Dynegy to exit energy trading, but industry rebound seen in '03

Computerworld - Dynegy Inc.'s plan to discontinue energy trading is the latest blow to an online market that not long ago was heralded as a poster child for the potential of e-commerce.
But Dynegy's announcement yesterday isn't expected to quash the market. In fact, the recent entrance of banking industry players such as Bank of America, Morgan Stanley & Co. and Goldman, Sachs & Co. is expected to stabilize the market long term, as is a forthcoming federal regulation that would allow the wholesale electricity market to operate on a national basis.
"My qualitative assessment is that [trading] volumes have gone down dramatically," said James Walker, an analyst at Cambridge, Mass.-based Forrester Research Inc. That conclusion is also supported by Daniel Miklovic, a Seattle-based analyst at Gartner Inc. who agrees that the trading market is "absolutely down" from its zenith roughly 18 months ago. Neither analyst could quantify online energy trading volumes, since companies that participate in the market typically don't publish those figures.
However, both Walker and Miklovic believe that traditional banking players that have entered the market have added some liquidity to it and may even help the industry in the long run.
"Most [energy] producers got in over their heads when they tried to become traders," said Miklovic. "While volumes by banks are lower today than during the [market's] heyday, they will pick up."
Energy trading should get an additional boost from a pending regulation being crafted by the Federal Energy Regulatory Commission called the Standard Market Design. It's meant to allow American consumers to shop for electricity from suppliers across the nation.
Standard Market Design, which is on course to go into effect early next year, should help "stabilize" the energy industry, including the online energy trading sector, said Walker. Even so, he doesn't expect volumes in online energy trading to see a significant uptick until late 2003.
A spokesman for Houston-based Dynegy said it's too soon to tell how many employees would be affected by the closing of its energy trading operations. He also declined to speculate on what steps the company might take to shed the IT assets used to support its trading business or the size of the charge that Dynegy might take against future earnings. Dynegy's stock closed yesterday at 81 cents per share, down from its 52-week high of $47.20.
Dynegy's misfortunes and those of other energy players reflect a dramatic turnabout from a few years ago, when Enron Corp. was driving the then-burgeoning online energy trading market. After Enron collapsed late lastyear, its online energy unit, EnronOnline, was sold to UBS Warburg in January and was renamed UBSWenergy.com in February.
A spokesperson for UBS Warburg Energy in Houston claims that the company's trading volumes have grown since February, though it doesn't publish those figures.

Read more about E-business in Computerworld's E-business Topic Center.