Glendale Settles Suit Over Energy Trading
The city of Glendale has agreed to pay $25,000 to settle charges that it engaged in Enron-style trading schemes to create artificial shortages during the California energy crisis.
Under a preliminary deal with staff of the Federal Energy Regulatory Commission, the city Thursday reaffirmed its innocence. Federal regulators agreed to end their probe of Glendale’s market strategies, including partnerships with Enron Corp. and Coral Energy.
The proposed settlement, however, stirred fresh complaints about how federal regulators handled California’s energy crisis of 2000-2001, and rekindled debate about whether they have been too lenient with power sellers accused of misdeeds.
FERC had implicated Glendale in ploys that involved creating false congestion on electricity transmission lines, inflating demand and selling nonexistent backup energy through its partnerships with Enron and Coral, an affiliate of Shell Oil.
“Glendale is happy with the settlement. And we’re particularly pleased that FERC staff concluded there was no basis for any further investigation into the allegations made against Glendale,” Steve Lins, an assistant city attorney in Glendale, said Thursday.
The accord requires formal FERC approval.
It would end Glendale Water and Power’s travails with the federal energy commission that had accused it of market gaming and abusive partnership schemes. The alleged schemes included strategies known as “ricochet,” in which energy suppliers shift power around to skirt price caps, and “death star,” in which companies submit phony schedules to create the appearance they have eased congestion on electricity-transmission lines.
Last June, FERC notified 54 energy sellers -- including Glendale -- that they were under investigation for abuses related to market-gaming strategies and improper partnerships in the early stages of the energy crisis.
“Glendale denies, as it has throughout the entire proceeding, that the allegations ... related to gaming and partnership have any merit,” Lins said.
Regulators have reached settlements with most parties, in the process sparking criticism that FERC has been too gentle with offending firms and municipalities.
Officials with the office of California Atty. Gen. Bill Lockyer have assailed FERC for addressing energy market abuses before October 2000 on a fragmented, case-by-case basis and for not demanding higher financial penalties.
“FERC continues to march ahead at full speed with this piecemeal approach that shortchanges California ratepayers, ignores the reality of the market and we believe violates court orders,” said Tom Dresslar, a spokesman for the attorney general.
Dresslar also took exception to language in the proposed Glendale settlement exonerating the city of wrongful market behavior in collaboration with Enron.
“That just flies in the face of the evidence we have,” he said.
California submitted documents to FERC that suggested Glendale helped Enron traders rig the state’s energy market and even quizzed its own utility employees on “Fat Boy,” the nickname for one of Enron’s trading schemes to create artificial energy shortages.
According to the FERC settlement, “Glendale does not admit, and expressly denies, that the allegations ... have any merit” or that any of Glendale’s trading practices broke the law during the period of the crisis.
In the last several days, the federal energy panel has proposed, or finalized, $26 million in settlements of charges it brought in June. Critics contend that the power sellers should be held responsible for vastly greater sums.
On Thursday, Sen. Dianne Feinstein (D-Calif.) blasted the FERC approach and singled out last week’s proposed $3-million accord with Dynegy Inc., along with five smaller agreements for $142,000, as examples of inadequate consumer protection.
“The continual reports of such meager settlements have me concerned that the commission is simply allowing companies that illegally manipulated the California energy market to get away with a mere slap on the wrist,” Feinstein said in a statement.
She added: “These meager settlements would be one thing if the companies at least admitted that they acted illegally. However, the settlements let these companies off the hook by allowing them to circumvent any admission of wrongdoing.”
The $25,000 figure in the Glendale case reflects the total revenue the city received as a result of alleged market gaming, according to the proposed settlement document.
The FERC settlements, many of which await final approval, vary greatly in size -- from as low as $6,300 from the city of Redding and $17,092 from Puget Sound Energy, to more than $7 million from Coral and $7.2 million from Sempra Energy Trading, a unit of Sempra Energy.
Asked about the sweeping denial of FERC allegations, Bryan Lee, an agency spokesman, said he couldn’t speak about a case before the commission. But he added, “It’s not at all uncommon in settlements to include language in which the settling party does not admit the alleged violation.”
