DukeEmployees.com - Duke Energy Employee Advocate
Deregulation - Page 2 - 2003
Another FERC CaseReuters – February 20, 2003
WASHINGTON, Feb 19 (Reuters) - The California power grid operator told the Federal Energy Regulatory Commission (FERC) it hoped to settle a complaint about its invoicing and bills during the state's energy crisis of 2000-01.
FERC has questioned the California Independent System Operator's (ISO) calculation that the California Department of Water Resources owed the grid $3.6 billion for wholesale electricity purchases from January through July 2001. At the same time, the California ISO claimed the water agency was owed $2.7 billion for its own supplies.
The California water agency was forced to take over the role of buying wholesale electricity for major utilities during the energy crisis when investor-owned utilities could not meet credit standards.
The California ISO said in a FERC filing on Tuesday that it was "making progress toward a settlement" and would hold further talks on Feb. 25.
The state grid asked FERC administrative law judge Joseph Nacy to temporarily suspend his schedule for evidence-gathering and testimony "so that the parties can focus on reaching a complete settlement and prepare and offer of settlement." Nacy previously ordered the first batch of testimony in the case to be filed by Feb. 20.
Companies involved in the case include Duke Energy Corp., B.C. Hydro's Powerex, Dynegy Inc., Reliant Resources, Williams Cos Inc, PG&E Corp and Edison International's Southern California Edison.
The case is pending before FERC in docket ER01-889-012.
Questionable Electricity TradingDow Jones – February 20, 2003
(2/18/03) - LOS ANGELES (Dow Jones) -- Federal regulatory staff have asked California's grid operator for more information on energy companies that may have engaged in questionable electricity trading tactics similar to those used by Enron Corp. in mid-to-late 2000, according to a market notice posted by the Independent System Operator Tuesday.
In its request, the Federal Energy Regulatory Commission asked the ISO to identify parties that engaged in tactics between May and December 2000 such as shipping power out of state and back to avoid California price caps, which is known as "megawatt laundering".
FERC is considering California's request for $8.9 billion in refunds for alleged electricity overcharges during the state's 2000-2001 energy crisis. The agency is accepting through February evidence of market manipulation in the case from as far back as January 2000, though will only grant refunds covering trades between Oct. 2, 2000 and June 20, 2001.
In an October report, the ISO said it found evidence that more than 20 energy trading outfits may have cumulatively earned tens of millions of dollars in revenue from 1998-2002 through trading schemes like those made famous by internal Enron memos. A November ISO report found that the tactics, while profitable, didn't cause blackouts. FERC's data requests target conclusions in those reports.
FERC's Office of Markets, Tariffs and Rates asked the ISO to identify which parties besides Enron submitted inaccurate schedules of how much electricity they would generate in May 2000, when power prices in the state began to spike.
FERC also asked which parties may have reaped a profit on May 28, 2000 through ISO payments for relieving congestion on transmission lines. One Enron trading tactic involved collecting such payment when no actual power was moved across lines.
The federal agency also asked who may have participated in "megawatt laundering" in December 2000 and how much the parties may have profited, and who may have submitted electricity bids in great excess of costs between May and October 2000.
The ISO will begin providing FERC with the requested information on Thursday, unless it receives a court order prohibiting disclosure, the market notice said. The ISO runs the state's real-time power market and balances supply and demand on the grid.
FERC is expected to issue a decision in the California refund case by the end of March. A judge has recommended a $1.8 billion refund, but that decision was rendered without consideration of potential market manipulation. Because energy firms are still owed $3 billion by the state, a $1.8 billion refund would leave generators to collect $1.2 billion.
Becoming a Utility AgainEmployee Advocate – DukeEmployees.com - February 17, 2003
Westar Energy Inc. once thought that mergers, buying non-utility assets, and pursuing deregulation were the keys to success. They found that these actions were the keys to disaster, according to the Associated Press.
Westar Inc. has admitted that their diversification strategy has failed, The company is selling its non-utility assets and going back to being an utility company. The governor praised the move and the price of its stock rose.
Mark Ruelle, executive vice president and chief financial officer said ``There's no question that the strategy did not work. It's a sad statement to say the situation Westar Energy found itself in was not unique to the industry.''
Problems arose when regulators noted that it appeared that ratepayers were subsidizing non-utility ventures!
Now that the mistake has been recognized, admitted, and corrected, the company is forever released from its burden. In fact, the company officers are looking pretty sharp right now.
The companies with officers too arrogant to admit their mistakes will continue to labor under the burden that they have created for themselves. But all is not lost. The Wall Street Journal has plenty of ad space to sell to these types. They can buy ads to explain to the world that it is really everyone else who is out of step – not them!
Final Indignity for EnronThe Sacramento Bee – by Dale Kasler - February 17, 2003
(2/12/03) - What's left of Enron Corp. got kicked out of California's electricity market Tuesday.
