Energy industry short-circuited by 'Enronitis' epidemic.(energy industry forced to rebuild credibility)(Brief Article)

The downfall of Enron has affected just about everyone with a connection to the energy business, from power producers to end users to Wall Street analysts.

What is clear is that the industry is under siege and faces a daunting task of rebuilding its credibility. Energy trading businesses, in particular, are considered a poor investment on Wall Street. "Energy trading, as presently configured, may lack investment grade characteristics" unless tied to a more "stable" business, Moody's Investors Service said in a report.

Moody's even questioned whether energy businesses have the expertise to operate as traders. Energy merchants all too often lack the level of market risk management, liquidity management, and internal controls characterized by the most sophisticated traders in the securities markets," the report added.

By taking a hard line on energy trading, the nation's three credit-rating agencies-S&P, Moody's and Fitch--are trying to salvage their own credibility after the Enron black eye, the Houston Chronicle said, quoting unnamed industry experts.

Companies Distance Themselves

As a result, energy companies, once eager to copy Enron, have tried to distance themselves from trading and to emphasize back-to-basics strategies. El Paso Corp. said it would cut 50% of its 600-person trading-floor staff, limit its working-capital investment in the business to $1 billion this year, and significantly reduce the company's reliance on trading-related earnings. Dynegy officials, in a conference call, pointed out that 80% of the company's cash flow came from physical assets, rather than power trading, the New York Times reported.

Williams Cos. learned the hard way about Wall Street's new preference for physical assets and steady income, when, apparently under pressure from credit-rating agencies, it sold its Kern River Pipeline at a bargain basement price to bolster its credit. Two months later, Standard & Poor's downgraded the company's credit rating, the New York Times reported. One of the key reasons S&P analysts cited was the loss of a steady revenue stream from Kern River.