I shall not today attempt further to define
the kinds of material I understand to be
embraced . . . but I know it when I see it.
1964 – Justice Potter Stewart
Interest Rates 1965 - 1980
16.00%
13.35% in 1980
14.00%
12.00%
10.51% in 1974
10.00%
Interest rate chart
8.00%
6.00%
4.00%
2.00%
Source: (www.federalreserve.gov)
0.00%
2.50
Gasoline Prices 1919 - 2005
2.00
$2.27 in 2005
1.50
Long term gasoline chart
$1.38 in 1981
1.00
0.50
0.00
$0.63 in 1978
$0.37 in 1973
Source: (www.eia.doe.gov)
Emergency Petroleum Allocation Act of 1973
•Capped Domestic Crude Oil Prices
•“New Crude Oil” – No Price Cap
•“Stripper Oil” – No Price Cap
UN-CONTROLLED
OIL
CERTIFICATE
CONTROLLED
OIL
CERTIFICATE
Price controls rescinded January 1981
long term crude chart
Source: (www.eia.doe.gov)
• U.K Taxes on North Sea Crude Oil
• Japanese trading companies seeking to
increase top line revenue
• Wall Street begins to arbitrage crude oil
National Energy Policy Act - 1992
“you have to understand that market
realities have diverged from traditional
valuation methodologies”
Second Quarter 2000 Top Power Marketers
1. Duke Energy Trading & Marketing, LLC
55,885,662 mwh
2. PG&E Energy Trading Power
51,330,085 mwh
3. Southern Company Energy Marketing LP
42,940,259 mwh
4. Aquila Energy Marketing Corp.
39,964,588 mwh
5. Reliant Energy Services, Inc.
31,288,607 mwh
6. El Paso Merchant Energy
22,339,315 mwh
7. Entergy Power Marketing Corp.
18,201,513 mwh
8. Constellation Power Source
16,466,585 mwh
9. MIECO, Inc.
12,254,449 mwh
10. Sempra Energy Trading
11,269,371 mwh
11. Enron Power Marketing Inc.
9,305,833 mwh
12. Williams Energy Marketing & Trading
7,722,926 mwh
13. TXU Energy Trading
6,838,664 mwh
14. New Energy Ventures, Inc.
6,822,925 mwh
15. HQ Energy Services
6,762,105 mwh
16. LG&E Energy Marketing Inc.
6,505,649 mwh
(source – PowerMarketers.com)
Cinergy Day Ahead Power 1995 - 1998
2000
1800
1600
1400
1200
1000
800
600
400
200
Source: (www.ferc.gov)
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
Nov-96
Jul-96
Mar-96
Nov-95
0
n98
Ju
l-9
8
Ja
n99
Ju
l-9
9
Ja
n00
Ju
l-0
0
Ja
n01
Ju
l-0
1
Ja
n02
Ju
l-0
2
Ja
n03
Ju
l-0
3
Ja
n04
Ju
l-0
4
Ja
n05
Ju
l-0
5
Ja
n06
Ja
NASDAQ Adj Close*
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Source: (www.nasdaq.com)
Current market expansion
1. The crude oil trading boom of the late 70’s was based on
the gaming of a poorly conceived attempt to legislate
energy prices.
2. The crude oil trading boom in the mid 80’s to mid 90’s
was based upon a response to evolving tax laws in the
U.K., the trading of cargoes of crude oil to bolster top line
revenue and by the introduction of the ultimately selfextinguishing practice of arbitrage trading.
3. The boom in power trading in the late 90’s was based
upon extraordinary stock market valuations, creating
ravenous desire on the part of power marketers to
demonstrate superior market share as measured in
MWH traded.
•Continued deregulation
•Changing load shapes
•Accurate price reporting
•Higher ethical standards
•Clearing of OTC energy products
•Non-correlated asset
•High energy prices
•High volatility
•Big money
•Energy is hot
•Balance sheet & order flow
•Hedge funds
Where do we go from here?
1. Next big thing…
2. Volume growth
3. Sustained volatility
4. Worldwide deregulation
5. Higher allocations to energy
6. Financial institution presence
7. Hedge fund presence
8. Consolidation among utilities
9. Niche players
10.Robust fundamentals
We have just begun…