Union Tribune

May 23, 2002

Several traders deny using Enron-like tactics in California

By TOBY ECKERT
COPLEY NEWS SERVICE 

WASHINGTON Numerous power companies Wednesday publicly
denied engaging in improper electricity trading tactics in California, though some acknowledged instances that may resemble those outlined in controversial Enron Corp. memos. 

The flurry of statements came as some 150 companies scrambled to meet a deadline for disclosing to federal regulators whether they used power trading practices similar to those discussed in the Enron memos, which were released earlier this month. 

The December 2000 memos describe how Enron traders sought to inflate wholesale power prices in California by creating phony congestion on the state's power grid, evading price caps and other questionable maneuvering. Other companies used similar strategies, which the Enron traders called by nicknames like "Death Star" and "Get Shorty," according to the memos. 

It is unclear whether any other companies admitted to the practices in disclosure reports they were required to file with the Federal Energy Regulatory Commission by Wednesday. FERC officials did not release any information on the filings, which covered trading during 2000 and 2001. 

Companies that denied using the questionable Enron tactics included Williams Energy, Reliant Resources Inc., Duke Energy, Dynegy Inc., El Paso Corp., American Electric Power, NRG Energy, Exelon Corp. and Allegheny Energy. 

However, Williams acknowledged "transactions amounting to a fraction of a percent of its overall trading volume that have some of the characteristics described in the Enron memo but which were engaged in for entirely different reasons." 

For instance, the company said it received payments for relieving
congestion on the power grid, including one instance in which it did not actually "flow power." But Williams said it lost money on the latter deal and "has not uncovered any transaction designed to cause congestion." 

Duke said it "scheduled (generating) units under its dispatch control in a manner that contributed to congestion during the (power) scheduling process," subsequently adjusted the schedule and was paid for partially relieving the congestion. But it said it "had no strategy or policy to engage in these transactions" and believes there were few such instances. 

Williams also said that some of its purchases from the California Power Exchange "may have been made with the expectation of reselling at a higher price to buyers in non-California markets" where prices were not capped. But the company said it prohibited its traders from exporting power and then re-importing it to California to get around price controls. 

Duke said it was "both a net purchaser in the (Power Exchange) and a net exporter from California" for minor amounts of time and "had neither a practice nor a strategy of buying energy ... to export outside of California." 

Gov. Gray Davis and other California officials have seized on the Enron memos to press their case for billions of dollars in refunds for high-priced electricity, to cancel or renegotiate costly long-term power contracts and to continue federal price controls that are set to expire Sept. 30. FERC is contending with all of those issues as it investigates the allegations of market manipulation. 

In a related development, FERC investigators on Wednesday broadened their probe of controversial energy swaps to include companies that sold natural gas in California, Texas and other Western states. Huge spikes in the cost of natural gas, which is used to fuel power plants, contributed to high wholesale electricity costs in California in 2000 and 2001. 

Several electricity traders have already admitted engaging in the "wash" or "round-trip" trades, which involve selling power to another company and then repurchasing it at the same price. The practice artificially bulked up trading volume and revenues and, according to some experts, may have influenced overall market prices. 

The Enron revelations and disclosures of other questionable trading
practices have battered the stock prices of many energy companies.
Credit-rating agencies have downgraded some, making it harder for them to borrow money for new projects. 

Executives have scrambled to shore up their companies' reputations. That was clearly on display in a conference call Williams officials had with investment analysts after submitting their responses to FERC. 

Bill Hobbs, president and CEO of Williams' energy marketing and trading group, said he hoped the filing would lead people to "acknowledge that companies have done things the right way and haven't necessarily gamed the system."