Union Tribune

June 5, 2002 

FERC gives power firms ultimatum

By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON Increasing the pressure on power sellers in an
investigation of alleged price manipulation, federal regulators
yesterday accused four companies of failing to cooperate with
the probe and threatened to revoke their authority to charge
market prices for wholesale electricity.

The Federal Energy Regulatory Commission said Williams
Energy, El Paso Electric, Avista Corp. and Portland General
Electric submitted information in the probe that was
incomplete, inconsistent or "simply not credible."

It gave the companies 10 days to respond and "show cause" why
they should not lose their market-based rate authority,
retroactive to Feb. 13, when FERC launched its probe of alleged
price manipulation during California's power crisis. A company
that loses such authority can only charge regulated rates for
wholesale power, which could be a major blow to its bottom line.

FERC also warned that "additional orders of this nature may well
be forthcoming" as its staff continues to analyze data submitted
by dozens of power sellers subject to the investigation.

The order was the latest twist in FERC's four-month-old
investigation of whether power sellers manipulated electricity
prices on the West Coast during California's 2000-01 crisis.
Wholesale electricity prices hit unprecedented levels during the
crisis and the state experienced rolling blackouts.

The companies targeted by FERC said they were cooperating
with the probe.

Williams president Bill Hobbs called the threat "inappropriate,"
but the company said it would clarify the earlier information it
gave FERC.

Portland General spokesman Kregg Arnston said: "We were
surprised and perplexed by FERC's announcement today and
hope to work with FERC to help them better understand our
response. We continue to believe that we cooperated fully with
FERC's original request."

But Gov. Gray Davis said: "I am delighted that FERC is finally
demanding that the generators that manipulated California's
energy market last year give straight answers instead of
platitudes."

The governor added that FERC's handling of the California crisis
must also include an order granting the state's request for $8.9
billion in refunds from suppliers.

"Unless it orders full refunds, FERC will be letting generators
keep their ill-gotten gains," said Davis.

The development came nearly a month after FERC ordered 150
power sellers to submit information on whether they engaged in
questionable electricity trading tactics similar to those outlined
in internal memos from Enron Corp.

The memos, released by FERC in early May, describe how Enron
traders sought to create phony congestion on California's power
grid, moved power out of the state and back in to evade price
controls, and engaged in other practices to influence prices. The
traders gave the tactics nicknames like "Death Star" and
"Ricochet."

"Certain public utilities . . . 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 in its order yesterday.

For instance, it said transcripts of Portland General's trading
activity in April and June 2000 "reveal that Portland . . .
personnel took an active role with Enron and other market
participants in arranging exports" of power from California and
that the transactions were "standard and routine practice."

But in its data submission to FERC, the company, which is a unit
of Enron, portrayed itself as a middle man in the transactions
and indicated they were isolated incidents, FERC said.

Similarly, the Portland transcripts "reveal that Avista personnel
were . . . actively involved in such transactions with Enron as
well as Portland," FERC said. But Avista told FERC it had failed to
turn up evidence of such transactions.

FERC said El Paso Electric denied any knowledge of the
transactions described by Enron yet admitted "that Enron
personnel manned its trading desk 75 percent of the time during
2000-2001." El Paso also told FERC in an affidavit that it derived
revenue of about $700,000 from Enron-related transactions,
but submitted a letter "which boasts of $7.3 million of revenue
. . . from joint transactions with (Enron) during June 2000
alone," FERC said.

FERC noted that Williams Energy acknowledged that some of its
transactions "may have been made with expectation of reselling
at a higher price to buyers outside California," but did not
"indicate that it took any steps to ascertain details about such
transactions."

Williams now says it will unequivocally deny the practice.

FERC warned that it may take similar action against any other
company.

Some companies have submitted conflicting information on
electricity-trading tactics.

Last week, San Diego-based Sempra Energy denied participating
in any trading schemes. But PacifiCorp of Portland, Ore.,
suggested Sempra may have participated in questionable
transactions.