But they acknowledge less often that their trading units may also be buying power, which could boost the company's electricity inventory. It is a company's power traders who frequently direct plant operators to increase or decrease the generation of power in response to market conditions. Energy companies have little option but to turn to trading for profits. One of the better kept secrets of electrical deregulation and its promise of competition is that there is remarkably little competition in the production side of the business. More important, nearly all modern plants generate power from turbines built by a handful of manufacturers.
Modern plants owned by different companies produce power at nearly identical cost.
So the extraction of profit in the electricity business relies much more on trading. But despite the obvious temptation to manipulate the market, the burgeoning electricity trading business has remained largely unregulated. In fact, although the trading of electricity grew more than a hundredfold from 1996 to 2000, FERC has taken no major enforcement action against a trader. After the onset of the California crisis last year, FERC has acted once. FERC's record of enforcement in the area of power trading stands in contrast to a long list of enforcement actions within other markets taken by the Securities Exchange Commission and the Commodity Futures Trading Commission.