Reliant bows out of energy trading

Houston-based Reliant Energy has exited the energy derivatives trading market as a result of an $80 million trading loss it suffered at the end of February.

Reliant adds to the expanding list of US energy companies, including Aquila and Dynegy, that have exited the energy trading market in the past six months.

Starting in late December 2002, Reliant’s financial gas trading desk carried a spread position, which involved a short position for March natural gas deliveries and a long position for April natural gas deliveries. The position was within the company’s authorised value-at-risk and positional limits. But natural gas market conditions changed dramatically over the weekend of February 22-23, 2003, with the Nymex March contract increasing $2.53/mmbtu on Monday, February 24, 2003 from the previous Friday’s closing price. The company closed these positions, resulting in a pre-tax trading loss of approximately $80 million.

“While this loss resulted from unprecedented market volatility, its magnitude is inconsistent with our desired risk profile and led to our decision to exit the proprietary trading business,” said Steve Letbetter, Reliant chairman and chief executive.

But some areas of the company’s business are positively affected by higher natural gas prices, Reliant added. In particular, the unhedged coal-fired generation capacity in the northeast region of the US should continue to benefit from higher power prices resulting from increased natural gas prices.

Considering all factors, the company is revising its 2003 earnings guidance to $0.80 to $1.00 per share.