Enron collapse a big blow to Europe’s energy markets, says EDF head

The collapse of energy trader Enron has caused a major blow to market confidence in Europe, said Francis Hervé, chief executive of EDF Trading, the London-based trading subsidiary of Electricité de France (EDF).

Speaking today in Amsterdam at the annual European congress of RiskNews’ sister publication, Energy & Power Risk Management, Hervé said, “It is likely that doubt and a lack of market confidence will affect all energy trading for some time to come. It is crucial that we put some distance between the [Enron] situation and the way we carry on.”

Hervé said his trading and risk management team’s business practices had changed since Enron’s December 2001 bankruptcy filing. EDF Trading now pays more attention to credit risk management and measurement, with a drive to maximise netting benefits. He added that he sees signs of a liquidity crisis in the US, with investor confidence low and credit lines cut for some companies, and this may have repercussions in Europe. But he added that Enron’s fall had not sparked either an energy or energy-trading crisis in Europe.

Meanwhile, Tony Cocker, managing director of trading at UK-based utility Powergen UK - another keynote speaker - said increased scrutiny from investors, rating agencies, financial directors and other board directors is now commonplace for off-balance sheet investments. Cocker then challenged delegates to admit if they have not spent more time reporting to accountants and finance directors since Enron’s fall. None were forthcoming.

He added that asset-light traders are generally seen as risky in the energy industry, with US companies in Europe like Dynegy and Mirant suffering major drops in share price and credit ratings over the last year. “Energy companies need to be lean and mean in the liberalised markets, but asset-backing is critical. Asset-light companies have seen a lot of problems recently and this could well continue,” said Cocker.