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Thursday, 9 May, 2002, 20:08 GMT 21:08 UK
Dynegy follows in Enron's footsteps
Dynegy web grab
Dynegy, the energy company once set to takeover Enron, is being shunned by traders and investors.

The firm's share price has fallen by more than 25% so far this week after the US regulator announced an investigation into its trading practices.

This has led some trading partners to curb trading with it, due to fears that it could become the next Enron.

Dynegy's troubles - a regulatory probe, a share price collapse, a credit downgrade and disappearing trading partners - bear a striking resemblance to the start of Enron's swift collapse.

The Enron scandal sent shockwaves through the US when it became the biggest corporate failure in history last December.

Trading troubles

Dynegy is primarily an energy trader in the electricity and gas markets, and it was often perceived to have modelled itself on Enron, albeit on a smaller scale.

The firm put in a bid for its rival, also based in Houston, before exercising a get-out clause when it realised the full extent of Enron's troubles.

The demise of Enron has already prompted European companies to review their risk management policies and tighten trading controls .

Many firms left with bad debts when Enron collapsed, are now avoiding trading with Dynegy due to concerns over its credit lines.

And, as demonstrated by Enron, a trading firm with nervous counterparts can be reduced to very little, very quickly.

Dynegy is the fifth largest electricity player in the world, and an active player in the European gas and power markets.

Under fire

Dynegy is under investigation for a number of different reasons.

The Securities and Exchange Commission has already begun a formal investigation into its natural gas trades.

Then there are the massive trades of electricity, where Dynegy bought and sold almost instantly enough megawatts to light the city of Houston for a year.

This has prompted speculation that Dynegy was trying to suggest false scale to its investors and trading counterparties.

And finally, it faces allegations of price manipulation during the California power crisis last year.

Plunging shares

While its current troubles look similar to the start of Enron's demise, Dynegy has not been accused of falsifying its accounts - the ultimate reason for Enron's fate.

Dynegy, which is 27% owned by ChevronTexaco, has seen its share price plummet almost 70% since November.

ChevronTexaco, the US' second largest oil firm, has made no public statement of support for Dynegy, increasing the concern of analysts.

The BBC's Mark Gregory
"Dynergy very nearly bought Enron just before it's collapse"
See also:

04 Jan 02 | Business
Dynegy wins Enron pipeline
11 Nov 01 | Business
Enron agrees deal with Dynegy
25 Feb 02 | Business
Enron scandal at-a-glance
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