WASHINGTON, April 24, 2002 — A broad-based coalition of natural gas producers, service companies, consumer groups, towns and utilities is calling on Congress and federal regulatory agencies to restore fairness, integrity and transparency to the nation’s gas and electricity markets in the wake of Enron’s fall.
The Coalition for Energy Market Integrity and Transparency said Wednesday that energy deregulation has been hijacked by speculators and futures traders operating under the guise of “energy marketers” who have rigged the system to skim billions of dollars from producers and consumers, while providing little or no actual services.
California State Sen. Joseph L. Dunn, who is leading an investigation of possible energy market manipulation during the state’s energy crisis of 2000 and 2001, presented new evidence of price fixing by Enron and others during that period.
“Enron and its clones promised greater efficiency and cheaper energy prices but have delivered just the opposite,” Dunn said. “In the fourth quarter of 2000, unregulated marketing companies controlled 64 percent of the gas pipeline capacity coming into California. They used their unprecedented market power to run up the cost of gas as high as $60 per million BTU in December. The price that month averaged $25 per million BTU, about four times higher than it should have been.
Dunn said unregulated companies such as Dynegy also controlled 74 percent of California’s gas fired electric generation during the winter of 2000-2001. “With zero accountability and no market transparency, the marketer-traders were able to charge whatever they wanted until the federal government finally stepped in with price caps,” he said. “But since they also had control over the gas, they were able to bypass the caps and still gouge consumers.” Dunn said the crisis cost California at least $9 billion. He said most other states are vulnerable to price-fixing schemes, “and the risk is growing as more gas-fired generating plants come on line.”
Coalition member Arthur Corbin, president and general manager of the Municipal Gas Authority of Georgia, spoke on behalf of the American Public Gas Association, representing municipal gas utilities.
“From the consumer’s point of view, we must focus on allowing the markets to work properly so that consumers pay the ‘real’ market price, not a manipulated or gamed price,” Corbin said. “Natural gas is far too important to this country to allow speculators and traders to churn the commodity at a multiple of hundreds, if not thousands, of times the actual amount of physical gas supplies, resulting in a market where the price skyrockets from $2 to $10 and back down below $2 in a matter of 18 months.” Corbin said the unprecedented increase in volatility has coincided with the equally unprecedented proliferation of energy derivatives contracts in the natural gas and electricity markets, the explosive growth of energy marketing and trading companies like Enron, greater speculation in the markets, and growth of computerized trading platforms like EnronOnline. He called on Congress and the regulators to protect consumers by making the trading of over-the-counter energy derivatives subject to the same regulatory oversight as the trading of commodities on the New York Mercantile Exchange (NYMEX) and other exchanges.
Corbin said, “The basic rules of fair dealing, reporting, price discovery and availability of timely and meaningful market information to all — not just inside traders — are hallmarks of legitimate exchanges and should be brought to the over-the-counter markets, including on-line platforms.” He added that accurate, timely gas supply, transportation and storage reports should be required by the federal government, with penalties imposed on companies that misrepresent the numbers or fail to provide information.
“Right now, all this reporting is voluntary, and the numbers are all over the map. Incomplete, inaccurate and unsubstantiated numbers can and do affect the price of gas,” Corbin said.
Apache Corporation Chairman and CEO Raymond Plank, representing natural gas producers, said “The marketer-speculators are destroying North America’s natural gas business by promoting unwarranted price volatility. Producers have no idea where the price of gas is going to be tomorrow, much less a year or two from now, when they begin earning a return on their investment, so we drill fewer and fewer wells.”
He said each price downturn forces producers to shut in marginal gas wells that can never be restored to production. “With every down-cycle, we lose valuable infrastructure, capital and people,” Plank said. “Even with 1,000 drilling rigs running, we have barely been able to keep gas production flat; the latest downturn has taken the rig count below 700. That sets up the next supply shortage, which will mean higher prices for consumers. The only winners are the middlemen.”
Plank said marketer-traders such as Dynegy, El Paso and The Williams Companies helped kill the Feinstein amendment to the Senate Energy bill, “which would have provided only modest oversight of over-the-counter energy trading markets. The last thing they want is the bright light of day shining on their operations.”
The coalition’s mission is to reform energy markets to ensure their fairness, transparency and openness in order to provide adequate, reliable and affordable energy supplies for America.
The Coalition for Energy Market Integrity and Transparency is a nonprofit organization. Members include: American Public Gas Association; American Public Power Association; Apache Corporation; Batesville (Indiana) Water and Gas Utility; Cairo (Illinois) Public Utility Company; City of Loretto (Tennessee); Florence Utilities; Gloster (Mississippi) Municipal Gas System; Halliburton; Harrisburg (Arkansas) Water & Gas System; Horton Highway Utility District of Rutherford, Williamson & Marshall Counties (Tennessee); Huntingburg (Indiana) Gas Division; Louisiana Independent Oil and Gas Association; Middleborough (Massachusetts) Gas and Electric Department; Municipal Gas Authority of Georgia; National Rural Electric Cooperative Association; Noble Drilling; Norwich Department of Public Utilities; the Public Energy Authority of Kentucky; Schlumberger; Smyrna (Tennessee) Natural Gas System; Town of Utica (Mississippi); and Texas Independent Producers and Royalty Owners Association.