Entergy's Decision to Drop Trading Baffles Many

A rare survivor of the energy-trading business could soon call it quits.

EntergyETR announced this week that it is pursuing the sale of a trading partnership half-owned by privately held Koch. Entergy's decision to sell the business -- considered one of the best shops of its kind in the industry -- comes less than two months after the company finally reported disappointing trading results to the market.

The company saw first-quarter profits plunge due, in part, to a 90% reduction in earnings from Entergy-Koch. Still, the unit did eke out a profit in an industry that -- since the collapse of Enron -- has been littered with money-losing failures.

Prudential analyst Vikas Dwivedi, for one, expressed disappointment in Entergy's decision to exit the business.

"It seems odd that Entergy may be willing to sell one of the industry's best trading businesses just as sophisticated players -- including investment banks, hedge funds and private equity firms -- seem to be entering the market," wrote Dwivedi, who nevertheless maintained his overweight rating on the stock. "We are not supportive of the idea ... in our view, Entergy-Koch is a material part of Entergy's growth story and a valuable source of market intelligence and insight."

Entergy-Koch, founded four years ago at the height of the trading boom, has defied industry odds by generating strong profits while other players faltered. Industry experts have long marveled at the success of the partnership, which -- perhaps due to its half-ownership by a private company -- has offered less disclosure than some experts would like. Dwivedi, in fact, questioned on Wednesday whether Koch is now shying away from even the current level of scrutiny.

Entergy itself struggled under the spotlight during its latest conference call. The company, by now accustomed to pleasing the market, suddenly found itself explaining the poor performance of its trading division.