Yves here. No doubt, many here remember how Enron drove up electricity prices massively in California. If you don\u2019t think that will happen with AI hyperscalers becoming energy traders, I have a bridge I would like to sell you. It is a virtual certainty that, like most large corporate Treasury departments, that these new power traders will be profit centers and the traders\u2019 pay will reflect how they perform.<\/p>\n
The Los Angeles Times was one of many that chronicled the profitable games Enron traders played at the expense of California electricity customers. From the start of a 2002 account<\/a>:<\/p>\n One of Enron Corp.\u2019s favorite trading strategies during the California electricity crisis was like booking an airline ticket for a flight you don\u2019t intend to board.<\/p>\n It\u2019s a waste of time and money unless you\u2019re sure the flight will be overbooked and the airline will have to dish out rewards to passengers who agree to stay home.<\/p>\n Enron\u2013and, possibly, other energy traders\u2013worked variations on this theme to collect special fees from the California Independent System Operator, the embattled traffic cop for the state\u2019s power grid following deregulation.<\/p>\n Sometimes Cal-ISO would pay Enron premiums not to use power that the firm didn\u2019t really need in the first place. Sometimes Enron would exploit California\u2019s emergency price caps, buying power at the capped price and then selling it at huge profit out of state, where there were no price caps.<\/p>\n Enron\u2019s trading strategies were described in memos released Monday by the Federal Energy Regulatory Commission. The memos, written by lawyers for Enron, detailed an array of trading methods that went by such swashbuckling nicknames as Death Star, Wheel Out, Fat Boy and Get Shorty.<\/p>\n California officials have pounced on the Enron memos as proof that energy traders and freelance power generators\u2013mainly from out of state\u2013were manipulating California\u2019s energy markets, raising prices and even triggering blackouts.<\/p>\n<\/blockquote>\n Oh, and the attempted defense? These were common trading gimmicks, nothing to see here, move along. Which is even more reason to worry that these new hyperscaler traders will follow in Enron\u2019s footsteps. Admittedly, California made it easier to be fleeced via its poorly-devised deregulation. But how well will the schemes across the US hold up when faced with very large traders who can push prices around?<\/p>\n By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice<\/a><\/strong><\/em><\/p>\n America\u2019s hyperscalers are looking to ensure the electricity for their huge data centers by entering the supply side of the market\u2014power trading.<\/p>\n Meta, Microsoft, and Apple, to name a few, have either requested or obtained authorizations from the Federal Energy Regulatory Commission (FERC) to sell wholesale power.<\/p>\n Meta Platforms, for example, seeks to incentivize long-term commitments in power-generating capacity by expanding into power trading and having the flexibility to contract electricity from future power plants, according to Urvi Parekh, Meta\u2019s head of global energy.<\/p>\n Currently, power plant developers are careful about committing investments in the long term, which is not enough to meet the demand from AI and data centers.<\/p>\n Power capacity developers \u201cwant to know that the consumers of power are willing to put skin in the game,\u201d Meta\u2019s Parekh told Bloomberg in an interview<\/a> last week.<\/p>\n \u201cWithout Meta taking a more active voice in the need to expand the amount of power that\u2019s on the system, it\u2019s not happening as quickly as we would like,\u201d the executive added.<\/p>\n U.S. power utilities are investing a\u00a0record amount<\/a>\u00a0of money into transmission and grid connection. But current forecasts of AI-driven power demand vary so much that there is a massive margin of error, analysts and utility officials told\u00a0Reuters Events<\/a>\u00a0in June.<\/p>\n The U.S. market faces \u201ca moment of peak uncertainty,\u201d according to Rebecca Carroll, senior director of market analytics at energy advisor Trio.<\/p>\n Electric utilities face a high degree of uncertainty<\/a> over future revenues as the boom of AI data centers generates widely varying forecasts of peak demand in many areas across the country.<\/p>\n If utilities overestimate their future demand, they risk overbuilding new capacity that will not be met by consumption. A possible overbuild would come at the expense of the American ratepayers, who have already seen electricity prices\u00a0rising at a faster pace<\/a>\u00a0than U.S. inflation over the past three years.<\/p>\n The era of stagnated power demand in the United States ended about two years ago when hyperscalers started the race to develop AI-driven solutions and build huge data centers across the U.S.<\/p>\n America\u2019s five largest hyperscalers are set to hike spending on data centers by 50% to over $300 billion in 2025, according to estimates<\/a> by Wood Mackenzie.<\/p>\n U.S utilities have already committed to add 116 gigawatts (GW) of large load to their networks, equivalent to around 15% of U.S. peak electricity demand in 2024, the energy consultancy reckons.<\/p>\n The venture into power trading from hyperscalers could give utilities more certainty that their future new capacity will find customers.<\/p>\n \u201cWe\u2019re seeing a breakdown between the demand and supply sides of the market, with the biggest actors playing on both sides,\u201d WoodMac\u2019s Ben Hertz-Shargel told Bloomberg.<\/p>\n \u201cTo better orchestrate growth, you need some of the largest buyers of electricity to actively support the buildout of the supply side.\u201d<\/p>\n If Meta and other tech giants commit to long-term purchase agreements, power capacity developers will be more willing to invest in long-lead plant construction.<\/p>\n Meta alone is investing $600 billion<\/a> in the U.S. by 2028 to support AI technology, infrastructure, and workforce expansion, the company said earlier this month.<\/p>\n The company says it\u2019s making additional investments in energy supply and these have so far helped to add more than 15 GW of new energy projects to the grid across 27 states, representing more than $16 billion in capital investments.<\/p>\n It\u2019s not only clean energy that will power the huge data centers of the hyperscalers\u2014natural gas<\/a> will play an important role, too.<\/p>\n For example, Meta\u2019s new data center in Richland Parish in Louisiana, worth over $10 billion, will source electricity from three new gas-fired power plants after the Louisiana Public Service Commission this summer approved<\/a> an agreement that paves the way for Entergy Louisiana to build these plants.<\/p>\n \u201cImportantly, Meta is paying its share of the costs for the infrastructure needed to support its operations, ensuring that other customers are protected from those expenses,\u201d Phillip May, Entergy Louisiana president and CEO, said in August.<\/p>\n\n
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