FERC Threatens to Punish 4 Firms
Federal regulators investigating abuses in California’s energy markets accused four companies Tuesday of withholding information and threatened to revoke their trading rights.
The aggressive move by the Federal Energy Regulatory Commission was intended to jolt the companies into cooperating, an agency official said.
“What the commission wants is answers to its questions,” said the official, who asked not to be identified.
FERC last month demanded that about 150 energy-trading firms declare under oath whether they engaged in any of several manipulative trading strategies described in internal Enron Corp. memoranda, which involved taking advantage of market rules to boost profit.
The four companies named Tuesday, Avista Corp., El Paso Electric Co., Portland General Electric Co. and Williams Energy Marketing & Trading, were trading partners with Enron during the 2000-2001 period that FERC is investigating. (El Paso Electric is not affiliated with larger El Paso Corp. of Houston. Portland General is a utility in Oregon and is a subsidiary of Houston-based Enron.)
“Certain public utilities ... are not fully cooperating with the investigation, thus hindering the commission’s ability to determine whether the Western markets have been manipulated,” FERC said. . It also warned, “Additional orders of this nature may be forthcoming.”
The four companies said they are cooperating with FERC’s investigation and will attempt to provide more information.
FERC ordered the companies to show within 10 days why their ability to charge market prices should not be revoked.
Traditionally, utility rates have been set by regulators on the basis of what it costs a firm to produce power, plus an allowance for profit. With the coming of deregulation in several states, FERC has granted about 1,200 companies the right to set their own “market-based” rates for wholesale electricity.
But that privilege is contingent on good behavior and maintaining “just and reasonable” rates. Loss of market-based pricing would hobble the companies’ ability to compete.
FERC found various problems with responses from the four firms.
Portland General admitted taking part in 17 “ricochet” trades during a two-month period in 2000. Ricochet was the name Enron traders gave to transactions that involved shipping power out of California and then selling it back into the state’s energy market at higher prices.
However, FERC said recorded trading floor conversations point to a wider role of Portland General from April to June 2000.
The Los Angeles area was the destination for most of the power from the 17 transactions that was sold out of state and then imported with a markup, FERC said.
The FERC order does not say whether the power went to the Los Angeles Department of Water and Power or another municipal utility in the Los Angeles area, such as Glendale Water and Power.
DWP has denied sharing profit with Enron and insists it only sold the company access to its transmission wires.
Glendale Water and Power is investigating whether its traders knowingly participated in Enron’s market manipulation. Glendale had a profit-sharing agreement with Enron from June 1999 to June 2000.
Avista denied it had taken part in ricochet trades. However, FERC said transcripts of routinely recorded conversations among traders that were provided by Portland General reveal that “Avista personnel were indeed actively involved in such transactions.”
FERC said El Paso responded that it had no knowledge of any of the abusive trades described in the Enron memos. But regulators deemed that answer “simply not credible” in view of the fact that the utility had “extensive joint dealings” with Enron.
Williams said in its filing that it could not tell whether its traders had engaged in the ricochet strategy, but FERC deemed that answer “an unacceptable failure to cooperate.”
Tulsa, Okla.-based Williams said it will tell FERC it did not buy power in California for sale outside the state at higher prices.
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Alonso-Zaldivar reported from Washington and Rivera Brooks from Los Angeles.
