Lehman, Merrill, and Electricity

Lehman Brothers and Merrill Lynch have been much in the news lately. In light of Lehman’s bankruptcy and Merrill’s sale to Bank of America, I thought it would be interesting to look at their participation in the electricity market. Merrill Lynch appears to have been a major player in that market, while Lehman, despite growing aggressively over the last two years, was not.

Summary

This graph pretty neatly summaries the relative and absolute importance of Merrill Lynch and Lehman Brothers in the electricity market:

Data

To estimate each firm’s participation in the US wholesale physical power markets, I used the FERC‘s EQR database. This data is self-reported, but there is reason to believe it to be largely complete for recent years. The following table lists the reported sales for Lehman, Merrill, and the market as a whole.

Quarterly Reported Sales, in USD

Year/Quarter Lehman Sales Merrill Sales Total Sales
2002/Q1 0.00 0.00 319,946,778.62
2002/Q2 0.00 0.00 5,563,862,899.47
2002/Q3 0.00 0.00 10,392,941,591.25
2002/Q4 0.00 105,578,021.15 60,761,922,289.89
2003/Q1 0.00 106,118,398.85 68,250,784,154.24
2003/Q2 0.00 0.00 68,261,488,699.02
2003/Q3 0.00 103,483,778.90 103,393,546,139.68
2003/Q4 0.00 82,786,483.73 76,093,955,113.36
2004/Q1 0.00 111,998,920.59 61,280,293,869.60
2004/Q2 0.00 90,594,823.19 92,522,698,545.19
2004/Q3 0.00 91,943,251.97 76,362,089,869.83
2004/Q4 0.00 752,358,126.53 61,200,884,494.51
2005/Q1 0.00 629,405,099.51 67,338,745,670.66
2005/Q2 0.00 715,644,889.91 66,541,256,942.28
2005/Q3 0.00 1,246,767,783.70 96,544,866,422.74
2005/Q4 2,936.02 565,529,173.37 86,226,101,218.11
2006/Q1 49,427.24 547,445,109.77 67,357,609,953.24
2006/Q2 8,677,083.46 587,018,580.44 60,246,370,698.09
2006/Q3 150,394,948.25 1,017,429,567.74 88,460,069,984.74
2006/Q4 167,511,102.02 602,234,638.07 63,949,593,591.23
2007/Q1 21,745,142.00 956,435,713.45 68,223,830,588.50
2007/Q2 25,400,032.47 890,779,399.29 68,812,384,992.32
2007/Q3 196,011,442.01 1,661,800,511.30 80,890,123,343.70
2007/Q4 37,904,933.79 1,205,975,437.08 73,905,172,940.77

If you’d like the explore the data further for yourself, you’re welcome to do so.

Market Share

Given the preceeding data, it’s simple to compute a market share for each firm for each quarter. The results of that exercise are summarized below.

Quarterly Market Share (%)

Year/Quarter Lehman Share Merrill Share
2002/Q1 0.00 0.00
2002/Q2 0.00 0.00
2002/Q3 0.00 0.00
2002/Q4 0.00 0.17
2003/Q1 0.00 0.16
2003/Q2 0.00 0.00
2003/Q3 0.00 0.10
2003/Q4 0.00 0.11
2004/Q1 0.00 0.18
2004/Q2 0.00 0.10
2004/Q3 0.00 0.12
2004/Q4 0.00 1.23
2005/Q1 0.00 0.93
2005/Q2 0.00 1.08
2005/Q3 0.00 1.29
2005/Q4 0.00 0.66
2006/Q1 0.00 0.81
2006/Q2 0.01 0.97
2006/Q3 0.17 1.15
2006/Q4 0.26 0.94
2007/Q1 0.03 1.40
2007/Q2 0.04 1.29
2007/Q3 0.24 2.05
2007/Q4 0.05 1.63

Beginning in Q4 2004, Merrill Lynch was a major player in the US wholesale electricity market, accounting for between 1 and 2 percent of all sales. Lehman Brothers, on the other hand, began growing their activity dramatically in 2006, but never accounted for more than a quarter-percent of sales.

All things considered, that’s probably just as well.

A Note About Merrill Lynch Data

Merrill Lynch’s EQR data is complicated by the fact that they apparently switched Respondent IDs in late 2004/early 2005. They originally reported their EQR data as “Merrill Lynch Capital Services”, but later began reporting as “Merrill Lynch Commodities”. (This change was associated with a large increase in reported volume.)

The following table presents the quarterly reported transaction value from each of Merrill’s Respondent IDs. The usual caveat applies that the data for later years is more reliable than that for earlier years.

Quarterly Reported Sales, in USD

Year/Quarter ML Capital Services ML Commodities ML Total Sales
2002/Q1 0.00 0.00 0.00
2002/Q2 0.00 0.00 0.00
2002/Q3 0.00 0.00 0.00
2002/Q4 105,578,021.15 0.00 105,578,021.15
2003/Q1 106,118,398.85 0.00 106,118,398.85
2003/Q2 0.00 0.00 0.00
2003/Q3 103,483,778.90 0.00 103,483,778.90
2003/Q4 82,786,483.73 0.00 82,786,483.73
2004/Q1 111,998,920.59 0.00 111,998,920.59
2004/Q2 90,594,823.19 0.00 90,594,823.19
2004/Q3 91,943,251.97 0.00 91,943,251.97
2004/Q4 0.00 752,358,126.53 752,358,126.53
2005/Q1 2,372,520.00 627,032,579.51 629,405,099.51
2005/Q2 0.00 715,644,889.91 715,644,889.91
2005/Q3 0.00 1,246,767,783.70 1,246,767,783.70
2005/Q4 0.00 565,529,173.37 565,529,173.37
2006/Q1 0.00 547,445,109.77 547,445,109.77
2006/Q2 0.00 587,018,580.44 587,018,580.44
2006/Q3 0.00 1,017,429,567.74 1,017,429,567.74
2006/Q4 0.00 602,234,638.07 602,234,638.07
2007/Q1 0.00 956,435,713.45 956,435,713.45
2007/Q2 0.00 890,779,399.29 890,779,399.29
2007/Q3 0.00 1,661,800,511.30 1,661,800,511.30
2007/Q4 0.00 1,205,975,437.08 1,205,975,437.08
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