Credit ratings agencies put the squeeze on merchant power.
Have they gone too far? Have ratings agencies become overzealous in their efforts to rein in energy merchants? Many in the industry are coming to that belief after Aquila, one of the industry's most respected companies and leaders, announced it would exit the merchant energy trading sector in late July. It said it could no longer meet the credit requirements imposed by ratings agencies to maintain that business.
It is one thing, and right, to demand more transparency and disclosure from energy merchants after the Enron debacle-to insist on standard rules that protect energy consumers and investors alike from another Enron, and insure that energy merchants have enough capital to carry the risks that they take.
But it is altogether different for ratings agencies to dictate terms that some say are unfair and applied inconsistently. Such terms could destabilize wholesale energy markets by eliminating the able players, like Aquila. They could undermine FERC's initiatives to establish competitive markets, while killing off future investment in infrastructure at the same time.
In Prudential Financial's June 20 report, analyst Carol Coale says, "more than we can ever remember, the [ratings] agencies are dictating the short-term and now long-term strategies of many energy companies." She also criticizes Standard & Poor's and Moody's for recent reports on revised criteria by which energy traders will be rated, saying, "the two agencies do not appear to have a unified, coherent set of goals for the traders to achieve."