The manager of California's transmission grid suspended Enron's trading and marketing privileges, saying the company had underreported the amount of energy it sold and underpaid for its power by up to $50 million. It also said Enron failed to post adequate collateral or to supply accurate data.
Enron was one of the philosophical architects of California's disastrous deregulation plan and among its most influential traders once the deregulated market opened for business in 1998.
The Houston-based company went into bankrupt proceedings in late 2001, in a scandalous downfall that reduced it practically to nothing. Yet it continued to serve retail customers in California and trade power in the state's wholesale market, albeit in ever-diminishing amounts.
"It's dwindled down to very little, but there was trading going on," said Stephanie McCorkle, spokeswoman for the grid manager, the Independent System Operator.
Because Enron had already ended its retail operations in late 2002, turning those customers over to traditional utility companies, no California consumers or businesses will be affected by Enron's punishment, McCorkle said.
The issue revolves around the reading of those customers' meters. Enron told the ISO in December that the company hired to read the meters had done so incorrectly.
As a result, Enron estimated that it owed the other energy suppliers participating in the ISO market anywhere from $15 million to $50 million. But Enron didn't provide precise data and wouldn't increase the amount of collateral - a sort of security deposit - the ISO was demanding.
"Enron cannot make payments based on speculation or guesses," the company told the ISO, according to a letter Enron released Tuesday.
But the ISO believed Enron could have done more.
"We're concerned that they've not been dealing with us in good faith," said Randy Abernathy, the ISO's vice president for market services.
"Enron has no more activity in our market," he added. "As of now there is no business relationship, and since we have suspended their trading privilege, there will be no business relationship."
‘Smoking Gun’ Evidence ChargeThe San Diego Union-Tribune – by Craig D. Rose - February 17, 2003
(2/11/03) - Southern California Edison and Sen. Dianne Feinstein yesterday renewed charges that a federal energy regulator dealt lightly with "smoking gun" evidence of market rigging during California's power crisis.
Edison and Feinstein urged stronger action from the Federal Energy Regulatory Commission, which last month ordered Reliant Energy to refund $13.8 million for withholding power over a two-day period in June 2000.
FERC issued the order on Jan. 31, the same day it released transcripts of audiotapes capturing Reliant power plant operators talking of shutting down power plants to push electricity prices higher.
Beyond criticizing the Reliant refund as too small, Edison said yesterday that FERC's action could weaken the broader case the utility and others are scrambling to build regarding market manipulation during the power crisis.
FERC has set a deadline of Feb. 28 for submission of that evidence.
Gary Stern, director of market monitoring and analysis at Edison, said FERC's action on Reliant amounted to having a strong card plucked from a potent poker hand.
The card has value, he said, but is far more valuable as part of the hand.
"FERC plucked a single ace from our hand," said Stern.
The Edison official also said the monetary damage to consumers caused by Reliant's actions far exceeded the refund ordered.
Edison estimates its overcharges alone at $20 million for a single week, he said, and that fails to account for damages to customers of San Diego Gas & Electric or other ratepayers around the state.
Edison is formally requesting that FERC reconsider its Reliant order.
The federal regulator did not return a call seeking comment on the request.
Feinstein, meanwhile, asked FERC to revoke Reliant's authority to sell energy at market-based rates. Revocation of that authority would return Reliant to selling power at regulated or cost-based prices.
"I am disappointed that FERC settled for $13.8 million and missed the opportunity to send a signal to families and businesses devastated by the Western energy crisis that abuse and manipulation of the market will not be tolerated," Feinstein said in a statement.
FERC's decision sparked immediate criticism from Gov. Gray Davis and other elected officials, frustrated by what they saw as light treatment of the company after what they characterized was the strongest evidence.
An exception was Michael Peevey, president of the California Public Utilities Commission, who applauded FERC's action.
FERC also puzzled many by announcing its settlement of the Reliant case while it moves to complete its broad investigation of what went wrong in California by March.
Power suppliers have insisted that the soaring prices and blackouts that hit the state during 2000 and 2001 were caused by real shortages.
Consumer advocates and state officials say deregulation and FERC's negligence allowed widespread market rigging.
The transcripts released by FERC of conversations between Reliant power plant operators provided support for the allegations of market rigging, particularly by withholding power plant output to create shortages.
"We shut down all of our plants yesterday," said one unidentified Reliant employee. "We made all the money back and (a manager) just thought that was the coolest strategy ever."
Another Reliant plant operator said: "Everybody thought it was really exciting that we were gonna play some market power."
In its filing for reconsideration of the Reliant order, Edison noted that a Reliant vice president testified to Congress under questioning by Rep. Duncan Hunter, R-El Cajon, that the company had not withheld electricity to push prices higher.
"I cannot speak for every producer, but certainly that was not the case for Reliant," John Stout, the Reliant officer, told Hunter in April 2001, some 10 months after the withholding occurred.
