Following the crash of giant US energy trader Enron, leading UK electricity generators look set to face losses of tens of millions of pounds.
Their exposure arises from the forward contracts they had with Enron, and the administrator for the company’s European operations has warned that the losses on these deals will be much greater than first feared.
Neville Khan, at PriceWaterhouse Coopers, told Enron’s European creditors that it was still investigating over 250,000 individual trades, and the total debt was ‘running into billions of dollars’. It was initially thought the figure would be about $1bn (£700m).
The head of electricity trading at one of the big power companies said there would have been between 20 and 30 counterparties to Enron electricity trades in the UK, including ‘all the big ones’.
He said the businesses with the biggest exposure would be those that had sold power in 2001 on year-forward contracts for summer 2002 and winter 2002/3. They faced a loss of £3 per mW/h on every unit sold, because the market price had dropped from £21 to £18 per MW/h and they would now have to resell that power at the lower price.
While none of the generators will put a figure on their losses, the big ‘net sellers’, such as British Energy, Magnox Electric and American Electric Power – which generate large volumes of electricity but use very little – would appear to be the most vulnerable.
A Magnox spokesman conceded that although the company had retraded its position very successfully within 24 hours, its losses were likely to run into millions. And he claimed the company’s losses were lower than some other generators. ‘We’re well at the lower end,’ he said.
Ironically, the impact on large industrial users that had contracts for the period with Enron should actually be beneficial. With the Enron contracts null and void, they will have been able to strike new contracts at the lower price.
‘It’s not very likely that the costs will be borne by energy consumers,’ said Jeremy Nicholson, economic adviser to the Energy Intensive Users’ Group.