Posted on 06/07/2002 11:07:42 PM PDT by lewislynn
June 7, 2002, 11:52PM
Xcel Energy, a power company based in Minneapolis, has sent documents to federal regulators suggesting that three big competitors -- Mirant, Duke Energy and Williams Cos. -- may have schemed to drive up the price of power in California.
The documents are part of Xcel's response to a demand by the Federal Energy Regulatory Commission that 150 energy companies disclose whether their traders used any of the market manipulation techniques outlined by Enron lawyers in memos that were released last month.
Xcel sent transcripts of several phone conversations that took place in 2000 between one of its traders and a counterpart at Southern Company Energy Marketing, now Mirant, where tactics to overschedule power were discussed. In one conversation, the two unidentified traders said Williams and Duke were among companies that routinely manipulated the weaknesses of the California market to increase prices.
Paul Bonavia, president of Xcel's trading business, said that Xcel had no way of determining if Mirant, Williams and Duke actually used such practices.
The companies denied any improper behavior in California.
I talked to two power trading firms today where I know management staff and asked when I was going to read about their cheating California.
The response from one was interesting. He told me that they responded to FERC's initial inquiry by stating that they had no transmission capacity to California and therefore to sell to the California market had to schedule through a transmission rights holder. This passed the initial inquiry, but even though they said they did not do any of the enron stuff and they didn't directly sell into the California market, FERC wanted to know significant information about any trades they did during certain time periods. The speculation is that FERC is trying to follow a string of transactions to see if there was any laundering of power.
Perhaps buying from a CA generator, trading it off to, say, a Utahn utility, then seeing it retransmitted back into CA at market rates?
Robert, you're a pro. You know perfectly well that these types of strategies were used. Our little teeny outfit even used them, and didn't break (as far as we could tell, at least) even the tiniest regulation. Wouldn't be at all surprised if you heavyweights didn't do the same thing in larger degree. Frankly, it'd be more than a little shocking if you hadn't done so.
When morons write the rules, and ignore market functions completely, anyone who can add and who has even a small amount of imagination can earn a profit. 'Gaming' the system? What 'system'? What nonsense. Shooting tunafish in a barrel was more like it.
Do the assorted fools learn their lesson from this? Never, not a chance. They scream 'VICTIM' and attempt to misapply yet more governmental power to 'fix' (pardon my chortle) the situation.
Ever hear of ethics? It would be one thing if energy was something we could choose to do without, but, as you and the rest of the crooks in the energy field know, it isn't.
If this (screwing the consumers by manipulation) is an example of what energy companies call "free market" or "deregulation" it sucks, and may they rot in hell...
It isn't about Gray Davis or the Democrats. It's about screwing the unsuspecting public under the guise of free market and deregulation.
I never did. In fact I once got my attorney to threaten filing an anti-trust charge against two other utilities unless they stopped consistent attempts at blocking the utility I was at and a third utility that was using its transmission to keep me from making non-firm power purchases.
The last time power sales were made to California under my authority was in 1987. That is when I left working for a utility and became a consultant to the industry. I have advised folks since then on just about everthing inluding: power plants, transmission contracts, selling power plants, selling/buying utility service territory from another utility, electric retail & wholesale rates, natural gas rates, and a whole much more.
As an engineer, I did something unusual, I took a bunch of business law courses. I especially took a lot of anti-trust law courses. As a power manager, I kept asking attorneys about practices I saw and was shocked by. Electric utilities grew up a regulated monopolies. Most folks I knew in the industry really didn't understand that anti-trust or anti-monopoly laws sometimes applied to them.
The utility industry has had a long history of utilities coorperating with each other to help out during power problems. In a "market" wholesale power system, calling a potential competitor to do anything more than make a straight purchase or sale of some product or service starts to get close to a whole host of anti-trust things that a judge could say were a restraint of trade. I have often felt and told the people I mentored that anti-trust laws were an area they should be especially careful.
In the transition from regulated monopoly to market based wholesale generation, I don't think enough education ocurred on anti-trust laws.
First, it's obvious that you aren't a trader, or you would have known better than to make that silly remark about ethics. Trading cannot even proceed on a regular basis unless the participants are ethical regarding each other.
On the CBoT and the other exchanges, if a trader 'walks' a trade, that is, makes a trade and subsequently disavows it, no one on the floor will deal with the guy again for a LONG time. In the OTC world, a trader's prospects vary directly with his ethical behaviour. If you give your word, you keep it. If you enter a contract, you perform. Or else you don't get to play any longer.
My comment about 'as far as we could tell' referred to the prolixity and, frankly, the impenetrability of the regulations drawn up by idiots who have and had exactly zero idea of the marketplace, and who wished to substitute for it a Fantasyland of anti-Randian ideology. The comment had nothing to do with corner-cutting or crookedness.
