Finding on Energy Trades Falls Short of Condemnation

Federal regulators accused Enron Corp. and two other energy traders Tuesday of possible misconduct and concluded that natural gas prices may been manipulated in the state’s energy crisis. But the interim report stopped short of the condemnation of the traders sought by state officials.

In a news conference, Gov. Gray Davis called the report by the Federal Energy Regulatory Commission a whitewash and said the panel was spineless because it had failed to issue broad sanctions against generators and power traders. California is seeking refunds of nearly $9 billion for what it alleges are electricity overcharges in 2000 and 2001.

FERC stressed that the report delivered Tuesday to Congress was preliminary and that the broad investigation into alleged market manipulation continues.

The agency ordered new inquiries into three Enron subsidiaries, including Portland General Electric Co., and two companies with which Enron did business: Avista Energy of Spokane, Wash., and El Paso Electric Co., the utility serving El Paso. (El Paso Electric is not affiliated with the larger El Paso Corp. of Houston.)

The companies said they are cooperating with the FERC investigation and the forthcoming hearings into their conduct.

For six months, FERC has been examining whether trading by now-bankrupt Enron Corp. and others caused electricity and natural gas prices to rise in California and 10 other Western states. Some of the trading strategies were given colorful nicknames by Enron traders, such as Death Star and Fat Boy, while others reportedly involved the phony swapping of electricity or natural gas, known as “wash trading.”

The interim report is the first look at the agency’s wide-ranging investigation, and it found instances of possible manipulation--notably of the indexes of California natural gas prices, which could strengthen the state’s case for bigger refunds, some FERC observers said.

But the document contained no evidence of widespread manipulation of energy prices or illegal actions by market participants.

The report said that some of the Enron-style strategies had involved market manipulation, but that the ploys had not helped Enron revenues much or significantly affected the market, which the document said was hurt more by flawed market rules and shortages of electricity.

FERC Commissioner Nora Mead Brownell said the report “gets into fact vs. fantasy.”

“I have heard people in California say there was no problem with [electricity] scarcity and the market design flaws really didn’t explain any of this well. If that’s what you want to believe, then this report is probably not what you want to hear,” Brownell said.

She said FERC, through its report and orders, is issuing strong signals to companies that “there’s no place to hide. If you are a company that engaged in one of these behaviors ... we’re going to find you and deal with you.”

The report disappointed some California politicians, who were hoping for a clear sign that refunds were on the way.

The report comes amid growing tension between FERC and California officials, who have long contended that the agency was too slow in offering help during the crisis. Davis and his appointees to the governing board of the California Independent System Operator, which oversees most of the state’s transmission system, recently defied a FERC order to dissolve the Cal-ISO board and replace it with an independent board chosen by committee.

“This report was a whitewash,” Davis said. “California’s consumers are at serious risk as long as the Federal Energy Regulatory Commission is in charge.”

“The FERC has demonstrated once again how spineless they are,” Davis said, adding that the state will continue to pursue refunds through FERC and might consider suing if refunds are not handed out. “They are not regulating. They have no interest in protecting the American consumer. Their only interest is in padding the pockets of the energy companies.”

State Sen. Joe Dunn (D-Santa Ana), who heads a special committee of the state Legislature that is investigating possible market manipulation, said: “If prices were charged above just and reasonable prices due to market manipulation, FERC has always had the ability to order refunds under those circumstance. The problem is that FERC just won’t do it.”

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Bloomberg News Service contributed to this report.