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July - Duke Energy Employee Advocate

Deregulation - Page 25 - 2002

"Hello, you've reached the U.S. Senate. If you're a corporate CEO,
press 1 for immediate assistance. All others please press # to hang up."

First CA Energy Settlement Reached

Associated Press – by Jim Wasserman - November 12, 2002

SACRAMENTO, Calif. (AP) - California has reached its first settlement with an energy producer it accused of overcharging the state last year, trimming $1.4 billion from a contract with an Oklahoma company and reaping about $400 million more in refunds.

The deal with Williams Cos. does not immediately translate into lower monthly bills for ratepayers or ease the state's budget deficit.

Aides to Attorney General Bill Lockyer, announcing the settlement Monday, declined to discuss negotiations with several other energy companies but said more settlements may be on their way.

Williams agreed to restructure its $4.3 billion long-term contract but admitted no wrongdoing.

Lt. Gov. Cruz Bustamante and state legislators sued Williams and four other power generators last year, alleging they conspired to drive up electricity prices.

Bustamante sued on behalf of taxpayers to recover the generators' excess profits on power sales to California since Jan. 17, 2001, when the state started buying power for three struggling utilities.

The suit charges that the five companies gained control of the state's power market and used unlawful trading practices to manipulate prices. The generators sued were Duke Energy, Dynegy Inc., Mirant Corp., Reliant Resources Inc. and Williams.

Despite the settlement, Williams stock dropped Monday as investors reacted to a federal grand jury subpoena of its California energy trading records.

The Williams' refunds include $180 million in contract price reductions, $90 million worth of power plant turbines for San Francisco and San Diego and $150 million in cash for public entities across the state.

Some of the money will be used to retrofit schools across California to produce their own solar energy.

California Could Be Duke's Waterloo – by James J. Cramer - November 12, 2002

(11/11/02) - Those people who own Duke Energy better get used to the idea that there is going to be more to the investigation into those who kept power off the California grid.

Every time news breaks of a fresh investigation, Duke gets clobbered. Then a few days go by and bargain-hunters come in and take Duke back. Then a subpoena gets sent out, and Duke drops. Then analysts bull it back and it goes up…

Hidden Costs of Deregulation

Associated Press – November 12, 2002

COLUMBUS, Ohio (AP) - American Electric Power Co. said new homeowners soon will be charged a one-time $375 connection fee and an $8 monthly surcharge to obtain service.

People moving into newly built apartments will pay a $4 monthly surcharge under an agreement with utility companies and other parties approved Thursday by the Public Utilities Commission of Ohio.

The agreement, which will take effect by Dec. 1, also applies to First-Energy and Monongahela Power customers, with some variations.

The surcharges, in most cases, will wipe out the 5 percent savings on electric bills guaranteed under Ohio's electricity-deregulation law, which took effect Jan. 1, 2001.

``When is a rate freeze not a rate freeze?'' asked Ohio Consumers' Counsel Robert Tongren, who refused to sign the agreement.

``It's a huge disappointment for consumers who thought electric restructuring was going to help them out,'' he said.

It could have been worse.

In the past year, AEP and other utilities began charging about $1,500 per new hookup to cover the expense of extending service from the pole to individual homes and apartment buildings. Some consumers complained to the PUCO about being charged from $2,000 to $15,000; those excess charges must be refunded.

The new surcharges will continue until the end of the transition period - Dec.31, 2007, or Dec.31, 2008, depending on where customers live.

Tom Hart, executive director of the Building Industry Association, said that although the one-time charges - $375 for single-family residences and $100 per multifamily unit - will be paid by builders and developers, property owners will be assessed one way or another.

``We have to pass it along,'' Hart said. ``We're in a business situation.''


``This was a result of long, serious, arduous negotiations,'' he said. ``It seems to be an outcome that most people can live with.

``This has to do with the cost of building a new house. It has nothing to do with the cost of energy.''

Before deregulation, utilities routinely picked up the cost of extending electricity service to new dwellings. It was considered a cost of doing business and was built into base electricity rates.

Duke and Williams Subpoenaed

Associated Press – by Karen Gaudette – November 9, 2002

SAN FRANCISCO - A federal grand jury has subpoenaed records related to California's energy crisis from at least two power sellers that state regulators have accused of scheming to drive up prices.

Both North Carolina-based Duke Energy and Oklahoma-based Williams said Friday they received subpoenas from federal prosecutors in San Francisco as part of a grand jury investigation. Matt Jacobs, an assistant U.S. Attorney, said he could not comment because the case is ongoing.

