Duke exits North America prop trading

Duke Energy has closed its proprietary trading business at its North American merchant energy businesses, Duke Energy North America (DENA) and Duke Energy Merchants (DEM). The move by the Charlotte, North Carolina-based energy company was not entirely unexpected, given that Duke exited the European trading market last year. Duke's proprietary trading centred around crude oil, natural gas and power in the US market.

“As we continue to focus our resources on the most profitable segments of our enterprise, we have decided to discontinue participation in the proprietary trading operation at DENA and DEM,” said Fred Fowler, president and chief operating officer of Duke Energy, in a statement. “The closure of these proprietary trading groups will reduce our risk profile and collateral needs, and is consistent with our strategy of sizing our business to market realities.”

Gross margin from proprietary trading has historically represented less than 10% of Duke's overall merchant energy gross margin, and Duke has alreay scaled back such trading, the company added.

In August 2002, Duke responded to the US Securities Exchange Commission findings that the company had engaged in round-trip transactions that are designed to inflate trading volumes by buying and selling contracts at the same price. Duke’s review of approximately 750,000 trades identified "a very small number of round-trip transactions". The revenues from the reported transactions were recorded during 2001 and the first two quarters of 2002, and represented less than a third of 1% of the company’s revenues from electricity and gas marketing activity in that period.

As a result, Duke conducted a review of its trading business, fired two employees and introduced additional risk management procedures to improve the oversight and controls of its trading operations.

“Energy trading is important to the vitality of energy markets and to our asset-based business strategy,” said Harvey Padewer, group president of Duke Energy Services, at the time. “We are using the results of our rigorous review to strengthen our trading operations and to help restore confidence in energy trading.”