As part of its settlement, Reliant did not admit or deny any wrongdoing.
FERC entered into a similar settlement with Williams Cos. last year.
After evidence emerged that the company schemed to withhold power, it agreed to pay $8 million to settle the case, without admitting wrongdoing.
State officials have said that overcharges to California during the power crisis exceeded $20 billion, while consumer advocates said costs are more than twice that total.
Attorney Michael Aguirre, who is pursing class-action suits against power suppliers, said FERC's tactic of separately settling cases like Reliant's damage efforts to make the broader case of massive market manipulation by a host of companies.
"FERC suppresses the evidence and the wrongdoing by smothering the activities with settlements that are sweetheart agreements," said Aguirre. "You'd never settle a big drug conspiracy case with an agreement on what happened over two days."
A spokesman for SDG&E whose customers would benefit from Reliant refunds said the utility was not asking for a rehearing of the FERC decision at this time.
"It is early in the decision-making process," said Ed Van Herik, the local utility's spokesman. "SDG&E is carefully monitoring the FERC proceedings to ensure our customers are treated fairly."
Deregulation Fails in New YorkNew York Times – by Kirk Johnson - February 17, 2003
(2/9/03) - The original idea of energy deregulation in New York sounds like something Austin Powers might have thought up. Consumers, so the theory went, would be divorced from their old ball-and-chain utility companies, and the electricity marketplace would become a kind of giant dating game, full of come-ons and casual liaisons: no long-term commitments, no guilt.
Utilities like Con Ed, which had been boring -- if dependable -- partners under the old regulated regime would become spontaneous and exciting, surfing for the best wholesale prices to pass on to their customers. Customers would move fast, too, and be able to dump their old energy providers in a heartbeat if a sexier, cheaper deal walked in the door.
But the divorce, as it turned out, was not final. Most residents and small businesses did not get wooed by anyone, so they missed out on the electricity singles scene. Now, more and more economists, environmentalists and consumer advocates are saying that uninhibited consumer choice, at least as it was envisioned in the mid-1990's under the state's deregulation plan, is unlikely to arrive at all.
''If consumer choice isn't dead, it's certainly in emergency care,'' said Fred Zalcman, executive director of the Pace Law School Energy Project, an advocacy group that works for renewable energy and conservation. ''In the current vein, it seems inevitable that the system will fail.''
The reasons for that growing conviction are far-flung, and some might seem entirely unrelated to the question of self-determination. In December, for example, Con Ed said that because investors were not building new power plants in New York City, the company would offer a 10-year commitment to buy 500 megawatts of electricity if a builder would come. And last month, Gov. George E. Pataki said that in the next decade New York would sharply raise the mixture of renewable energy, from things like solar and wind generation, required in the state's power portfolio.
Both steps are likely to nudge utilities toward more long-term energy-buying contracts, and that, economists say, implies a word that can chill the spine of any free-market swinger: commitment. Because more payments to buy electricity are locked in, utilities, the argument goes, will need more customers locked in on the other side to balance the risks. They will need to know that there will be takers for the energy they will be committed to buy.
Other experts say the very failure of deregulation to separate utilities and consumers is beginning to create its own consequences. When free choice only seemed delayed, they say, problems like price volatility that can make monthly electricity prices surge on hot summer days could be explained away as evidence of a bumpy transition.
But with every year that residential and small-business customers really have nowhere to turn -- and nothing to suggest anything different on the horizon -- a passing phase is coming to look like a permanent condition.
And a permanent condition, some consumer advocates argue, creates an obligation by the state to wade back in to reregulate or otherwise modify the system to protect small customers from a relationship they cannot escape, in the same way that the police would shield a battered spouse.
What completes the circle is that many of the very measures proposed to address the problems of stalled choice would also most likely make the bonds between utility and customer unalterably permanent.
Putting a ceiling on utility bills, for example, might help some people in Con Ed's territory on hot summer days (some upstate utilities already have temporary caps), but artificially low rates would also probably mean that no one could ever compete for those customers. The utility would have them, till death do they part.
''I think there's been a realization that we lost some of the good aspects of the old system, so let's try to bring them back so there's more certainty and reliability,'' said Anne Reynolds, the air and energy project director at Environmental Advocates, an Albany-based conservation group that favors tinkering to protect consumers and the environment. ''The challenge is what to bring back and how to mesh it with the new.''
Retail consumer choice still remains the official goal of the state's electricity policy. A spokesman for the State Public Service Commission, which oversees the state's energy system, said more long-term contracts in a utility's portfolio were a natural and expected sign of a maturing market, and not a threat to choice at all.
''We don't believe, nor do we expect, that supply contracts will inhibit the growth of the competitive market and consumer choice,'' said the commission's spokesman, Edward Collins.
Con Ed's vice president for energy management, Terry Agriss, also said the company remained committed to consumer choice. Of Con Ed's 3.1 million customers in New York City and its northern suburbs, just over 5 percent -- almost all of them big companies with big electricity needs -- have chosen another vendor.
