Baltimore's South River Consulting is not a huge electricity player. It's an independent energy advisor helping commercial clients negotiate a deregulated electricity market. But it has a small account with PJM Interconnection, the grid manager for the Mid-Atlantic region. And because of this, the recent $80 million default by Power Edge LLC will cost South River $20,000, says principal Bert Wilson. As I wrote Wednesday, Power Edge's goof and lack of collateral means the rest of the PJM system -- including Baltimore Gas & Electric -- has to make up the difference. Plenty of people are really steamed. Wilson is a passionate advocate of free markets, but he thinks the Federal Energy Regulatory Commission really messed up. Here is his email to me this morning:

I'm really incensed by this. By the way we have a PJM account that we were just getting ready to use (never had any activity) and this is going to cost us $20,000 directly. FERC really screwed up. Everybody should have to be secured just like at NYMEX or any other market. Speculators are a necessary function of the market as they provide liquidity and take on risk position, but they should have to bear the full burden of risk they took and not send it back to those who wanted to avoid the risk.

However; you may note there is an underlying aversion for people in the
electric market (top to bottom) to want to deal with this like any other
commodity. I've been pushing quietly for a couple years on this issue
and am on the credit committee. There is a large amount of unsecured
exposure in PJM that is granted simply based on investment grade
ratings. Note how fast Enron collapsed. Even big companies want the
float and don't want to fully deal with this on a commodity level. At
the small end (you and me) we expect a commodity (electric) to be
delivered to us and we will pay for it later, couple months, maybe.
Poor financial discipline.

As I know I mentioned to you before, you
don't get to leave the grocery store with your food without
paying...it's probably notable that margins on food and commodity
electric are actually similar. As an owner of a small oil company we
cannot drop off a load of oil without pay or we would be out of business
in no time. The real underlying problem unrealistic expectations about
how this business should work. FERC needs to recognize this too as any
other trading exchange has...everybody needs to provide suitable
security and credit is not an issue of the exchange but one between you
(participant) and your bankers/owners.