Welcome to Top Floor Power

Like many others, when I left college I wanted a real world adventure. My choice was bicycling across country.

Aiming for experience not speed, I zigzagged across the continent, first heading south to the Smoky Mountains then back north and west across the plains and the Rockies before I pedaled down the California coast.

It is safe to say that electric power markets did not once cross my mind in the six months I took to go from New York City to San Francisco.

The business of electricity may not seem to be the most exciting of commodities, but in the decades since the industry’s development it has had more twists and turns, peaks and valleys than that long bike ride.

In the early 1990s virtually every utility in the United States felt compelled to make massive investments in state-owned power companies, often in some of the riskiest nations on the globe, only to retrench en masse when the Thai baht collapsed in 1997. Most of the U.S. companies that ventured overseas shook it off, shedding their foreign assets. Many then jumped with both feet into the brave new domestic merchant power market made possible by deregulation legislation passed in 1992.

That boom had a good run until the California (Western) energy crisis began in 2000, Enron collapsed in 2001 and the wash trade scandals decimated the fledgling power trading industry. One would be hard pressed to concoct a more perfect storm of business misadventures.

The wave of bankruptcies that ensued provided a perfect feeding ground for reorganization, consolidation, M&A and massive investments by private equity into the once staid turf of utilities, culminating in 2007 with the $45 billion leveraged buyout of TXU by a trio of KKR, TPG Capital and Goldman Sachs.

Financial engineering, aided by legislative and regulatory mandates, also created a boom in the build-out of wind and solar power plants that continues to play out today against a fractured landscape of regulated and deregulated states and the arcane entities known as capacity markets, which are nothing if not protean in promulgating new rules.

All the while, the fracking of shale gas is pumping cheap fuel into the market, upending the business models of conventional power generators as they face the most sweeping and far reaching changes to emissions regulations – including the first restrictions on carbon dioxide emissions — ever proposed.

It is remarkable that the lights have stayed on through it all, and it is a testament to the self-righting power of even imperfect markets. It is also a story that is not over, even after more than a quarter century of booms and busts.

Hang on. It promises to be an interesting ride.

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