June 5, 2002 — The Federal Energy Regulatory Commission has issued follow-up letters to four energy companies, threatening them with revocation of their authority to charge market-based rates if they will not fully cooperate with its investigation of possible energy market manipulation.
The commission’s several-month-old investigation has been through two rounds of inquiries and has come back dissatisfied with four energy companies which it said failed to provide information it asked for regarding trading practices in the Western energy market in 2000 to 2001.
El Paso Electric Co., Portland General Electric Co., Avista Corp., and Williams Energy Marketing & Trading Co. have all responded in some way to FERC’s requests for information on their energy trading practices.
But FERC on Tuesday said their information was either inadequate or incorrect and ordered the companies to show within ten days of the June 4 order why their market-based rate authority should not be revoked as of Feb. 13, 2002, the date FERC started its Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices.
“Certain public utilities, however, are not fully cooperating with the investigation, thus hindering the Commission’s ability to determine whether the Western markets have been manipulated, and, as a result, whether rates charged may have been unjust and unreasonable,” FERC said.
The stock market reacted accordingly. At the end of the trading session Wednesday, Reuters News Service reported that shares of Avista Corp. fell 13.36 percent to $12.26. El Paso Electric Co. was down 7.89 percent to $13.31 per share. Portland General Electric Co. was down 1.7 percent to $20.20 per share, and Williams Cos., the parent company of Williams Energy Marketing & Trading, had dropped 17.17 percent to close at $9.12 per share.
El Paso Electric Co.
In its May 22, 2002, response to the staff data request, El Paso Electric Co. stated that it had no knowledge of any of the specified types of transactions. At the same time, El Paso Electric Co. submitted information that it had extensive joint dealings with Enron in the relevant market and time period.
Its sworn affidavit admits that Enron personnel manned its trading desk 75% of the time during 2000-2001. While El Paso Electric Co. in its affidavit claims it knew nothing about Enron Power Marketing Inc.’s (EPMI) dealings on its behalf, this is simply not credible in view of the relationship described, FERC said.
El Paso Electric Co. also submitted a letter (previously made public), which boasts of receiving $7.3 million of revenue stemming from joint transactions with EPMI during June 2000 alone. However, El Paso Electric Co.’s affidavit claims that it derived only revenue in the neighborhood of $700,000 from Enron-related transactions.
The company did not explain the discrepancy in its affidavit, and FERC said it needed more information about the close financial relationship with EPMI.
Portland General Electric Co.
Portland General Electric Co. did admit that it exported California power to take advantage of the price spread between the California market and the market outside, but it did not identify the transactions, instead referring FERC to a mass of previously-submitted data without further explanation, FERC charged.
Portland General Electric Co. said it had participated in 17 such transactions with Enron and Avista, but their claim that it was an isolated happening is contradicted by transcripts showing that such trades were a routine practice, FERC said.
Portland General Electric Co. in its response to FERC did not explain why the transactions allegedly began abruptly in April and suddenly stopped in June.
In Avista’s May 22 response to FERC, it said it did not have any information in its business records or from employee interviews that such trading practices had occurred, but investigators were skeptical because it said Portland General Electric Co.’s transcripts showed involvement by Avista.
Avista Corp. submitted a letter it received from Portland General Electric Co. referring generally to the transactions, but it didn’t explain the discrepancy, FERC said.
Williams Energy Marketing & Trading Co.
In its response, Williams Energy Marketing & Trading Co. claims that it is unable to admit or deny whether it engaged in this activity, while conceding that transactions may have been made with expectation of reselling at a higher price to buyers outside California. However, Williams Energy Marketing & Trading Co. did not report that it took any steps to find out the details about the transactions, FERC said.
FERC staff are still analyzing the responses from other energy companies to its May 8 request, and may issue similar orders with some of the other companies in the next few weeks.
On February 13, FERC began a fact-finding investigation into whether any entity manipulated short-term prices in electric energy or natural gas markets in the West or otherwise exercised undue influence over wholesale prices in the West, for the period January 1, 2000, forward.
On May 8, it issued a data request concerning various trading strategies of sellers of wholesale electricity and/or ancillary services in the U.S. portion of the Western Systems Coordinating Council during 2000-2001.
Among the sellers to whom the data request was sent are public utilities who were granted market-based rate authority by FERC based on a finding that they lacked market power and that there was no evidence of affiliate abuse or reciprocal dealing.
One of FERC’s duties is to monitor competitive markets to ensure that market-based rates remain just and reasonable and that sellers continue to lack market power. It relies upon information from the sellers to determine what is a fair market-based rate for energy.