But increasingly, the question is coming down to semantics and definitions: what does the word ''choice'' really mean? Consumer behavior experts say that in any open system, many people will choose not to choose. They will do nothing, no matter what. And so the real question, they say, is: how many are able to choose, or, on the other hand, are prevented from choosing by economic or other barriers?
It is the sort of debate that can easily veer toward the philosophical outer limits. Some environmentalists, for example, advocate what might be called ''choice where there is no choice.''
Customers, they say, should be able to request renewable, or ''green,'' power through their regular utility company, which would then be required to buy and insert that amount of power into its portfolio. The Niagara Mohawk Power Corporation, which serves upstate and western New York, has been offering just that sort of choice.
But offering options like that, environmentalists admit, would also tacitly acknowledge that the partnership between utility and customer was permanent. It would be freedom, but only of a kind.
The Natural Resources Defense Council, a Manhattan-based conservation group, has also argued that Con Ed should be required -- as it would have been under the regulated system -- to figure out whether its 500-megawatt proposal to buy energy is more or less cost-effective than an option to reduce demand by 500 megawatts through investments in energy conservation.
But investing in energy conservation technologies, just like the company's proposed 10-year purchase plan, would also be a long-term commitment, the group's energy experts say. And so in many ways the implications for locked-in consumers would be the same, whatever the differences might be for the environment or air quality.
''I think we should try to allow as much choice as we can,'' said David R. Wooley, a spokesman for the American Wind Energy Association, which advocates a green choice within the utility monopoly. ''Because we didn't have the meltdown that California did, we have the opportunity to make some midcourse corrections to take advantage of the positive things that have happened and avoid the risks that small customers currently face.''
Others say the issue is not choice, but clout. If people cannot really get away, incentives should be created to give them more control of their fate through technology.
Sophisticated meters and switches are available that can give buyers great discretion about when they use electricity, and that can save them a lot of money because electricity costs a lot less at night, for example, than during the peak daylight hours, when everyone wants it. ''Competition has its place even if doesn't take a huge share of the market,'' said Lee S. Friedman, a professor of public policy at the University of California. ''If it continues to prod the utilities to continue to bring technology to the market in a good way, that's a positive.''
If a utility modifies its behavior and improves its service to keep customers that it might lose, has choice failed, or succeeded? That's the question, Professor Friedman said, adding, ''If the system has gotten better, isn't that the goal?''
Duke, El Paso, and Texas UtilitiesTheStreet.com – by James J. Cramer – February 14, 2003
(2/12/03) - The destruction of the power industry gets left on the back burner these days because there are so many other crises out there. But the collapse of El Paso and the crushing of Duke and Texas Utilities, as well as the continued bleeding at Calpine, remind us that there's plenty out there that's just plain uninvestible.
The departure of William Wise -- yeah, there's some irony -- from El Paso reminds us that this company's rapidly becoming a candidate for reorganization. I know that's a shocker, but the debt has ballooned there and I just can't see how the company can make it as it's currently configured, given its $25 billion in debt…
El Paso to Settle for $15.5 MillionAssociated Press – by Jennifer Coleman – February 14, 2003
SACRAMENTO, Calif. - El Paso Electric Co. has agreed to pay $15.5 million to a state fund to settle charges that it helped Enron Corp. drive up energy prices, California's attorney general said Thursday.
The money will help pay off $11 billion in bonds California sold to finance energy purchases that financially battered utility companies needed when electricity rates skyrocketed in 2000 and 2001, Attorney General Bill Lockyer said.
El Paso was accused of helping now-bankrupt Enron in "ricochet" deals in 2000, in which Enron avoided price caps by transferring electricity out of California to El Paso before selling it back into the state. El Paso made $21 million in profits on the Enron transactions, Deputy Attorney General Vickie Whitney said.
Federal energy regulators had previously reached an agreement with El Paso that would cost the company $14 million. The new settlement upped the payment to $15.5 million and directed it to the state fund, Lockyer said. It still requires approval of the Federal Energy Regulatory Commission.
El Paso, which does not admit any wrongdoing in the settlement, will not be allowed to charge market-based rates in any of the states where it does business. Instead, the settlement requires the company to use a cost-based rate that sets the company's profit through 2004.
With wholesale power prices far lower than they were two years ago, that will have little effect on the company, said Gary Hedrick, president and chief executive of El Paso.
The company is a regional electricity utility that services about 314,000 customers in west Texas and southern New Mexico.
Enron ‘Eye-popping’ Pay DealsAssociated Press – by Marcy Gordon – February 14, 2003
WASHINGTON - "Eye-popping" pay deals for Enron Corp. executives and an elaborate scheme to manipulate the failed company's taxes and accounting have been uncovered by a congressional panel, the Senate Finance Committee chairman says.
