Energy Exchanges Should Survive Enron CollapseEnergy Exchanges Should Survive Enron Collapse

Enron Corp.'s (ENE-NYSE) financial collapse has ground to a halt its once-vaunted online energy exchange, which was handling nearly a quarter of U.S. electricity and gas trades. Trading on the EnronOnline Web site remained suspended last week, with traders handling greatly reduced transaction volumes by phone. But reports from the company's competitors and energy market-watchers suggest that the online trading desk concept isn't dead.

IntercontinentalExchange Inc., a business-to-business online commodities exchange in Atlanta, says natural gas trading volumes in the last week in November were up 40% from the previous month. Enron rival Dynegy Inc. in Houston says it has benefited from Enron's failure, with a 20% increase in customer traffic since Oct. 1. "The market is absorbing the Enron [buyers and sellers] that have walked away," Dynegy CIO Blake Young says. Dynegy last month abandoned a deal to buy Enron for $9 billion as the extent of Enron's financial woes came to light.

Enron filed for Chapter 11 bankruptcy protection Dec. 2, laid off 4,000 employees, and placed the other 3,500 on temporary leave as it seeks to stay a going concern. A Securities and Exchange Commission investigation into its financial dealings led the company in November to restate five years of earnings, wiping out $586 million in net income from 1997. Enron was once the world's largest energy trader, processing $4 billion in online energy trades daily. Now, a spokesman says, "There are no transactions on EnronOnline." Shares of Enron closed Dec. 6 at 66 cents, compared with a 52-week high of $87.85.

But E-business analysts say private exchanges are still effective. Enron's problems stem from its accounting practices, not its business model, says AMR Research analyst Dana Stiffler. The company leveraged itself with aggressive investments in broadband telecommunications. "Once those [online] transactions go into Enron, [the money generated] goes into a black hole," he says. Enron secured $1.5 billion in financing last week from creditors J.P. Morgan Chase and Citigroup. They're considering a joint venture to take over Enron's trading operations, along with Swiss bank UBS AG.