US Wholesale Energy Market Shrinks 60-70%

The wholesale electricity market in the US, which doubled last year to $446 billion, is shrinking as companies cut back on transactions, credit dries up and regulators scrutinize trading methods.

Three of the largest power traders in 2001, El Paso, Reliant Resources and Aquila, have shed traders or halted speculative trades. Transactions are down by more than half from earlier this year as trading partners with good credit become harder for companies to find, industry officials said.

The drop in electricity trading, the first since the industry was opened to competition in the mid 1990s, is hurting profits for US power producers that are already suffering from the plunge in wholesale electricity prices, analysts said. Companies have lost revenue even as many, including Dynegy, pay more to borrow money to back trades after their credit ratings declined.

“We've seen these markets vaporize because of the uncertainty of doing business,” said Daniel Gordon, president of the marketing and trading unit of Hagerstown, Maryland-based Allegheny Energy Inc., which owns utilities in five states. The industry's trading is down somewhere between sixty and seventy percent, he estimated.

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