energy-trading businesses have been accused of manipulating markets, including a tenfold increase in California power prices in 2000 and 2001. The state’s two largest utilities became insolvent buying electricity for more than the law allowed them to charge customers.
“I don’t think investors are going to ascribe any value to energy trading until it’s done under strict rules,” said Donald Coxe, who manages $450 million in assets at Harris Investment Management, including shares of El Paso Corp. and Southern Co.
“This isn’t just a couple of rotten apples,” Coxe said. “This is a rotten orchard.”
The committee’s proposals include summarizing information in tables to reflect companies’ business activities for easy comparisons and ensuring that risk and accounting officers have no involvement in trading operations.
“We appreciate the industry’s leadership in this,” Federal Energy Regulatory Commission Chairman Pat Wood III said through a spokesman. “It’s badly needed.”
The group also suggested using a trading clearinghouse to reduce company collateral requirements and encourage trading by more participants.
This year, CMS, Dynegy and other energy companies said they made “round-trip” trades, in which they simultaneously bought and sold electricity and gas at the same price and quantity, in some cases to inflate revenue or trading volume.
“When you look at our industry and the Enron fallout, we need to do something as risk officers to provide more transparency and improve the confidence in our industry,” Mike Smith, Mirant’s chief risk officer, said in an interview.
Duke’s shares rose 16 cents to $18.66 on the New York Stock Exchange. The stock has lost 52% of its value this year. Mirant fell 14 cents to $1.62 on the NYSE and is down 90% for the year.
Aquila Inc. and Williams, once two of the largest power and natural-gas traders, aren’t part of the committee.
Both companies are getting out of the energy-trading business.
