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Probe: Enron Manipulated Prices
Investigators found evidence of price manipulation and deceit by Enron as the energy trader aggressively sought to profit from California's volatile power markets.
Source: AP, 2002-08-15
Candidate: Enron
Investigators found evidence of price manipulation and deceit by Enron as the energy trader aggressively sought to profit from California's volatile power markets, a Federal Energy Regulatory Commission ( news - web sites) report said Tuesday.
The staff recommended the commission pursue "possible misconduct" charges against three Enron affiliate companies and two investor-owned utilities that did business with Enron.
The commission's staff said Enron's questionable trading practices, once they became public, had ramifications "far beyond their dollar impact" in harming public confidence in energy markets.
The staff report estimated that over two years, 2000 and 2001, Enron accumulated profits from electricity trades in the West "in the neighborhood of $1.8 billion." It was unclear how much of that came from questionable trading practices.
FERC Commissioner Nora Brownell said the report "certainly identifies companies that we know today were engaging in behavior that was manipulative or inappropriate."
But California Gov. Gray Davis ( news - web sites) called the preliminary report "a whitewash pure and simple" and said he was puzzled that FERC has taken two years to finally launch a formal investigation into misconduct that he and other state officials have long complained about.
FERC still "hasn't sanctioned anybody, it hasn't issued any refunds to us, it's done nothing to stop the manipulation which everyone agrees occurred here in California," said Davis.
The investigation was ordered in February by FERC Chairman Pat Wood after repeated charges by California officials that energy marketers were gouging California's utilities and its customers by manipulating power supplies.
Two months later, FERC obtained an internal Enron memo that described a series of trading strategies, including sham transactions and other schemes aimed at creating congestion on the Western power grids and forcing up prices.
"These now famous trading strategies have adversely affected the confidence of markets far beyond their dollar impact on spot prices," the FERC staff report said.
The report said Enron's tactics included "attempts to fabricate transactions for profit" and use middlemen to hide power transactions among Enron-affiliated companies.
"Enron's corporate culture ... fostered a callous disregard for the American energy customer," said the report.
It described Enron as eager to "game the system" as it sought to reap profits from soaring power prices in California in 2000 and early 2001.
The staff urged the commissioner to begin additional investigations into the activities of Portland General Electric Co., Enron Power Marketing Inc. and Enron Capital and Trade Resource Corp., all Enron affiliates; Avista Corp., a Spokane, Wash., electric utility; and El Paso Electric Co., based in El Paso, Texas.
The staff report said the alleged misconduct involving these companies included hiding the extent of their mutual business dealings, using middlemen to disguise transactions, failing to comply with federal rules on open transmission access and failing to have adequate operating reserves.
California officials claim its utilities — and, in turn, customers — were overcharged as much as $9 billion by wholesale electricity and natural gas marketers. Enron's energy marketing subsidiary was among a half dozen major players in the California market.
During the height of the power crisis in early 2001, the average daily cost of wholesale power in California topped $300 per megawatt hour, ten times what had been normal in previous years. At times wholesale prices spiked to as much as $3,800 per megawatt hour.
In June 2001 FERC ordered a price cap on the entire Western power market and pricThe El Paso Corporation owns one of the two main pipelines bringing gas into
California. The El Paso Merchant Energy corporation, an affiliate of El Paso,
bought almost 40% of the space on the El Paso pipeline. With control of so much
of the “pipeline capacity,” El Paso Trading can manipulate market prices by
withholding capacity and “cooperating” with its parent corporation, who is
supposed to compete in selling pipeline capacity. The CPUC complained about
El Paso’s manipulations of the market to the Federal Energy Regulatory
Commission (FERC) back in April of 2000, but FERC has done nothing about it
so far!Ironically, the same companies that are profiting off of California’s electric crisis
are profiting from high gas prices as well. These companies - Duke, Dynegy,
Williams, Reliant - own the electric power plants that are driving up gas demand
in California. At the same time, they ship and market natural gas through other
affiliates. These companies can operate power plants in ways to maximize their
profits on both sides. They can ship electric power out of the state, thus driving
up the price of the available power. They can resell their gas if there is more
money to be made in gas sales than electricity. They can sell high-priced gas to
their electric affiliate, who uses that price to justify selling electricity at outrageous
prices. It does not matter whether they sell gas or electricity. Either way
the parent corporation makes huge profits and the California consumer
suffers.
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2004-02-25 00:00:00
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2004-02-25 00:00:00
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