The House-Senate Joint Committee on Taxation has been combing through Enron's tax records for about a year, trying to determine whether the energy-trading company skirted tax laws. The panel was presenting its findings in a report Thursday at a Finance Committee hearing.
The use of tax shelters has come under new scrutiny following the recent disclosure that telecom giant Sprint Corp.'s top two executives may have lost their jobs solely for having used a questionable shelter for their own money. The Finance Committee lined up behind a crackdown on tax shelters last week. Chairman Charles Grassley, R-Iowa, said Wednesday that staffers had told him the Enron report was "an absolute barn-burner."
"In addition to an eye-popping account of executive compensation, the report provides for the first time the complete story of Enron's efforts to manipulate its taxes and accounting," Grassley said at a confirmation hearing for two Bush nominees for seats on the U.S. Tax Court. "The report is very disturbing in its findings."
Details of the report were not available Wednesday.
Top Enron executives and directors received millions of dollars worth of company stock, which they sold in 2000 and 2001. Many executives also received deferred compensation under arrangements that allow the money to grow tax-free for years. Some critics believe that such arrangements, widespread among corporations, often have become abusive.
Data obtained by federal prosecutors from company computers reportedly showed Enron paid its executives huge one-time bonuses totaling $320 million as rewards for hitting stock-price targets. Investigators say the stock targets, ending in 2000, were reached at the same time Enron officials were improperly inflating company profits by hundreds of millions of dollars, buoying share prices.
A court-appointed bankruptcy examiner also has been looking into Enron's tax deals.
For examiner Neal Batson, appointed by the federal bankruptcy court in New York City after Houston-based Enron's spectacular bankruptcy in December 2001, the question is whether the company violated tax rules. That would open the way for Batson, on behalf of Enron creditors, to go after assets involved in the tax deals or to sue the big banks, accounting firms and law firms that helped design them.
The twin tax probes represent a new focus of investigation following the yearlong dissection of Enron's complex web of partnerships — used to hide more than $1 billion in debt — by federal prosecutors and lawmakers.
Andrew Fastow, the company's former chief financial officer, was indicted in October on 78 counts of fraud, money laundering, conspiracy, obstruction of justice and other charges. He pleaded innocent and is free on $5 million bond. Justice Department prosecutors allege that he engineered several off-balance-sheet schemes and partnerships that hid debt, inflated profits and let him skim millions of dollars for himself, family and friends at shareholders' expense.
Enron's failure destroyed the retirement savings of thousands of employees and hurt individual investors and pension funds nationwide. It was the first in a series of big company scandals that shook public confidence in the stock market and the integrity of corporate America. The joint taxation committee's tax inquiry was among more than a dozen congressional investigations into Enron's collapse.
According to Enron's former top tax executive, Robert Hermann, the company boosted its reported profits by another $1 billion or so by using tax schemes between 1995 and 2001. Hermann has defended the practices as legal.
Some experts say that even if that is the case, the complex transactions may have helped Enron paint a false picture of its financial situation and profits.
In one 1997 transaction reportedly examined by Batson's staff, Enron transferred a lease on corporate jets and other assets into a special-purpose entity. A complex series of loans and swaps of cash and stock produced big tax losses and deductions extending over several years. The deal was said to have netted Enron $66 million to add to its earnings between 1997 and 2001.
El Paso’s Dividend and CEO CutAssociated Press – by Kristen Hays – February 13, 2003
HOUSTON - The chairman and chief executive of El Paso Corp. will be replaced by the end of the year, ending William Wise's 33-year history with the pipeline giant as it faces federal investigation over allegations of manipulating natural-gas markets.
The announcement Tuesday that Wise will retire came one week after El Paso said it would slash its dividend and sell nearly $3 billion in assets in order to stabilize its financial condition and regain investor confidence.
El Paso is one of several high-profile energy companies that faced lost business, credit downgrades and a plummeting stock price in the wake of Enron Corp.'s collapse and federal investigations into industry practices.
The company's stock price has fallen more than 90 percent in the past two years.
El Paso shares fell 48 cents, or 9.2 percent, to close at $4.72 Tuesday. Its high over the past year was $46.89 a share.
Wise will remain chairman until the close of 2003, but he likely will step down sooner as CEO, the Houston-based company announced Tuesday.
The announcement came as El Paso faces shareholder lawsuits led by Oscar Wyatt, one of its largest shareholders and most vocal critics.
The company is awaiting a Federal Energy Regulatory Commission ruling on whether the company withheld natural gas during California's energy crisis in 2000 and 2001. In September, a judge found El Paso, through two subsidiaries, controlled about a fifth of the daily natural gas supply into California and deliberately tried to inflate power prices.
"It's a moderate surprise," said J.P. Morgan analyst Anatol Feygin. "What is expected or was expected was a fight for the CEO position between Wise and the current board and management team and Oscar Wyatt, who is widely expected to launch a proxy battle for at least that position and perhaps to change the makeup of the board."