Here's a tip for you. There wasn't any 'deregulation' in Calbania, ever, no matter how badly the socialists (evidently including yourself) want to tar and smear and blame 'deregulation' for their problems. You cannot deregulate one phase of a multi-phase market, can't be done. Oh, you can do it for a little while, but the minute there is ANY supply dislocation, any sort of distribution or capacity problem, the stuff hits the fan...and there is no way on G*d's green earth that the regulators and bureaudorks can react quickly enough to deal with it. Doofus could have sorted things out by suspending or eliminating numerous regulations including price caps, and letting the market clear, but, for purely political reasons he wouldn't do so. Talk about screwing the consumer, pally, there's your immediate villain.
And now you've seen what happens when assorted clowns attempt this type of faux-deregulation. Pretty picture, wasn't it? Will you take the lesson to heart? I've no idea, but somehow, given your message, I doubt it.
As for this business about electricity being necessary, fine, go back to completely regulated utility systems if you wish. They're comparatively inefficient, they tend strongly to become hidebound, super-bureaucratic, and risk-averse very quickly, and as for necessary innovation over time, forget about it.
This is not and wasn't ever about Democrats and Republicans. Any number of Republican pols I can think of would have behaved exactly as Doofus did. Doofus isn't a doofus because he's a Democrat, he's a doofus because he's a doofus sailing off to a socialist dream world and creating havoc in his wake.
Actions have consequences. Perhaps in future the consumers won't screw themselves by electing such morons.
Part of the answer is clear enough: combining in order to prevent a market participant from dealing in the marketplace, as in your example, simply must be unlawful...or we're all in deep sheep.
Anti-trust law as enforced is so amorphous, so subjective, that it's hardly any wonder that large numbers of companies and people aren't very informed about it. I'm not, for certain. When you consider the government's sporadic and highly capricious anti-trust enforcement efforts, though, do you laugh or cry?
They pursue IBM for TEN years, then abandon the prosecution. They allege Microsoft is a 'monopoly', or was that 'an effective monopoly', just at the time Linux is becoming increasingly popular, and in doing so cost private citizens billions of dollars by kicking off the tech-share slide (check the date the anti-trust action was announced...the very first day of the tech crash).
If a (presumably) legal issue can't be resolved through the legal system in 10 years' time, then I say the laws pertaining to that issue are either badly written or thoroughly out of date. Maybe deliberately so, hmm?
I think you are a much more informed than most and adding many wonderful comments. Yes, anti-trust law is amorphous and subjective. You are very wise to know that.
I had a graduate business ethics course from one of the smartest men I have ever meet. We used anti-trust case studies as the basis of the business ethics course. The reason was that some folks who did absolutely the right thing were ruined by enforcement of anti-trust laws and some who were crooks were let off. At the end of the course the professor brought us to the point of understanding the cub scout motto, "...to do our best."
As long as one does one's best and acts according to his or her ethical principals, then if you go to jail or are ruined, you will have the satisfaction of knowing in your heart that you were true to your own values. Life does not come with a guarantee that it is "fair." Many of the great tragedies in literature have people who are "tried by the gods" to see if they will be true to their own values or crumble to temptation. The most we can hope for is to be true to our moral compass and prey for the best. The rewards and punishments in life are fickle and unpredictable.
I suspect that many involved with the California power market who are feeling uneasy about the FERC, Justice Dept. and SEC investigations felt the temptation for easy and quick money either for their direct personal gain or for the reputation that scoring big for one's company creates. What I find the most distressing is what I have learned about the ethics and probably anti-trust violations associated with many actions by the Cal-ISO. When the dust settles, I would not be surprised if several Cal-ISO officials don't end up in jail.
As for this business about electricity being necessary, fine, go back to completely regulated utility systems if you wish. They're comparatively inefficient, they tend strongly to become hidebound, super-bureaucratic, and risk-averse very quickly, and as for necessary innovation over time, forget about it.
The inefficiency and bureacraccy are why electric utilities needed FERC to do something like attempt deregulation.
My favorite example is a very, very large electric utility that I did some distribution design for in late 1999. When i asked for a sample of the type of design they were use to they handed me a distribution line design drawing that was drawn by "hand." I asked if they used CAD, and was told that no, this large utility only used CAD for transmission designs and substation designs. The people in my office doing the distribution design were shocked beyond belief that this utility was still operating as if it were the 1950's.
But I'm pretty certain I can't hold my breath that long. NOTHING happens before the election, write it down in big black letters. Doofus needs yet another scandal like a moose needs a hatrack, and the sundry CA authorities won't do a thing.
The Feds? Not a chance, Doofus would just scream about Federal interference (which of course he adores when it suits his purposes), and there's nothing in it politically for the Bush administration. Besides, there's this little matter of rearranging the deck chairs on the U.S.S. Intelligence, and miscellaneous CYAs to execute. Nope, the Feds are on the sideline, too, until at least next year.
Too bad, really, but what can ya do? (shrug)
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