WSJ Article

Concerned Energy Cos Make Few Changes In Enron Dealings
By MARK GOLDEN, KRISTEN MCNAMARA, JON KAMP and JOHN EDMISTON
Of DOW JONES NEWSWIRES
NEW YORK -- Energy trading companies have concerns about the credit quality of troubled Enron Corp. (ENE), but they have made almost no changes in policies concerning the top trader of North American power and gas, the companies said Thursday.
The concerns have arisen because Enron, which accounts for about a quarter of the trade in the country's power and gas markets, has seen its share price fall by a third this week due to uncertainties about its extremely complex financial structure.
Moody's has put Enron's credit on watch for possible downgrade, and some of the company's debt is trading like junk bonds in the secondary market this week.
"We have made no changes to our credit policy concerning Enron," said John Sousa, chief spokesmann for Dynegy Inc. (DYN). "It's business as usual."
Williams Cos. (WMB) spokesman Jim Gipson said that his company, too, has made no changes and has no concerns about Enron's credit. Another Top 10 power and gas trading company, Aquila (ILA), has also left Enron credit unchanged.
Other companies expressed concern, though they've taken little if any action.
"Like everyone else in the marketplace, we're proceeding with caution," said Lora Kinner, director of credit for Tractebel Energy Marketing, the North American subsidiary of the Belgian company Tractebel S.A.
Kinner said the company is just looking for more information and doesn't expect to make any drastic changes.
Like many utilities, the Public Service Co. of New Mexico (PNM) is "monitoring the situation." So is Aquila, said Mark Gurley, general manager of trading at the company.
"We haven't altered our credit policy at all," Gurley said. But if Enron's credit rating slips, "our tolerances for risk with them would go down," he said.
A trading manager for another energy company said that all energy and financial companies that have dealings with Enron are assessing their exposure. But that manager's company has made no changes and doesn't expect Enron to have cash liquidity problems.
One large firm has been limiting the credit it extends to Enron for the past month. A gas trader with another firm has been encouraged to do more business on other energy trading platforms like the InterContinental Exchange. Enron, however, is far too big to cut off entirely, traders said.
Energy trading companies depend on Enron as the major market maker for their commodities. Enron built the over-the-counter wholesale gas marketplace, and more recently its two-year-old electronic trading platform, EnronOnline, has become a major marketplace for gas and power, accounting for 25% of those markets, according to one recent estimate.
Enron is the counterparty to every trade on the system.
EnronOnline grew so quickly because of the company's policy
that traders must offer aggressive two-way spreads - both
bids and offers - on the commodities they trade. Any
reduction in EnronOnline volumes could translate to an
immediate liquidity problem for North American power
markets.
"If there is a problem with Enron, there's going to be domino effect through the industry," Tractebel's Kinner said.
Uncertainties about Enron's financial situation have aggravated the volatility of gas futures on the New York Mercantile Exchange, a trader said.
Gas and power traders said that Enron traders are moving to liquidate some positions and, because the company's problems are well known, it is getting squeezed in the market, which would discount the return on positive positions.
Enron traders have few outstanding favors to call on with counterparties, because Enron traders have been so aggressive over the years, the trading manager said.
Analysts have raised questions about Enron's difficulties on a number of conference calls held by other energy companies to discuss their quarterly earnings reports. One of those companies, Sempra Energy (SRE), said it was monitoring the situation but saw little risk so far.
"At this point, there's no reason for concern," Sempra spokesman Doug Kline said. "We continue to trade with them, and they're covering their margins."
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com