Wyatt's attorney, Jonathan Plasse, didn't immediately return a call for comment.
El Paso's board will appoint a search committee to examine CEO candidates from within and outside the company. Spokeswoman Norma Dunn said Tuesday the board will decide upon Wise's retirement as chairman whether his successor will assume that role as well as CEO.
Earlier this month, the company announced plans to cut its dividend to 16 cents from 87 cents and sell almost $3 billion in assets in 2003, but analysts said that would only delay a probable cash squeeze, with $1.4 billion to $1.7 billion in debt coming due.
"While the last year has been unprecedented in what our industry and our company has faced, we are aggressively implementing a business plan to preserve and enhance the value of our core operations," Wise said Tuesday in a statement.
The company expects to report a loss for 2002 and planned to take after-tax charges of $500 million to $600 million against earnings in the fourth quarter related to its 2002 decision to jettison its energy-trading business and several power and merchant assets.
"They've gone from an average-size energy company to one of the biggest players in the industry, but at the same time they've been tainted by all the negatives associated with the merchant side of their business," said Donato Eassey, an analyst with Royalist Independent Equity Research.
Wyatt, the former chairman of Coastal Corp., holds about 5 million shares of El Paso stock after El Paso's $22.6 billion acquisition of Coastal in 2001.
For months last year he accused El Paso executives of mismanaging the company with dubious accounting methods. In July, he and other shareholders sued El Paso, Wise and other executives in federal court in Houston on allegations of defrauding investors.
The lawsuit disputes El Paso's repeated denials of conducting so-called "wash" trades, alleging the company recognized $800 million to $1.1 billion in revenue from such trades from September 2001 through May 2002.
El Paso has denied wrongdoing.
CEO Must GoNew York Times – by David Barboza – February 13, 2003
(2/12/03) - WILLIAM A. WISE, the longtime chairman and chief executive of the El Paso Corporation who helped transform it into the nation's largest natural gas pipeline company, announced plans yesterday to step down as the company's fortunes continue to sour from the collapse of Enron.
Mr. Wise will remain chief executive until a successor is found and will retire as chairman at the end of the year. He had been struggling to restore investor confidence in El Paso after its energy-trading business fell apart last year and investors began questioning the company's accounting practices.
For much of the last year, El Paso has been desperately trying to reduce its huge debt load by shedding billions of dollars in energy assets. Company officials have also been trying to convince investors and Wall Street analysts that El Paso is a diversified energy company capable of weathering the downturn in the energy markets.
But shares of El Paso, which began falling with other energy trading companies in early 2002, plummeted to their lowest level in more than a decade in recent days after analysts downgraded the already malnourished stock and El Paso's credit rating was lowered to junk status.
The moves came after El Paso, based in Houston, announced last week that it would cut its dividend, trim capital spending and sell even more assets. Last year, the company sold about $4 billion in energy assets. The stock fell 48 cents yesterday, to $4.72, in active trading on the New York Stock Exchange. El Paso did not explain Mr. Wise's decision to leave the company, but it said in a statement yesterday that a committee had been set up to find a successor.
Mr. Wise, 57, has worked for El Paso for 33 years and has been chief executive since 1990. In the last decade, he helped oversee a series of big mergers -- with Tenneco, Sonat and the Coastal Corporation -- that created one of the world's largest and most respected gas, power and energy trading companies. When Enron's stock was soaring in 1999 and 2000, El Paso and other energy traders like Dynegy also rode a wave of investor optimism about the energy business. At its peak two years ago, El Paso was valued at nearly $40 billion and Mr. Wise was one of the energy trading industry's highest-paid chief executives. He made more than $10 million in salary and bonuses in 2001.
But after Enron collapsed in December 2001, El Paso and other energy traders also began to unravel after accusations that some energy trading companies had conspired to manipulate prices in the California energy crisis. Last September, an administrative law judge concluded that El Paso had illegally conspired to help push up the prices of natural gas in the power crisis.
Some energy trading companies were also accused of inflating the size of their energy trading profits. El Paso officials insisted that, unlike Enron, their company was rich in physical assets and good managers. But last year, problems continued. The company closed its energy trading operation after profits in the division dried up. It disclosed that it had kept billions of dollars of debt off the balance sheet, just as Enron had done.
The company also came under attack from one of its biggest shareholders, Oscar S. Wyatt, the former chairman and chief executive of Coastal, who accused El Paso of using Enron-like accounting to deceive investors and manipulate El Paso's balance sheet and profit statements.
In November, Mr. Wyatt was named lead plaintiff in a class-action lawsuit accusing El Paso of misrepresenting its finances and misleading investors with a series of off-the-books partnerships. El Paso has strongly defended its accounting practices and insisted that its operations were being tarred by a few disgruntled investors.
