Energy trading returns, healthier and wiser.
Gary L. Hunt and Grant Thain are consultants with Henwood Energy Services, a division of Global Energy Decisions.
The recent announcement of a trading joint venture between TXU and Credit Suisse First Boston (CSFB) is the latest in a series of positive news items supporting the return of energy trading. Wall Street firms continue to expand into the energy-trading sector, with Citigroup as well as CSFB moving into an area already well represented by the likes of Morgan Stanley, Goldman Sachs, and UBS.
On June 7, Barron’s reported on Constellation's continued success in this area. Then, on June 8, Entergy and Koch announced their intention to sell their successful trading business. Entergy's stock price subsequently fell.
Commenting on TXU's newly minted venture, company President and CEO John Wilder stated, "We've surveyed customers, and we think there are unmet needs for customer-oriented risk management. … We're looking to get back into speculative trading." Until recently, such a comment would have led to a plummeting stock price, but TXU's stock price did not fall.
As the overall market and, in particular, credit ratings begin to improve, will utilities and other energy players jump back into this market? Only if the return of trading adds real value to a company (see sidebar, “Strategic Outsourcing for Utilities”).