State May See More Energy Refunds
California officials who think the state paid nearly $9 billion too much for electricity during the energy crisis were feeling vindicated Wednesday--perhaps by $1 billion or more--because federal regulators said there was evidence that natural gas prices may have been manipulated to keep up power prices.
The federal finding was in a preliminary report Tuesday by the Federal Energy Regulatory Commission that offered a glimpse into how the agency is building its case against energy traders. The interim report ordered further investigations into Enron Corp. and two smaller traders, but did not mention many of the big energy generators Gov. Gray Davis and others have blamed for much of the state’s costly energy meltdown.
The investigation is the most extensive by FERC. A final report, which is not expected for months, will include other areas such as the physical withholding of electricity and the use of Enron’s online-trading business to manipulate prices.
Among the examples cited in the report was a single day in January 2001 when EnronOnline was able to boost the price of natural gas in Southern California by more than $3 to $15 per decatherm, a common measurement of natural gas trades, by using phony “wash” trading with a single partner. In wash trading, two companies exchange similar amounts of electricity or natural gas in an effort to boost volumes or prices.
“This is like a police investigation. You continue to follow new leads wherever they take you,” FERC spokesman Kevin Cadden said.
Findings of manipulation of natural gas price indexes could have far-reaching implications for the state’s attempts to win refunds of alleged electricity overcharges during the crisis of 2000 and 2001. A FERC hearing about whether California is due refunds is scheduled to begin Monday.
The report recommended recalculating the natural gas prices that are a major component of electricity costs in the state. High natural gas prices pushed up the price of electricity because natural gas fuels many of power plants.
There is evidence, FERC staffers said, that Enron and others manipulated California natural gas price indexes that are published by trade press such as Platts and Bloomberg. Platts, Bloomberg and other publishers said Wednesday that their sampling methods are valid and are designed to resist manipulation.
Recalculating the underlying natural gas prices being considered as part of the refund proceeding FERC is conducting could mean more money for California, state officials said Wednesday.
That represents a rare bit of good news for California, which has been on the losing end of several FERC rulings that have steadily reduced the refund total to between $1 billion and $2 billion from the original claim of $8.9 billion, said Eric Saltmarsh, acting director of the state’s Electricity Oversight Board. Refiguring the natural gas price could add $1 billion to refund claims, he said.
“I wouldn’t scoff at $1 billion, but I don’t want to nominate FERC for the Nobel Prize either,” Saltmarsh said. “We think there is $5 billion or $6 billion or $7 billion that consumers should be getting that they’re not getting.” Davis was more scathing, calling the report a “whitewash” that caters to the energy industry at the expense of California electricity customers. Others are skeptical that California will ever get back much money.
“I don’t hold out a lot of hope that FERC is going to order big refunds, and if they do, I don’t hold out a lot of hope that we will ever be able to collect it” from cash-starved energy trading companies, said Severin Borenstein, a professor at the UC Berkeley Haas School of Business and director of the UC Energy Institute.
FERC ordered new investigations Tuesday based on evidence of possible price manipulation by three Enron subsidiaries, including Portland General Electric Co., as well as Avista Energy Co. of Spokane, Wash.; and El Paso Electric Co., a Texas utility that is not affiliated with Houston-based natural gas pipeline operator El Paso Corp. The stock of Avista’s parent, Avista Corp., fell $1.65, or more than 12%, to $11.80 on the New York Stock Exchange, and El Paso Electric slipped 89 cents, or nearly 7%, to $11.91 on the American Stock Exchange. The companies said they are cooperating with the FERC investigation.
