Price spike may have created no victims

Houston Chronicle ^ | Sept. 6, 2006 | TOM FOWLER

[thackney]

Traders at BP charged, but it's possible no one paid extra

When investigators filed charges in June claiming BP tried to corner the U.S. propane market, they had some useful evidence to make their case — recordings of company traders discussing the alleged scheme.

But they may lack another tool often used to get others to cooperate with the investigation: victims who saw their propane bills rise because of the alleged manipulation.

Prosecutors often use the threat of lengthy jail sentences, which are calculated based on the losses suffered by victims, to get defendants to plead guilty. That was the case for some of the former natural gas traders in Houston who pleaded guilty to false reporting charges in recent years.

But the price spike the BP traders are alleged to have created in the daily spot markets does not appear to have caused a spike in wholesale or retail prices, according to data compiled by the Energy Information Administration.

Bills not higher? That could mean homeowners and businesses didn't pay higher bills because of the alleged BP scheme.

"It's possible the price spike never showed up for retail customers," said Dan Lippe, president of energy consulting firm Petral Worldwide. "It just didn't last long enough."

This wouldn't negate the one guilty plea prosecutors garnered in the case so far, but it could limit their use of large prison sentences to pressure others into plea bargains and limit the size of penalties that could be brought against the company in civil actions.

In late June, Dennis Abbott of Houston, a former trader with BP, pleaded guilty to charges that in 2004 he and others at the company conspired to manipulate the price of propane that flows from storage fields in Mont Belvieu, in Chambers County, via pipeline to Ohio, Pennsylvania and New York.

At the same time, the Commodity Futures Trading Commission filed a civil complaint against the company. The commission complaint included tapes of conversations between Abbott and Mark Radley, manager of BP's natural gas liquids business, allegedly discussing plans to corner the market. At one point Radley, who has not been charged, is heard to say " ... we would know from thereafter that we could control the market at will."

BP said some of its employees did not adhere to company policy governing trading activity and that some were disciplined or dismissed. The company denies they manipulated the market, however, and plans to fight the charges.

A significant number? In a July court filing prosecutors said they believed the number of "crime victims" harmed by the alleged price manipulation " ... is significant and could include all wholesale and retail customers" in regions where propane is delivered.

Propane spot prices on the pipeline out of Mont Belvieu did show an unusual spike during February 2004, climbing 50 percent overall and hitting a high of 92 cents a gallon for one day before falling down to a more typical 60-cent range the next day.

But wholesale and retail prices for delivery points further along the pipeline don't show similar increases in the weeks after the spike, according to government data.

There could be many reasons for the spike to remain an isolated event, industry observers say.

Most in the industry were aware there was unusual activity leading up to the spike, so when it happened it was clear it was an anomaly.

"Propane trading is a fairly small business where the players all know each other and talk on the phone every day," said Ann Rey, managing editor of Butane-Propane News in Arcadia, Calif. "The shippers I talked to at the time thought someone was trying to do something funny with the prices, but they were pretty dismissive of it."

Because wholesale and retail distributors usually have several days of inventory on hand, they could simply have chosen not to buy propane when the prices were clearly inflated, Petral Worldwide's Lippe said.

"Companies could have just decided to not buy that day, or bought from another source," Lippe said.

The alleged manipulation also occurred at the end of the heating season, when most retail customers have stopped buying propane.

The competitive nature of the retail propane market also makes it less likely companies will pass along one-day price jumps if it means angering customers, said Gene Bissell, president and CEO of Amerigas Propane, the largest propane retailer in the U.S.

Locking in the price "Most propane retailers offer programs where customers can lock in the price for the season, so they don't feel increases," Bissell said.

Using damage estimates to get guilty pleas is a tactic for avoiding costly and complicated white-collar trials, said Philip Hilder, a former prosecutor.

"Defendants are afraid their exposure can be very high, so rather than fight the charges they plea," Hilder said.

If losses can't be calculated, prosecutors can use the profits a company made on an illegal transaction to calculate a prison sentence, but that would not be of much use in the BP case. The propane trading operation lost a reported $10 million because of its February 2004 trades.

If anyone lost money from the alleged manipulation, it was short-sellers in the spot market who were betting on propane prices going down, Lippe said.

"It's always a risk to take a short position at the end of the season in Mont Belvieu," he said.

[metmom]

*no victims*? But, but, but,... it can't be! There ALWAYS got to be victims. Where would we be without someone whining about something?

[redbaiter]

Again with the absurd notion that this or that company can 'control' their market. Let's ask Smith-Corona about that.