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Fortnightly Magazine - January 15 2003

Off Peak

Fortnightly looks back at 2002's Golden Executive Parachutes. We wish them good luck on the golf course.
Fortnightly

Giving Up the Corner Office

looks back at 2002's Golden Executive Parachutes. We wish them good luck on the golf course.

Doing It Without Chuck (who made do with a $33 million severance package)

"The real leaders are those that figure out how to get things done beyond what they could get done themselves."

Green With Envy: Rationalization and a $7.6 million severance package

Energy Trading: Down But Not Out

The speculative electricity trading industry has a bad case of rigor mortis, but current efforts might breathe new life into the practice.

Michael T. Burr

Trading is dead. At least that’s what some analysts are saying about the electricity markets. “Trading died with Enron on Dec. 2, 2001,” says Mark Williams, an energy risk management expert at Boston University. Whether trading is really dead or not, some signs of a rebirth are beginning to emerge.

Risk Experts Speak Out: Where the CCRO Fell Short

A surprisingly timid effort for an industry on the brink.

David Anthony

The purpose for the Committee of Chief Risk Officers (CCRO) recommendations, as stated in the introduction to their 198-page opus, is "to provide guidance on new methods and tools to establish a strong foundation for future growth in this (merchant energy) industry." But the reality is that the recommendations, almost without exception, fail to provide strong leadership in the areas of past and potential future abuse.

The CCRO Proposal: Missing the Industry Trend

Is a proposed solution to energy-trading woes too little too late?
Mark T. Williams

Is a proposed solution to energy-trading woes too little too late?

The Committee of Chief Risk Officers (CCRO) representing various utilities and merchant energy companies, recently released a set of detailed guidelines to improve the image and overall practices of energy trading, but the effort misses the mark.

Avoiding Overpriced Risk Management: Exploring the Cyber Auction Alternative

Should an LDC procure electricity hedge products by using an Internet-based auction?
C.K. Woo, Michael Borden, Ron Warrington, and Winston Cheng

Should an LDC procure electricity hedge products by using an Internet-based auction?

We propose that local distribution companies (LDCs) should use an Internet-based auction to procure inactively traded products, because the auction is a superior alternative to common procurement methods, such as bilateral negotiation and request for offers (RFO). Supporting our proposal is the empirical evidence from two auctions recently held by a municipal utility in Florida.

Frontlines

The commission may find it's powerless on capital finance and credit issues. Some say that without Alan Greenspan attending the Federal Energy Regulatory Commission's (FERC's) Jan. 16 and Feb. 5 technical conferences on capital availability for energy infrastructure and energy market credit issues, the commission will have few options other than market enforcement and the design of fair and competitive markets In announcing the conferences in Washington, FERC declared its interest in clarifying the state of capital available to energy markets and infrastructure. But what, if anything, can the commission do to support the embattled energy merchant and energy trading space during its current credit crunch? Certainly, FERC's concern is understandable. What's the point in designing an energy market that has no participants? Furthermore, the commission is all too aware that illiquid wholesale markets don't end in "just and reasonable" prices. The issue is timely, with wholesale energy markets in a rather bleak state (see "Energy Markets: Down but Not Out," on p. 18). Yet, given that FERC has no congressional authority to shore up confidence in markets by providing liquidity to avert a collapse in the sector, as the Federal Reserve did during the 1997 stock market crash, what can the commission do? The agency can provide performance-based ratemaking to attract infrastructure projects and their financiers in the area of transmission. In terms of energy markets, the commission can also develop a standard market that inspires investor and industry confidence. As everyone knows, properly designed markets would attract more market players and financiers, and thus provide liquidity. But FERC may have to face that it cannot bail out the industry from its current credit problems. Credit ratings analysts already predict a grim year for utilities. Fitch Ratings believes that a debt crisis will dominate the U.S. power sector in 2003 and could last well into 2004. "Companies that specialize in the sale of wholesale energy are coping by stretching out debt maturities, retaining the assets they can manage, shedding the rest, and hoping they will stay afloat long enough for energy demand and prices to strengthen," according to a Fitch report. Of course, FERC's inquiry opens up the controversial issue of whether the government should bail out the industry. Given events in the airline industry recently, the prevailing wisdom in Washington is that markets for airline transportation and power will have to sort themselves out.   Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.
Richard Stavros

FERC: Lender of Last Resort?

The commission may find it's powerless on capital finance and credit issues.

Some say that without Alan Greenspan attending the Federal Energy Regulatory Commission's (FERC's) Jan. 16 and Feb. 5 technical conferences on capital availability for energy infrastructure and energy market credit issues, the commission will have few options other than market enforcement and the design of fair and competitive markets

Commission Watch

State regulators redouble their deregulation efforts-or abandon them altogether.
Phillip S. Cross

Retail Energy in 2002: A Regulatory About-face

 

 

State regulators redouble their deregulation efforts-or abandon them altogether.

The past year was a phenomenal one for state public utility regulators.

A historical confluence of events, including the catastrophic failure of the move to deregulate California electric markets and a nationwide epidemic of corporate financial scandals, led in large part by energy trading firms, helps to explain the developments.

Perspective

An analyst looks at prospects for emerging power technologies in light of the recent turmoil over deregulation.
Hugh Holman

Goodbye to All That?

 

 

Benchmarks

California must address its transmission problems, particularly Path 15.
Ben Richardson and Steve Piper

Crisis Aftermath: Piecing Western Markets Together

 

Business & Money

Energy experts debate the pros and cons of the Bush administration's proposal to eliminate the double taxation of dividends.
Richard Stavros

Double Taxation Repeal: Fire or Ice?

 

 

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