Energy firm struggles in crisis

A crisis of confidence has hit the energy sector

Energy company El Paso Corp, the company partly blamed for California's power crisis last year, has announced that it will close down its trading arm.

The move will help the company conserve cash as it fights to survive a loss of confidence in its industry, brought about by the collapse of Enron.

It's a back-to-basics strategy, and it's not entirely surprising, considering the state of the merchant energy sector today

Paul Patterson
Glenrock Associates

The company also announced a third-quarter loss of $69m (£44m), compared with net income of $211m a year ago.

The company is in the middle of selling $4bn in assets to shore up its shaky finances.

News of the results sent the company's share price down by 21% in early trading.

By the close, the shares lost $1.52 to $7.68.

Power crisis

In September, the company was accused by regulators of holding back supplies of natural gas to drive up prices at the height of the 2001 California energy crisis

The Federal Energy Regulatory Commission has been investigating El Paso and a group of other companies suspected of exacerbating the electricity shortages, which triggered rolling blackouts from mid-2000 through 2001.

Also on Friday, Duke Energy Corp received a subpoena from the US Attorney's office in San Francisco requesting information on its activities in the California energy markets.

Duke said it would cooperate with US Justice officials as it has with other government organisations inquiring about similar issues.

The subpoena is part of a grand jury investigation.

El Paso sell-off

Analysts have become concerned that El Paso's asset sales could be too draconian.

"They're basically shrinking the company to improve liquidity," said analyst Paul Patterson of Glenrock Associates.

"The question is, how much will they shrink it and what will be left when that's done."

The company's turnover fell about 16% to $2.66bn.

'Back-to-basics'

El Paso also said it was closing down its trading arm because of reduced business opportunities and higher costs.

In the most recent quarter, the contribution from trading fell by $336m.

"It's a back-to-basics strategy, and it's not entirely surprising, considering the state of the merchant energy sector today," said Mr Patterson.