Skip to comments.California: US FERC widens Enron probe to natgas trades
Posted on 05/23/2002 8:07:41 PM PDT by Ernest_at_the_Beach
(Adds Entergy-Koch denial)
By Chris Baltimore
WASHINGTON, May 22 (Reuters) - Federal energy regulators on Wednesday widened a probe of California's power crisis to include sham natural gas trades, as six large energy firms announced they did not use Enron Corp's now-infamous schemes to boost profits.
The U.S. Federal Energy Regulatory Commission (FERC) is now examining bankrupt Enron's role in the soaring electricity prices that led to California blackouts, as well as a variety of questionable trading schemes for power and natural gas that may have been used by more than a 100 other firms.
In a separate development, a Democratic-led U.S. Senate committee authorized the first congressional subpoenas to the Bush White House about its contacts with Enron.
Enron was a major contributor to the presidential campaign of George W. Bush.
For the third time this month, FERC issued a broad order demanding that scores of energy companies declare in a sworn statement whether they used trading techniques in 2000 and 2001 to skirt rules and boost California profits.
In its latest action, the agency ordered energy firms to file sworn statements disclosing whether they engaged in so-called "wash" trades or "round-trip" trades for natural gas. The trades are used to falsely boost sales volume risk-free by simultaneously buying and reselling natural gas.
Natural gas is the fuel of choice for most of California's power plants, and its price directly affects the state's wholesale electricity prices.
All buyers and sellers in Western markets and Texas during 2000 and 2001 must respond by June 5, according to Donald Gelinas, FERC's associate director of markets.
Earlier this week, the agency ordered 150 energy firms to detail any wash trades of electricity in the Western market. The agency set a deadline of May 31 for that information.
Energy firms Reliant Resources Inc. (NYSE:RRI - News), CMS Energy Corp. (NYSE:CMS - News) and Williams Cos. Inc. (NYSE:WMB - News) have already admitted to using wash trading in electricity markets.
Wash trading is not explicitly illegal for off-exchange transactions. The Securities and Exchange Commission is probing the impact of wash trading on corporate balance sheets.
WEDNESDAY DEADLINE FOR SOME INFO
At the same time, energy firms raced to comply with the FERC's Wednesday deadline to declare if they engaged in Enron-style trading practices.
In three Enron documents released by the FERC on May 6, company attorneys laid out complex schemes with names like "Death Star" and "Fat Boy" to exploit the electricity grid and boost profits during the California power crisis. Enron also said it moved power outside California borders to evade a state price cap, then re-sold it to the state at a higher price.
A number of companies, including El Paso Corp. (NYSE:EP - News), Williams, Exelon Corp (NYSE:EXC - News), Duke Energy (NYSE:DUK - News), American Electric Power Co. Inc. (NYSE:AEP - News), Dynegy Inc. (NYSE:DYN - News), PG&E Corp. (NYSE:PCG - News), Reliant Resources, Mirant Inc. (NYSE:MIR - News), IDACORP (NYSE:IDA - News) and Entergy-Koch Trading LP (NYSE:ETR - News) issued statements saying they did not engage in questionable trading strategies used by Enron at the height of the California power crisis.
Not all offered comprehensive denials. "Given the 14-day deadline, a detailed analysis of every transaction and every document to rule out any Enron-type activity was impossible," Williams said in its filing to FERC.
Some firms bristled at the FERC's demand for information about Enron-style trading.
"The questions were like, 'how long have you been beating your wife and when did you stop'," one industry source said.
NATURAL GAS PRICES PIVOTAL
The FERC launched an investigation of possible price manipulation in the California market after repeated pleas by state officials and lawmakers.
The state has accused electricity suppliers of price-gouging in late 2000 and the first half of 2001, when rolling blackouts were ordered to avoid collapse of the state power grid. California is demanding some $9 billion in wholesale electricity refunds in a case pending before FERC.
About half of all electricity generated in California and Texas comes from gas-fired power plants.
Natural gas prices at the Southern California Border, a key delivery point, peaked in December 2000 at $60 per million British thermal units, about 10 times the national average.
The FERC probe of the California power crisis could trigger criminal charges, according to some experts.
If the agency finds that energy firms collaborated with each other to boost prices, the Justice Department may have grounds to file criminal charges, said Harvey Reiter, a former FERC staffer and attorney at Morrison and Hecker.
"We're talking about criminal conduct -- that's one of the most serious things that could come out of this," Reiter said. Energy companies are forbidden from colluding to set prices.
Other agencies are also investigating California trading.
The Commodity Futures Trading Commission took the unusual step on Wednesday of asking the public to call with any tips about "suspicious activities or transactions" involving Enron's electricity and natural gas trading in Western markets.
The CFTC, which regulates futures and options exchanges, has been working for several months with FERC, the SEC and other agencies to examine if Enron tried to boost prices in energy futures markets during California's power crisis.
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I think that widening this to natural gas is an interesting statement and bodes for likely refunds in some areas on the gas side as FERC is more comfortable second guessing gas transactions.
Wait for the spot delivery @ Topock and Milan to spike, then sell 'em all they wanted.
Ah, for the good ol' days...and every single bit of that fiasco was the specific fault of the Calbanian legislature and Grayout Doofus. What a stitch.
Say, what does a subpoena look like, anyway?
Not quite sure how to take your comments. Last time I was in "Milan" I was driving from Florence to the the Lake Country of northern Italy. Now "Malin" is a major point of delivery of PNW power into California. Many years ago I sold a lot of firm and no-firm for delivery at Malin, mostly to CVP (Western)or PG&E.
As to knowing what a "subpoena" looks like, I have never been served with one, so I don't know. A couple times I came close, but that is another story.
As to taking advantage of other power traders, well it is suppose to be a free market with willing sellers and willing buyers. Many decades ago, I sold power at some handsome profits to the point where others criticized me publicly, but it was a long term sale and I could easily justify the costs on a historic cost allocation basis for my utility, that is how I set the rate. The buyer seemed happy so no big deal. In our negotiations we actually both analyzed the cost allocation to make sure the price was fair.
In the PNW a number of utilities and some industries created their own price caps by installing temporary diesel generation. This allowed them to avoid panic buying and to clearly state to sellers that they had a limit on what they were willing to pay. Everytime I saw someone in CA start to do something like that the state air control folks came in and rained on their parade.
We don't trade power at all anymore, did a bit of it in 1999-2000; very difficult for small non-utility traders to do, because we'd no efficient way to hedge out the risk. Let's face it, the now-extinct PV and COB futures contracts were not exactly what you and I would call liquid.
NG is a lot easier for us small guys to deal in; we're running the back end of the 12-month strip, basis Henry, vs. either forward or NYMEX board, and it's just dead profitable until/unless 12-month delivery becomes non-seasonally backwardated...which it might, of course...but very unlikely this year. Now, if I only had the swap connections we had back then. Oh, well.
If you examine (as I'm sure you must) the temperature-adjusted historical regression of storage levels, current builds on trendline will put us @ 3.42 TCF on Nov 1st, which would be very interesting indeed -- where the devil would we put it all? Would we get back to take-or-pay, d'ya think? Or would the assorted morons at DOE or FERC start meddling (sigh) again?
Sorry for the typo; at least it was a giggle, though.
Best regards to you!