Wall Street

Online Stock Market Trading The turmoil in the deregulated electricity industry worsened yesterday after Reliant Resources, a big independent power producer and trader, canceled a $500 million bond sale amid questions about whether all of its trades are real.

Old Lady Old lady of Threadneedle Street, a term for the Bank of England. One Cancels Other Order Where the execution of one order automatically cancels a previous order also referred to as OCO or 'One cancels the other'. Open Market Operations The central bank operations in the markets to influence exchange and interest rates. Open Position Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date. It can be termed as a high risk, high return proposition.

Stock Investing Course Reliant revoked the sale after disclosing that it had bought power from another company while simultaneously selling the same amount back to the other company. Such a transaction might not change Reliant's profits or losses, but it could increase its reported trading volume, an important measure of the company's health.

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Stock Market Game The Securities and Exchange Commission is investigating two similar sets of trades between CMS Energy and Dynegy, two other energy trading companies.

accept or regret At no charge. Trader may select the current rate and "freeze" it for a few seconds, before approving the deal Limit orders ( capturing of rates reserved by trader) At no charge. Loss and rates At no charge. Rate implemented precisely as defined by trader. Activity collaterals (in addition to actual deal's margin) None.

Stock Investing Game Reliant, which priced its bond sale on Thursday, said it canceled the deal to quantify the matched trades and assess their effect.

Over the coming weeks many capped price energy deals come to end, leaving householders paying up to 51% more for their energy.

Journal Prime Rate Street Wall Unlike traditional utilities, which are regulated monopolies with a limited service area, independent power producers can build plants and sell electricity anywhere. While utilities serve consumers directly, independent power companies generally trade power with one another or sell it into the wholesale market, where the buyers are utilities and a few big companies. In addition, many of the independent power producers also produce and trade natural gas.

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Stock Market News Reliant's announcement deepened investors' worries about questionable accounting and business practices at the independent power producers. Earlier this week, federal regulators disclosed internal documents from Enron that appeared to show that Enron had manipulated electricity prices in California and ordered other power traders, including Reliant, to disclose whether they used strategies similar to Enron's.

Stock Investing Basics Shares in Reliant, Dynegy, the Williams Companies and other big independent power producers and traders skidded yesterday after Reliant's announcement, worsening a yearlong slump.

Stock Investing Software Reliant fell $2.49, or 17.2 percent, to $12, while Dynegy dropped $1.17, or 10.6 percent, to $9.88. Williams fell $1.01, or 5.8 percent, to $16.49. Williams and Reliant have fallen about 60 percent in the last 12 months, while Dynegy is off more than 80 percent.

Stock Market Trading Companies that produce and trade power and natural gas are "in very deep trouble right now," said Paul Joskow, a professor at the Massachusetts Institute of Technology and an expert on electricity deregulation.

Stock Investing For Dummy Investors have found that the risks in producing and trading power are higher and the potential for profits lower than they had hoped, Mr. Joskow said. "On the electricity side, Wall Street was overestimating the kinds of margins that could be made in this business in the long run," he said. Investors "way overestimated their inherent values."

Stock Market Crash But Mr. Joskow said shareholders' current fears might be damaging good businesses as well as bad. Many of the companies, including Mirant and Calpine, are mainly power producers, not traders.

Stock Investing Tip "They're not just trading companies, and I think there's just an awful lot of misunderstanding about what their businesses are and what their future prospects are," he said.

Stock Market Chart James Chanos, whose hedge fund has sold short shares of several companies in the sector, hoping to profit if their prices decline, said power trading was much less profitable than the companies had told investors. To inflate their profits on long-term contracts, he said, many energy trading companies appear to have made dubious assumptions about future power prices.

Online Stock Investing "The business model just doesn't work," Mr. Chanos said. "You can't put a multiple on these reported earnings because they're not believable."

Stock Market Crash Of Reliant offered only the sketchiest details of its trades yesterday, saying that the disclosure of the Dynegy trades, which were reported on Thursday in The Wall Street Journal, had prompted the company to examine its own trading practices. Reliant said it "believes it had similar transactions and is working to quantify the amount and assess the impact of those transactions."

Stock Investing For Beginner Reliant, already the subject of an inquiry by the S.E.C. because of an earnings restatement the company made earlier this year, did not identify the executives who knew about the trades or its trading partner.

Finance Journal Personal Reliant and other companies "face a crisis of confidence among investors and the consuming public," said Jay Dobson, an energy analyst at Deutsche Bank Securities. "I'm not sure anything they did is illegal, but that's irrelevant. People out there are throwing up volumes and trying to look bigger than they are. The deregulated electricity market has to be transparent to be effective."

Stock Market Report Already, some energy trading companies are having a difficult time making long-term trades, because their credit ratings have fallen below investment grade. They must settle trades over a few days or months, rather than years.

Finance Investing Stock Market "If you take it to the nth degree, that crisis of confidence could derail deregulation," Mr. Dobson said.

Wall Street Journal Com By Alex Berenson and Neela Banerjee
New York Times - 5/11/2002

Topic: Energy

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