The Enron Corp. bankruptcy, the weakening of the power markets in the U.S., and the recent investigations into electricity trading have sharply focused the news media, Congress, the Federal Energy Regulatory Commission and the Securities Exchange Commission on the U.S. energy industry. Although the events of Sept. 11, 2001, may not have directly affected the energy sector, the consequences of the attacks on an already weakened economy may have accelerated the onset of the sector’s problems, Standard & Poor’s Ratings Services (S&P) said in a recent report.
Credit quality in the utilities and competitive energy sector is likely to remain under pressure for the remainder of 2002 and probably well into next year, according to S&P’s commentary, “Consequences of Sept. 11 Attacks Put Energy Sector’s Troubles in the Spotlight.”
Few industries have ever experienced two defining events within three months. But the energy merchant industry did with the events of September 11 and the Enron bankruptcy. “Although the U.S. economy was already weakening, the tragic events of Sept. 11 gave the economy a final push into a recession, and temporarily dampened power demand in the U.S., particularly in the industrial sector,” said S&P’s credit analyst Peter Rigby.
After September 11, several power and energy companies also found themselves in the same boat–caught in a wave of policy cancellations by insurance and reinsurance firms. Along with rising costs of insurance premiums, some larger insurers are still offering coverage, but with caps or thresholds.
Since September 11, nuclear-power reactors operating in the U.S. have been forced to deal with the threat of terrorist attacks. But the terrorist threat against power plants is indeed real on a global scale. In August 2002, Pakistani police arrested six Islamic hardliners who were planning to attack a thermal power plant owned by AES Corp. of the United States.