FERC Releases Flood of Evidence in Its Case Against Power Suppliers

Times Staff Writer

Federal regulators released on Wednesday hundreds of new pieces of evidence that California's energy market was manipulated -- from an e-mail message exhorting sellers to "stick it" to the state by bidding high prices to a transcript of traders discussing "wicked" plans to hold back electrons.

The documents lie at the heart of California's demands for punishment and payback from the energy crisis of 2000-01. They were made public by the Federal Energy Regulatory Commission to help illuminate staff findings that California was the victim of widespread power withholding and market manipulation.

Power suppliers say the documents released by FERC don't show any wrongdoing.

But Sen. Dianne Feinstein (D-Calif.) said a reading of the evidence prompted her to ask U.S. Atty. Gen. John Ashcroft to investigate fraud and antitrust allegations made by the state. The documents "provide significant evidence that there was a concerted effort to boost company profits at the expense of consumers," Feinstein said.

For example, one document details a June 12, 2000, conversation between a trader at Avista Corp. and another at Puget Energy in which the traders talk about working with others to keep power away from California markets.

Avista spokesman Hugh Imhof said that the traders were joking and that no power was withheld. In addition, he said, FERC staff investigated the incident, along with others cited by the agency and the state, and has cleared Avista of market manipulation charges in a proposed agreement. The agreement hasn't been approved by the commission. Puget Energy, based in Bellevue, Wash., could not be reached for comment

In the transcript, an Avista trader identified as Tony said: "I've been trying to get every prescheduler and real-time person to boycott California on Aug. 1 and 2.... so they can sit in the dark."

A Puget Energy trader identified as Anna replied: "God, you are just wicked."

Said Tony: "I shouldn't be saying this on the recorded line." Trader conversations are routinely recorded in the energy industry.

The documents released by FERC were gathered by California government agencies and two investor-owned utilities and filed with the federal commission March 3. The power suppliers blamed by the state coalition have filed their own documents disputing the charges.

Mirant Corp., an Atlanta-based energy trader, was among those California accused of alleged manipulation, such as creating false congestion on the state power transmission grid and bidding up prices with the knowledge that California was desperate for power and would pay any price to get it.

For instance, a Mirant e-mail sent to 11 traders in July 2000 urged them to "submit revised supp. [supplemental] bids and 'stick-it to 'em!" according to the filing.

Mirant also allegedly engaged in the so-called "Fat Boy" scheme, in which it gave inflated estimates of power demand to the California grid operator to create the illusion of shortages and send prices higher, according to the documents made public by FERC.

In one transcript, a trader from Public Service Co. of Colorado said to a Mirant trader, "Why don't we just do something where we over schedule, over schedule load and share an upside, dude." The Mirant trader replied, "That's fine."

Public Service of Colorado's parent, Xcel Energy Inc. of Minneapolis, noted that it previously made that transcript public, posting it on the company Web site.

"We don't have anything to hide. We didn't violate any laws," Paul Bonavia, president of the company's Xcel Energy Markets division, said Wednesday.

Mirant spokesman James Peters said Mirant "reasserts that it operated legally and appropriately with all of its trading actions within the rules designed" for the California market.

Referring to the transcripts of traders' conversations, Peters said: "Talk is just talk, and you have to look at the transactions that surround these conversations, and it will prove that these traders did nothing illegal."

California accused all the major companies that own power plants of holding back power by shutting their plants for reasons that weren't legitimate.

Dynegy Inc., for instance, shut down one California generator from Aug. 30 to Sept. 3, 2000, for repairs but kept it shut down after repairs were completed "to force prices up," the filing said.

Houston-based Dynegy, in its own FERC filing, rejected that charge, saying, "None of these claims have merit."

"We continue to stand by our actions in California," said Dynegy spokesman David Byford.

Numerous power suppliers participated in "ricocheting" schemes to avoid in-state price caps by selling power outside the state and reselling it back into the state in a market for last-minute power, according to the documents.

Reliant Resources Inc., a Houston-based generator engaged in "camouflage transactions" in which it sold power out of California's day-ahead market to Arizona and New Mexico utilities and then bought power back to sell it minutes before it was needed, according to the evidence.

Reliant said specific accusations would be addressed in a legal response to be filed by the company.

"We're confident that Reliant has complied with applicable rules and regulations in regards to these cases," said spokesman Richard Wheatley. "We will demonstrate compliance to FERC through our formal factual response."

Other evidence suggested that the market oversight and enforcement mechanisms weren't effective enough to deter power suppliers from manipulating the power market.

In a transcript cited in the evidence, Reliant traders discussed that they were willing to break the rules to inflate prices.

According to the transcript on May 22, 2000, an employee, identified as Kevin, told another, identified as Walter, that economics reigns over reliability.

Walter said, "You'll let the California ratepayers pay."

Kevin replied, "That's right. I don't have a problem with that. I have no guilty conscience about that."

As evidence that power sellers inflated estimates of demand to create the appearance of power shortages, California cited an e-mail from a Sempra Energy trader that said the company "should submit 'fake load' to the day-ahead market."

Sempra, the San Diego-based parent of Southern California Gas and San Diego Gas & Electric, said the e-mail excerpt was taken out of context. In this case, the phrase "fake load" was simply industry jargon for having supplies of energy on hand for sale the next day, said Sempra spokesman Doug Kline.

Discussing alleged collusion among energy sellers manipulating the market, the California filing pointed to an agreement between Sempra and Shell Oil affiliate Coral Energy, saying "it gives Coral advance information from Sempra" about the status of a power plant.

In its written response, Sempra said the agreement contains no evidence of collusive trading because it didn't involve Sempra's trading arm, "and, therefore, created no opportunity to engage in joint manipulation."

"The agreement simply provides that Coral would market and sell all of the energy from Sempra Energy's 50% interest in the El Dorado plant," Sempra said.

California's filing also alleged that the participants in the various schemes to game the system pursued a policy of "destroying any evidence of wrongdoing."

For example, the filing alleges that Jack Dolan, a Glendale Water & Power employee told an associate that he could "destroy one of the documents that contained information about Enron's gaming strategies." Glendale did not start to retain documents until spring of 2001, after a state Senate committee began its investigation, the state said.

Glendale Assistant City Atty. Steven Lins said the city investigated the allegation and, in fact, the document in question was given to both the state senate and to FERC.

FERC Chairman Pat Wood III said the commission's staff is still evaluating the more than 3,000 pages of documents submitted by California and the responses by power sellers, which numbered more than 6,000 pages.

He said the agency hopes to act on the filings next month.

Times staff writers Debora Vrana, Doug Smith, Hanah Cho, James F. Peltz, Jerry Hirsch and Scott Reckard contributed to this report.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World