Posted on 03/26/2003 10:15:55 PM PST by lewislynn
By TOM FOWLER and LAURA GOLDBERG
Copyright 2003 Houston Chronicle
Federal regulators condemned energy companies for past market manipulation Wednesday and started pursuing
sanctions against several of them for their roles in the 2000-2001 California power crisis.
A report issued by the Federal Energy Regulatory Commission validated long-standing claims of widespread manipulation of natural gas and electricity prices and supplies in California, and noted that serious flaws with the system made it susceptible to manipulation.
Enron, which rightly or wrongly has been made a poster child for power market manipulation, was far from alone in taking part in the schemes, according to the 400-page report.
Rather it was joined by dozens of other companies that either generated power or marketed it, including some of California's largest utilities and many city-owned utilities.
"This is not the activity that I associate with good old American commerce, not even tough competition on the edge," FERC Chairman Pat Wood III said. "I'm pretty disappointed with this kind of activity, that this happened in our markets."
The FERC report recommended three actions to force companies to either confess to or defend themselves against claims of market manipulation.
The first action, against Reliant Energy Services and BP Energy threatens the companies' licenses to buy and sell power as a result of apparent manipulation of electricity prices at a key Arizona trading hub. Commissioners voted Wednesday to begin the clock ticking on a 21-day administrative procedure.
The second action, against Enron Power Marketing and Enron Energy Services, threatens those companies' authority to sell power based on apparent "gaming" of the market, a violation of the Federal Power Act.
A third action threatens the right to market and sell natural gas by several Enron subsidiaries, namely Enron North America Corp., ENA Upstream Co., Enron Canada Corp., Enron Compression Services Co. and Enron MW, and two other companies, Bridgeline Gas Marketing and Citrus Trading Corp.
The commission also accepted California's request to order higher refunds from the power suppliers because of the overcharging but it's not clear they will reach the nearly $9 billion the state says it is owed. California Gov. Gray Davis reiterated his intent Wednesday to fight for the full amount.
"And think of me as a bulldog. I got ahold of their leg, and I ain't lettin' go," Davis said in a news conference. "And if they don't give it to us, we'll go back to the 9th Circuit in San Francisco."
All of the Enron-related companies that are mentioned in the report are in bankruptcy, so any effort by the state of California to get refunds from the companies will need to go through a U.S. bankruptcy court in New York.
The commission also signaled that it probably will not force energy companies to renegotiate more than $20 billion in long-term power contracts California agreed to when natural gas and electricity prices soared to record levels in 2000 and 2001.
Enron officials said the company was continuing to study the lengthy filing Wednesday and did not have a comment.
Reliant said it was confident it had followed applicable rules and regulations and would demonstrate so in response to the FERC.
The company also said it agreed with many statements made by Wood and other commissioners Wednesday and that it believes " ... good rules, good information and timely monitoring can build a new and better energy market in the west."
A BP Energy spokesman said an internal investigation by his company concluded there was no market manipulation by its traders in the transactions with Reliant referred to in the report.
Houston-based Dynegy, which has been accused of holding back power production to drive up prices, said the company continues to stand by its record in California.
"We will work to demonstrate to the FERC that our focus during the energy shortage of 2000 and 2001 was on running our generation facilities as hard as possible -- many times harder, in fact, than they were operated under previous utility ownership," said spokesman John Sousa.
Wednesday's FERC report said that in addition to the previously documented trading strategies that went by such names as "Fat Boy" and "Slap Shot," prices also were manipulated by traders reporting exaggerated data to the publishers of price indexes.
Common practices included traders reporting trades that they simply saw on EnronOnline -- the online trading platform that was played a key role in that region's energy trading before Enron went bankrupt -- even if they didn't take part in the trades.
Traders also reported false trading volumes regularly but not false prices, because prices that were too far afield from the market average would be more likely rejected by the index publishers.
EnronOnline was also determined to be a key factor in letting Enron speculate heavily in the California energy markets because the role the company played as a counterparty to nearly every trade on the system.
"This created a false sense of market liquidity, which can cause artificial volatility and distort prices," the report says.
"Enron's informational trading advantage on EOL was lucrative; the company took large positions and was an active, successful speculator."
Enron executives had said in the past that market speculation was not part of their business.
The FERC report estimates Enron's speculative profits from EnronOnline exceeded $500 million in 2000 and 2001 and allowed the company to sustain losses in physical trading.
The report also says that Enron could not have done the transactions that allowed it to manipulate the markets without the help of other parties, such as municipal utilities that would buy or sell power at Enron's request to create certain conditions.
The report also refers to a handbook that Enron had for employees. The handbook had directions on which counterparties to call in certain market situations so that the counterparties could take advantage of the conditions.
To see the FERC's 400-page report go to www.ferc.gov.
serious flaws with the system made it susceptible to manipulation
Leaving your door unlocked or your gate open isn't an invitation for unauthorized entry.
May the guilty parties rot in hell.
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