Federal Regulatory Commission Threatens Four Power Suppliers

Federal Regulatory Commission Threatens Four Power Suppliers

By David Ivanovich, Houston Chronicle -- June 5

Federal regulators Tuesday threatened to revoke four electricity suppliers' authority to sell power in the wholesale market, insisting the companies have not cooperated with a government investigation.

The Federal Energy Regulatory Commission ordered more than 150 power companies last month to say whether they engaged in any of the controversial trading strategies Enron Corp. used to its advantage during the electricity crisis in California.

In the latest blow to an industry whose credibility has been shaken by a series of trading scandals, regulators Tuesday ordered Enron's Portland General Electric Co., as well Williams Energy Marketing & Trading Co., El Paso Electric Co. and Avista Corp. to explain within 10 days why they should not be barred from the wholesale market.

The firms' responses to the inquiry, regulators said, "are indicative of a failure by these companies to cooperate with our investigation."

Regulators noted that other companies may soon be called to task as well, as staffers continue to comb through the sworn affidavits submitted by the power suppliers two weeks ago.

Federal officials are trying to understand whether power suppliers exacerbated the electricity shortage in the West during 2000 and 2001 by engaging in a series of strategies detailed in some Enron memos.

Enron's traders had used 10 different techniques to, among other things, create phantom congestion on California's power transmission grid, ship electricity out of the state to circumvent state price caps and submit unrealistic power demand schedules, all at a time when California was scrambling to keep the lights on.

Portland, Ore.-based Portland General is a wholly owned subsidiary of Enron. But regulators found Portland General's response plagued by "internal inconsistencies" and was "simply not credible."

Portland General told regulators it engaged in a practice known as "ricochet" or "megawatt laundering."

In this technique, a power company buys electricity in California at a capped price and sells it to an out-of-state buyer. The power supplier then repurchases this electricity for a slightly higher price and zips it back into California, where it can sell the power for the higher price allowed for imported electricity.

Portland General identified 17 such ricochet transactions between April and June 2000.

In these deals, Enron purchased the electricity in California and then sold it to Spokane, Wash.-based Avista, Portland General officials said.

Avista then sold the electricity to Portland General, which then sold it back to Avista, which then resold it to Enron, which then sent the power back into California, usually to the Los Angeles area.

Commission officials disputed Portland General's assertions these deals were isolated incidents, contending the data show "that such transactions were a standard and routine practice."

Regulators also noted that Portland General never explained why these trades "began abruptly in April and suddenly stopped in June."

When responding to the regulators' inquiry, Portland General also admitted it exported power out of California to take advantage of higher prices outside the state but failed to identify the specific transactions, "referring the commission to a mass of previously-submitted data without further explanation."

Portland General spokesman Kregg Arntson said company officials were "surprised and perplexed" by the commission's order.

"We worked incredibly hard over a 14-day period to provide a thoughtful, in-depth response," Arntson said, adding: "We found no evidence of deception or market manipulation" on his company's behalf.

In its filing with the commission last month, Avista had denied any knowledge about ricochet trades.

"While Avista submitted a letter it received from Portland referring generally to the transactions, it does not come forward with any kind of explanation for this discrepancy," the commission said.

Avista spokesman Hugh Imhof said the company is "in the process of reviewing the relevant materials, and will be as responsive as possible."

When responding to the commission the first time, Avista officials said they did nothing illegal or unethical, and company officials still stand by that statement, Imhof said.

Tulsa, Okla.-based Williams, meanwhile, told regulators last month it could not say whether it had exported power out of California.

Regulators blasted Williams' "failure to straightforwardly answer" and called its response "an unacceptable failure to cooperate."

Responding to that criticism, Williams on Tuesday said it would deny purchasing power in California and shipping it out of state to fetch a higher price.

"Based on a thorough evaluation, Williams has not identified any transactions of this type," Bill Hobbs, head of Williams' energy marketing and risk management business, said in a prepared statement Tuesday. "Williams strongly disagrees with FERC's characterization of our response as uncooperative. And threatening to take away our market-based rate authority is inappropriate."

El Paso-based El Paso Electric, in its response to the probe, told regulators it knew nothing about the trading strategies being examined.

But El Paso officials also told regulators that Enron employees manned its trading desk about 75 percent of the time during the period in question, 2000 and 2001.

"While El Paso in its affidavit claims it knew nothing about (Enron's) dealings on its behalf, this is simply not credible in view of the relationship described," the commission said.

El Paso Electric is not associated with El Paso Corp., the Houston-based natural gas company. In fact, El Paso Corp. put out a press release late Tuesday stressing that it is not "affiliated with El Paso Electric Co. and never has been."

California Gov. Gray Davis, who has long accused the power suppliers of gouging the state during the electricity crisis, said Tuesday that he is "delighted that FERC is finally demanding that the generators that manipulated California's energy market last year give straight answers instead of platitudes."

Tuesday's order "is a departure from the commission's historical rubber-stamping of what the generators tell them," Davis said.

Davis credited President Bush's appointees to the commission, former Texas Public Utility Commission Chairman Pat Wood, now head of the FERC, and Commissioner Nora Mead Brownell, for this "sea change."

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