But some analysts say El Paso's outlook now appears dire. ''This company is going to have to be broken up,'' said Karl W. Miller, an energy analyst at Miller McConville, a firm that invests in distressed energy assets. ''The company can't survive in its current status. It just doesn't have the cash flow.''
El Paso Corp. Gets WiseDow Jones – by David Bogoslaw – February 12, 2003
(2/11/03) - NEW YORK (Dow Jones)--The departure of El Paso Corp. Chairman and Chief Executive William A. Wise by the end of this year will mark the end of the house-cleaning of merchant energy executives that began last spring.
Skyrocketing debt and liquidity problems, as well as investigations into trading and accounting improprieties, forced Dynegy Inc.'s founder, Chuck Watson, to resign his posts as chairman and chief executive in May.
He was followed less than a week later by CMS Energy Corp. Chairman and Chief Executive William T. McCormick Jr., after CMS was found to have participated in round-trip trading. Since then there's been a series of departures by other senior executives at companies like Duke Energy Corp.
Wise's retirement will close a chapter in the rise and fall of the wholesale energy industry, where it is hoped the naming of new executives like Bruce Williamson at Dynegy may help restore investor confidence. Wise has been CEO at El Paso since 1990 and chairman since 1994.
El Paso's announcement follows the unveiling last week of an operating and financial plan for 2003 intended to boost liquidity, slash costs and reduce debt so that the company can survive.
The plan for 2003 includes the sale of an additional $2.9 billion in "non- core" assets, a 35% cut in capital spending and an 82% reduction in the annual dividend to 16 cents a share. The company also expects to be able to pay down about $2.5 billion in debt and minority interest financing this year.
Shares in the Houston company initially shot up 4.6% to a high of $5.44 on the news, but then slipped back to recently trade at $5.10, down 10 cents, or 1.9%. Volume was 9.8 million, compared with average daily volume of 11.2 million.
"Fundamentally, this doesn't change anything with the stock," said Anatol Feygin, analyst at J.P. Morgan Securities. "It still has to negotiate with the banks, sell assets, and settle FERC in California quickly."
The company is expecting a ruling by the Federal Energy Regulatory Commission within the next few months on whether it manipulated prices during the state's energy crisis of 2000-2001 by withholding pipeline capacity.
But those are all issues that Wise "was absolutely on the right side of," according to Feygin, who said he doesn't own El Paso stock, although J.P. Morgan does have an investment banking relationship with the company.
As for Wise's likely successor, Feygin said he couldn't speculate on potential candidates beyond considering senior executives like President and Chief Operating Officer Brent Austin; Robert Phillips, CEO of El Paso Energy Partners; and John Somerhalder, president of the Pipeline Group.
With the planned sale of the company's liquefied natural gas and most of its petroleum assets, its pipelines will become more important, Feygin said.
But an external hire might be a better choice, "simply from the standpoint of reinvigorating investor confidence," he added.
Norma Dunn, a company spokeswoman, said the board is organizing a selection committee to search internally and externally for a successor but wouldn't give a timeframe for a decision.
Last September, a class-action suit was filed against El Paso by shareholders who had bought stock between Jan. 29, 2001, and May 29, 2002, alleging the company and some of its officers and directors violated federal securities laws by issuing false and misleading statements to the market.
More recently, the stage has been set for a proxy battle by dissident shareholders to wrest control of El Paso's board and replace much of its senior management team. Selim Zilkha, of Zilka Renewable Energy in Houston, who owns 9 million shares of El Paso and is leading that battle, said he had no comment.
"They (El Paso) probably don't want to have a proxy fight. It would be too disruptive," said Bill Hyler, an analyst at CIBC World Markets, who said he doesn't own the stock and his firm doesn't have investment banking ties with El Paso.
Wise's departure may deflect efforts to pursue a proxy fight. Who is leading the company in the next 12 months is less important, however, than its ability to execute on its plan to sell assets and boost liquidity, Hyler said.
Causing Blackouts was ‘Cool’ and ‘Fun’Public Citizen - WWW.Citizen.org – February 9, 2003
Reliant Energy Slapped on Wrist for Manipulating California Market; Transcripts Reveal Traders Thought Causing Blackouts Was "Coolest Strategy Ever"
Statement by Wenonah Hauter, Director, Public Citizen’s Critical Mass Energy and Environment Program
(2/5/03) - Friday’s decision by the Federal Energy Regulatory Commission (FERC) to let Reliant Energy off the hook for bullying 55 million people during the West Coast energy crisis of 2000-2001 is criminal. Instead of revoking the company’s right to charge market-based prices, FERC issued a $13.8 million fine — an amount equal to 0.03 percent of Reliant’s 2001 revenues of $40.8 billion. This radical decision by the same commissioners who were in charge while Reliant and other companies held Americans hostage proves that the out-of-touch commissioners have no interest in punishing evildoers and deterring future energy crises.
