Energy marketers and traders rushed to distance themselves from Enron Corp.’s problems Wednesday, as the nation’s largest energy trader and fiercest proponent of deregulation teetered on the brink of collapse.
Most trading agreements were nullified after credit rating agencies Standard & Poor’s, Moody’s Investor Services, and Fitch downgraded Enron bonds to below investment grade level. Companies who continued trading with Enron could be putting their own credit ratings at risk, unless Enron is willing to put up cash collateral to back deals, one source explained.
Enron halted operation of its internet-based EnronOnline trading system soon after Standard & Poor’s announced it had downgraded Enron’s debt to “junk” status. EnronOnline until recently accounted for about 60% of Enron’s daily volume.
In response to inquiries, officials of utility holding Sempra Energy, San Diego, Calif., said the company’s overall financial exposure relating to transactions with Enron and its affiliates is currently less than $15 million.
Energy marketing firm Mirant Corp., Atlanta, Ga., said it has pre-tax exposure of $50- $60 million to Enron Corp. and is confident the energy marketing sector can function without the power trading company.
American Electric Power Co. Inc., Columbus, Ohio. said it trimmed its energy trading exposure to Enron to less than $50 million over the past few weeks as the former energy giant’s financial condition deteriorated. AEP traded both power and natural gas with Enron. AEP is widely ranked as the No. 2 power trader in the U.S. and No. 3 in natural gas trade.
Responding to market concern, El Paso Corp., Houston, said the company has systematically reduced its trading with Enron over the past several weeks. El Paso’s maximum natural gas and power net trading exposure to Enron is $50 million, said CEO William A. Wise.
Due to Enron’s loss of investment grade status, El Paso said any new business will have to be supported by cash collateral. El Paso said it foresees no material disruptions in the energy trading markets resulting from Wednesday’s downgrades or the potential of an Enron bankruptcy filing.
“Our earnings outlook remains strong, and we do not expect any adverse earnings impact from Enron’s difficulties,” Wise said.
San Jose, Calif.-based Calpine Corp. said it currently has no net exposure to Enron and its subsidiaries. It said a netting agreement is in place, allowing Calpine to offset the amounts owed by Enron with the amounts Calpine owes Enron.
Calpine’s transactions with Enron have been contracts for sales and purchases of power and gas for both hedging and optimization purposes and physical delivery. Calpine said it had been decreasing its trading activity with Enron over the last several months.
Calpine said it has restricted trading activities with Enron due to the downgrading of Enron’s credit rating but continues trading with its usual creditworthy counterparties.
By far the largest US gas and electricity trader, Enron was once involved in 20% of daily trade in those markets, analysts estimated.