Energy companies respond to second FERC request

By Sylvie Dale, Online Editor, Tulsa

May 23, 2002 — Reports are rolling in from the energy industry in response to FERC’s second request for information, and most companies are saying they did not engage in improper “Enron-like” trading practices.

FERC on May 21 called for more information regarding whether any energy companies have engaged in “wash,” “round trip,” or “sell/buyback” trades. The order was sent to more than 140 electricity sellers that did business in Western power markets in 2000 and 2001.

Although wash trades are not explicitly illegal for off-exchange transactions, they may have had the effect of causing electricity prices to be inflated.

In the two days that immediately followed the FERC order, more than 19 energy companies had already publicly responded with a news release.

Of those, 10 specifically reported they were not involved in any of the trades described by the FERC orders.

But not all answers were clear. While Public Service Co. of New Mexico reported that it did purchase a very small amount of power from the Cal PX, the company said it cannot determine whether that power was used to meet the needs of New Mexico customers or whether it was sold back into the wholesale market. Its conclusion – that it did not try to manipulate the wholesale power market during the California electricity crisis.

TransAlta Corp.’s release only stated that it had “operated in accordance with all applicable laws, rules, regulations and tariffs.”

Energy firms Dynegy Inc., Duke Energy Corp., Reliant Resources Inc., CMS Energy Corp and Williams Cos Inc., Mirant, Xcel Energy Inc. and IDACORP have already admitted to trading that in some way fits in with what FERC has described, the Associated Press and Reuters News Service reports.

Duke Energy Corp. said on May 19 its trading unit had $1.1 billion in round-trip trades since 1999, but that any congestion it may have inadvertently created was still within market rules.

Reliant on May 21 revised its first quarter 2001 financial statements to adjust for trades that had artificially inflated revenue by $1.2 billion, Reuters said. Reliant was immediately named in a class action lawsuit alleging that the company manipulated the market for energy and made its business appear more substantial than it actually was.

CMS said recently that it had overstated its revenues by $4.4 billion, because of wash trades in 2000 and 2001 with Dynegy and Reliant, but that it will not restate earnings.

Williams Cos. said that its trades had no effect on market prices.

Mirant has reported that it engaged in one of the practices FERC was investigating, but not under the same circumstances as those described in the FERC request. The company said it scheduled load and a corresponding amount of generation even though both Mirant and the California ISO knew the actual load would be zero. Mirant said it did not have enough information to determine if it had engaged in a second practice mentioned by the FERC order, and that it may have engaged in a possible variation of a third practice.

Utility holding company Xcel Energy Inc. said that while it did not directly use any of the trading strategies described in the FERC order, it had booked $1.5 million from energy sales it made to an unidentified energy company that may have resold the electricity in order to overschedule demand.

IDACORP subsidiaries Idaho Power and IDACORP Energy said it had engaged in one of the trading practices known as “export of California power.” The company said that although IDACORP Energy did export energy from the Cal PX outside of California during the time under review by FERC, “the company did not engage in any trading strategy like those described in the Enron memoranda.”

Negative scrutiny

Energy companies are feeling the pressure of negative scrutiny after the Enron scandal and subsequent admissions by other companies.

PPL Energy Plus, the marketing subsidiary of PPL Corp., said it is concerned about the negative image energy companies are getting.

“PPL is concerned that the activities of certain companies could cause some people to question the efficacy of the wholesale electricity market — a market that is essential to the continued growth and prosperity of our country. We are hopeful that this investigation by FERC will clear some of the clouds now overhanging this important market,” said Paul T. Champagne, president of the PPL EnergyPlus.

The energy companies were told to respond to the May 21 request on or before May 31.

Responses to FERC’s earlier request for information regarding trading practices were due May 22.

For more information, visit FERC’s web site at

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