In today’s rapidly evolving energy market, the actions of major tech companies are raising eyebrows, particularly in light of past manipulations during crises. The implications of hyperscalers transitioning to energy trading could mirror earlier mismanagement, posing significant risks to both consumers and the market. Understanding the potential repercussions is critical as we assess the future of energy trading.
The memories of Enron’s devastating impact on California’s electricity prices are still fresh for many. The lessons learned from that crisis serve as a cautionary tale as AI hyperscalers enter the energy sector as traders. Like corporate Treasury departments, these new players will likely prioritize profits, with trader compensation directly linked to their performance.
The Los Angeles Times, among other outlets, documented Enron’s exploitative strategies during California’s electricity crisis. A 2002 article detailed how Enron engaged in complex trading schemes that benefited the company at the expense of consumers. As described:
One favored strategy was akin to booking an airline ticket for a flight the traveler never intended to board. It seems pointless unless one anticipates that the flight will be overbooked, enticing the airline to offer rewards for passengers willing to forgo their seats.
Enron—and likely other energy traders—capitalized on this approach by extracting fees from the California Independent System Operator (Cal-ISO), the regulatory authority overseeing the state’s power grid post-deregulation.
There were occasions when Cal-ISO paid Enron premiums for unused power that the company didn’t need. In other instances, Enron profited by purchasing power at capped rates during emergencies and then reselling it out of state where those caps didn’t apply.
Enron’s strategies, outlined in recent memos from the Federal Energy Regulatory Commission, featured flamboyant titles like “Death Star,” “Wheel Out,” and “Get Shorty.” These insights have provided California officials with evidence of market manipulation that escalated prices and even led to blackouts.
As for the response from those involved? They claimed these were conventional trading tactics with nothing amiss. This only heightens concerns that new hyperscaler traders could follow a similar path to Enron, taking advantage of regulatory deficiencies. As seen in California, deregulation laid the groundwork for exploitation. The question remains: how resilient will U.S. schemes be against major traders capable of manipulating prices?
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
- Major tech firms, including Meta, Microsoft, and Apple, have sought or obtained regulatory approval to engage in wholesale power sales from the Federal Energy Regulatory Commission (FERC).
- U.S. power utilities are investing unprecedented sums in transmission and grid connections amidst uncertainty regarding future demand, creating investment challenges.
- The entry of hyperscalers into power trading may provide utilities with greater assurance that their anticipated new capacity will find consumers.
To secure electricity for their vast data centers, America’s hyperscalers are venturing into power trading. Tech giants like Meta, Microsoft, and Apple have requested or received authorizations from FERC to sell wholesale power.
Meta, specifically, is keen on fostering long-term commitments in power-generating capacity through this new trading approach while enabling contracts with future power plants, as explained by Urvi Parekh, Meta’s global energy head.
Currently, power plant developers are hesitant to make long-term commitments, which has resulted in a supply shortage for the burgeoning demand from AI and data centers.
“Power capacity developers want assurance that consumers are willing to invest,” Parekh remarked in a recent Bloomberg interview.
“Without proactive engagement from Meta regarding the expansion of power supply, growth is slower than desired,” she added.
U.S. utilities are currently pouring a record amount into grid connections and transmission improvements. However, the variability in forecasts for AI-driven energy demand presents a significant degree of risk for these investments, as noted by analysts and utility officials who spoke with Reuters Events in June.
According to Rebecca Carroll, senior director of market analytics at energy consultancy Trio, the U.S. market is currently experiencing “peak uncertainty.”
Utility companies are grappling with a high degree of uncertainty regarding future revenues due to divergent forecasts for peak demand arising from the AI data center boom across the country.
If utilities misjudge future demand, they risk overcommitting to new capacity that ultimately exceeds consumption, potentially leading to substantial costs for American consumers, who are already facing rising electricity prices that outpace inflation.
The stagnation in U.S. power demand ended approximately two years ago, with hyperscalers racing to develop AI-driven solutions and establish large data centers nationwide.
Wood Mackenzie estimates suggest that the nation’s five largest hyperscalers are poised to increase their data center spending by 50%, totaling over $300 billion by 2025.
U.S. utilities have pledged to add 116 gigawatts (GW) of load to their networks, equating to about 15% of U.S. peak electricity demand in 2024, according to energy analysts.
The move into power trading by hyperscalers may provide utilities with the required assurance that their expanded capacity will indeed find customers.
“We’re witnessing a disconnect between supply and demand, with significant players influencing both sides,” remarked Ben Hertz-Shargel from WoodMac to Bloomberg.
“To foster effective growth, we need the largest electricity buyers to actively engage in supply expansion.”
If Meta and other tech giants commit to long-term purchasing agreements, power developers will be more inclined to invest in the necessary infrastructure.
Meta plans to invest $600 billion in the U.S. by 2028 to advance AI technology, infrastructure, and workforce development, as stated recently.
The company is also enhancing its energy supply initiatives, which have contributed to an increase of more than 15 GW of new energy projects across 27 states, representing upwards of $16 billion in capital investments.
In powering their extensive data centers, hyperscalers will utilize not only renewable energy but also natural gas.
For instance, Meta’s latest data center in Richland Parish, Louisiana, which exceeds $10 billion in value, will derive electricity from three new gas-fired power plants following the Louisiana Public Service Commission’s summer approval of an agreement facilitating Entergy Louisiana’s construction of these plants.
“Importantly, Meta is contributing its fair share of infrastructure costs to support its operations, ensuring that other consumers are insulated from these expenses,” stated Phillip May, CEO of Entergy Louisiana, in August.