The commission should be ashamed of itself. Its members’ actions smack of crony capitalism. In a 36-page transcript posted on FERC’s Web site, Reliant’s energy executives said it was "cool" and "fun" to manipulate the market and cause blackouts. At a minimum, the federal government must revoke Reliant’s market-based rate authority, ensuring the corrupt company can never hurt our economy and our citizens again. Instead, FERC has issued a fine that is pennies on the dollar of what Reliant and its executives stole from consumers.
The weak enforcement action by FERC is yet another example of the commission’s refusal to restore order in our nation’ s dysfunctional electricity marketplace. A growing list of consumer advocates and public officials agree that repealing market-based rates for those companies that have abused their responsibility is the only way to protect our citizens. FERC’s latest inaction is but one in a long list of anti-consumer actions, whether it is banning consumer representatives and officials accountable to the public from the boards of power market oversight boards; responding to the California energy crisis by attempting to accelerate deregulation nationally; or proposing to kick states out of the job of protecting consumers by ramming through the Commission’s Standard Market Design.
Prior to deregulation, companies charged prices directly tied to the cost of producing power. But over the past decade, FERC has pushed the idea of allowing the marketplace, not costs, dictate prices. The result has been increased volatility, decreased accountability, and higher profits by energy companies now free to charge whatever price they choose during peak hours of demand.
Executives for Houston-based Reliant, which recently changed its name to Centerpoint to hide its shame, are quoted for 36 pages discussing the company’s tactics of intentionally shutting down its power plants, forcing blackouts across California and driving prices through the stratosphere. For example, when one Reliant executive boasted that the company "pulled about 2,000 megs off the market," another executive replied, "That’s sweet."
Corporate criminals like Reliant must be held accountable for the millions of West Coast consumers who suffered from this wicked scam.
Enron Not Exempted from LawPublic Citizen - WWW.Citizen.org – February 8, 2003
Commission Denies Enron's Request for Exemption from the Public Utility Holding Company Act
(2/7/03) - WASHINGTON, D.C. – Public Citizen praised a Securities and Exchange Commission (SEC) decision last night upholding an important law that protects consumers from market manipulation by energy companies.
An SEC judge ruled that Portland General Electric utility, a subsidiary of Enron Corp., is regulated under the Public Utility Holding Company Act (PUHCA), because Portland General's multi-state presence in the West necessitates PUHCA's strong consumer protections.
"We are delighted that the SEC has learned the lesson of the California energy crisis and the Enron debacle," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program. "The Public Utility Holding Company Act is the most important consumer and shareholder protection the federal government has to protect consumers and stop corporate fraud by energy companies. By telling Enron it cannot be exempted from this crucial law, the SEC is sending a message to the electricity industry that the days of anything-goes deregulation are over."
PUHCA was enacted in 1935 in response to an Enron-style energy crisis in the 1920s. A handful of energy companies, employing business strategies strikingly similar to Enron's, held consumers hostage with complex, multi-state pyramiding schemes. Not only were consumers overcharged by these impossible-to-regulate conglomerates, investors were robbed because holding companies used complex webs of subsidiaries to inflate earnings. These holding companies finally collapsed, ringing in the stock market crash of 1929 and the Great Depression.
PUHCA protects consumers by ensuring that multi-state utility companies re-invest ratepayer money into providing affordable and reliable electricity. Consumers benefit from PUHCA's requirements that holding companies invest only in integrated systems — utilities that are physically interconnected — thereby maximizing economies of scale by operating a single, coordinated system. PUHCA has historically prohibited holding companies from investing in assets that will not directly contribute to low bills and reliable service (out-of-region power plants or non-electricity industries, for example). Had PUHCA been properly enforced, and had Enron's energy trading not been exempted from the Act in 1994, the company never could have manipulated the West Coast market.
The SEC rejected Enron's claim that Portland General should be exempt from PUHCA, citing the fact that more than one-third of the subsidiary's revenues came from interstate sales. Nearly 15 percent of the division's power plants are outside Oregon, and the subsidiary owns a major transmission line between Oregon and California — all important tools Enron exploited during its manipulation of the West Coast energy market. These interstate features mean that Oregon regulatory officials have limited ability to control the company, requiring federal regulation under PUHCA.
The SEC's decision is especially important because for decades the Commission ignored its statutory duty to enforce the law. But in January 2002, the U.S. Court of Appeals for the District of Columbia ordered the SEC to revisit its decision to approve a merger between American Electric Power (AEP) and Central & South West (CSW). Public Citizen had maintained that the SEC's earlier decision to approve this merger between Ohio-based AEP and Texas-based CSW violated PUHCA's requirements that holding companies have interconnected systems. The SEC had ruled that the merger satisfied PUHCA because the two utilities are connected by a lone, 250-mile transmission line owned by an unrelated company.
"The SEC's decision yesterday, combined with the January 2002 appeals court ruling and the widespread fraud committed by electricity companies, should remind lawmakers that recent efforts in Congress to repeal PUHCA are misguided," Hauter said.