Energy Firms Defend Acts During Crisis
BY RENE’E BEASLEY JONES
Staff Writer
As the controversy over suspected market manipulation during the state’s 2000-01 energy crisis heats up, producers and traders with operations in San Diego County maintain they operated on the up-and-up.
The Federal Energy Regulatory Commission recently ordered company executives at about 150 firms , including Sempra Energy, Duke Energy and Calpine Corp. , to swear under oath whether their companies engaged in trading schemes outlined in Enron Corp. memos.
Officials of that now-bankrupt Houston energy trading company wrote about strategies , nicknamed “Death Star,” “Ricochet” and “Fat Boy” , devised to trick the California power market and boost company profits. The memos outlined ways to create the appearance of power congestion, transfer electricity to avoid price caps and make the state pay for services never provided.
According to FERC documents, trading companies other than Enron used similar tactics.
“This is just another wrinkle in the energy crisis that’s been going on for the past two years,” Sempra spokesman Douglas Kline said of FERC’s investigation into market manipulation allegations. “It’s not only a market crisis; it’s a political crisis.”
All local electric producers operate energy trading companies.
Company spokesmen fell short of saying executives with their firms would swear their companies never used any Enron-described trading practices. Instead, representatives from the three energy companies said their firms will comply with FERC’s sworn-oath order and ongoing investigation.
All of them said their companies followed the law.
The Oath
“You damn well be squeaky clean before you utter any oath,” said Ian Mitroff, economics professor at the University of Southern California.
The FERC order to company executives, asking them to sign under oath an affidavit denying use of Enron-type trading activity, “is a joke,” Mitroff said.
He would prefer the federal agency pick companies at random and hire a third party to conduct audits.
“The investigation would have to be so thorough , no-holds barred,” Mitroff said. “They’d have to go out of their way to establish credibility; otherwise, it would be superficial.”
Mitroff, who specializes in crisis management, said the FERC oath fits into today’s “quick-fix culture.”
“It’s easier to blame the crisis on a few bad apples than to fix the system. It’s easier to get out there with some oaths. How utterly ludicrous,” Mitroff said.
FERC spokeswoman Celeste Miller declined to comment on the agency’s request for sworn oaths and any future ramifications for company executives who may falsely deny using Enron tactics.
Fix The System
FERC is charged with ensuring that electric rates are reasonable and just.
“During 2001 and early in 2002, FERC worked very hard to avoid doing its job,” said Ross Starr, a UCSD professor of economics.
“Throughout the energy crisis, FERC threw up its hands and said, ‘This is the way the market works,'” Starr said. “We now know the California energy market could be gamed.”
In a recent teleconference, Gov. Gray Davis agreed, saying it was time for FERC to step up to the plate.
State officials have asked FERC for tougher trading rules, such as some Eastern states use. But the federal agency denied the request.
Davis wants FERC to force power companies to renegotiate $43 billion in long-term electricity contracts with the state. The governor said the contracts, signed at the height of the energy crisis, were entered into under duress.
To date, at least nine contracts with five suppliers have been reworked. State officials estimate those new power pacts will save $3.6 billion.
Davis wants FERC to order refunds of $8.9 billion for “unjust (and) unreasonable rates Californians were forced to pay” during the energy crunch. The agency’s final decision isn’t expected until November or later.
Recently, the governor called on FERC to expand its market manipulation probe after Reliant Resources Inc. and Dynegy Inc. admitted to “round trip” trading.
While that practice is prohibited in the securities market, it is legal in wholesale power trades. Round tripping involves swapping the same amount of energy between companies at the same price. In part, it can set higher benchmark prices and drive up prices for future customers.
Markets
As a trading company, Enron controlled about 3 percent of California’s electric market during the crisis, said Rep. Anna Eshoo, D-Palo Alto, during a recent press conference.
“There were a lot of players. This is much broader and much deeper” than Enron.
Aside from FERC’s investigation, Eshoo and other federal lawmakers have called for a congressional investigation into California’s market manipulation.
Sempra was not a major player in the California market during the energy crunch, Kline said. He estimated its trading position never exceeded more than 2 percent of the market.
North Carolina-based Duke, operator of the South Bay Power Plant, marketed less than 5 percent of the state’s electricity during the period in question, Duke officials said.
In June 2001, the ISO asked FERC to pull Duke’s ability to charge market-based rates because the state agency thought the company abused its position. Other companies included in the ISO filing were Dynegy, Reliant Energy, Southern Company Energy Marketing and Mirant Energy.
The ISO wanted the federal agency to limit them to cost-based rates. FERC never acted on the request.
Calpine served more as a generator than trader during the energy crisis, company officials said. Calpine controlled less than 1 percent of the grid’s power.
“Calpine does not , and has never , engaged in the trading strategies described in the Enron memos and recent press reports concerning Enron’s trading activities,” said company spokesman Kent Robertson.
Settlement Reached
In April, Calpine, a San Jose-based firm that is building a 510 megawatt-hour power plant near Otay Mesa, renegotiated its long-term energy contract with the state and agreed to pay a $6 million settlement.
According to state documents, the settlement ends California’s claim against Calpine “regarding improper electricity pricing practices.”
However, the waiver does not stop future claims if the company conducted willfully fraudulent activities or criminal conduct, officials with the state Attorney General’s Office said.
The state agency never filed a claim against Calpine.
Company officials said the settlement does not carry with it any admission of guilt on Calpine’s part.
