ENERGY: Since Enron went bankrupt in December, following revelations that the once-mighty energy trader had been cooking the books by creating phoney partnerships, confidence in US corporate trading figures has been seriously undermined. Now Dynegy, Enron's main rival in the energy supply market, has added a new twist to the science of manipulating trading volumes, which will further damage big business credibility.
On November 15th, in the space of 20 minutes, Dynegy executed two massive trades with a friendly rival and immediately cancelled them. At 10.08 a.m., the company - like Enron, based in Houston, Texas - purchased a month's worth of electricity capacity at $25.50 (€28.06) per megawatt hour from a unit of another energy company, CMS energy Corporation, based in Dearborn, Michigan. At precisely the same moment Dynegy sold the same amount of power back to CMS. At 10.28 a.m., another simultaneous trade took place, this time for a year's worth of electricity, which Dynegy purchased and sold back to CMS for $34 per megawatt hour.
The two trades, valued at $1.7 billion, did not make any profit for either company. But they enabled Dynegy to record a massive increase in trading volume and thereby portray itself as a serious contender for the leadership of the online energy trading business at a time when it was making an unsuccessful bid to take over Enron. Such mutually-exclusive trading, which is not illegal, is used commonly in the highly competitive energy industry to create an illusion of volume, according to experts quoted in yesterday's Wall Street Journal, which first reported the Dynegy transactions.
The Securities and Exchange Commission (SEC), which is already looking into a natural gas deal at Dynegy known as Project Alpha that lowered its tax by $80 million and increased its cash flow by $300 million last year, has widened its investigation to examine the two trades.
Dynegy is now experiencing an Enron-type slump in its share value, which has fallen from a 12-month high of $57.50 to under $12 on the New York Stock Exchange, and by 75 per cent since November. Credit-rating agencies and analysts have lowered their ratings of Dynegy, which last week reported a net loss of $140 million for the first quarter and shareholders have filed several class-action lawsuits against the firm, which says it is co-operating fully with the SEC.
The power-supply industry in the US is already under intense scrutiny, following the release of Enron memos on Monday showing how the Houston company acted to drive up electricity and gas prices during California's energy crisis of the last two summers. At least two other energy traders were doing the same thing, according to the memos.
A US Senate committee on energy and natural resources announced yesterday it would hold a hearing next Wednesday on possible energy price manipulation in California and other western states. It has asked more than 150 energy companies to provide documentation to see if they used similar practices.
The hearing could be an embarrassment for the Bush administration. Army Secretary Mr Thomas White was vice-chairman of Enron Energy Services, the retail unit that traded energy in California, and is already under criticism for his contacts with Enron while he was selling off his shares in the company last year. Mr White said on Wednesday that he was not aware of any "chicanery" at the retail unit.