Federal investigators have sought information from a California Senate panel investigating the state's energy crisis to find evidence of market manipulation in 2000 and 2001. The Senate panel has spent about 18 months probing the price spikes and energy shortages that led to rolling blackouts in 2001.

California owes tens of billions of dollars for power it bought when prices soared and hopes to convince federal energy regulators to order energy sellers to refund $9 billion in alleged overcharges.

Duke spokesman Pat Mullen said Friday the subpoena demanded documents and records but that he did not know the full extent of the information sought. Duke will cooperate with prosecutors, he said.

A call to a Williams spokesman for comment was not immediately returned Friday. But in a statement, the company also said it would cooperate.

John Sousa, a spokesman for Texas-based power company Dynegy, said the company had not been subpoenaed Friday to his knowledge. Calls to Reliant, Calpine, Enron and Mirant were not immediately returned Friday.

Duke also has been subpoenaed by the Commodity Futures Trading Commission and a federal grand jury in Houston about its energy trading activities, including strategies that enabled the company to boost prices. Duke has admitted to using several techniques.

The state Public Utilities Commission issued a report in September blaming most of the state's blackouts on energy companies withholding power from the market. The report singled out the five largest energy suppliers - Duke, Dynegy, Mirant, Reliant and AES/Williams.

The generators have denied that they withheld energy, saying their aging plants worked more hours than in previous years and required frequent maintenance as a result.

Last month, in the first public acknowledgment that criminal activity helped drive up California power prices, a former Enron energy trader pleaded guilty to conspiracy in a San Francisco federal court. Timothy Belden, the former head of trading in Enron's Portland, Ore., office, admitted to one count of conspiracy to commit wire fraud. He faces up to five years in prison and must forfeit $2.1 million.

Belden promised to cooperate with state and federal prosecutors as well as any non-criminal effort to investigate the energy industry.

Enron bought California power at cheap, capped prices, routed it outside the state, and then sold it back into California at vastly inflated prices, authorities said. The sham trades were designed to circumvent the California-only price caps on wholesale energy.

The Energy Trading Death Spiral

New York Times – by David Barboza – November 9, 2002

The El Paso Corporation said yesterday that it had lost money in the third quarter and that it planned to quit the energy trading business.

Shares of El Paso plummeted on the news, dropping 17 percent from already depressed levels, to close at $7.68.

El Paso, which has been under pressure all year to clean up its balance sheet and improve its sagging credit rating amid eroding profits, said that its trading unit lost $150 million last quarter. The company has been trying to reduce the size of the unit's operation. Last year, when it was still considered a growth vehicle and a prized asset, the trading operation booked $750 million in profits, accounting for about a third of El Paso's pretax income.

El Paso executives said yesterday that they were ready to liquidate the trading portfolio by creating a separate unit backed by some company assets. "We have made the decision to exit trading," William A. Wise, the chief executive, said in a conference call with analysts. "We think that alone will significantly reduce the volatility of earnings associated with that business."

Some analysts said El Paso was forced to leave a business that investors view as troubled, uncertain and tainted by post- Enron doubts about the profitability of trading in a depressed marketplace.

"This was what any sensible management would do," said John Olson, an analyst at Sanders Morris Harris in Houston. "They're getting rid of the radioactive waste and holding onto their core assets."

The decision by El Paso comes as other big energy companies are also drastically reducing their trading operations or quitting the business altogether. Dynegy and Aquila have recently said that they plan to get out of the energy trading business.

After Enron's collapse last year, shares of some of the biggest operators of power plants and natural gas pipelines have plummeted in reaction to a series of federal investigations into their trading activities and their roles during the California energy crisis.

There have also been persistent questions about whether El Paso and some other companies have used aggressive accounting and off-the-books partnerships to hide debt or bolster their financial statements.

In this atmosphere, shares of El Paso — which has relied heavily on off-the-books partnerships — have lost nearly 90 percent of their value over the last two years.

El Paso's announcement is just the latest sign of the difficulties facing the energy trading business. "We're in a death spiral for energy trading," said Michelle Michot Foss, the head of the Institute for Energy at the University of Houston. "Every time a counterparty removes itself from the market, it makes it more difficult for anyone to do business. We need a white knight for the industry."

El Paso reported disappointing third-quarter results yesterday as well. The company, which is based in Houston, said that it lost $11 million in the quarter, or 2 cents a diluted share, on revenue of $2.6 billion. This was in contrast to a gain of $404 million, or 78 cents a diluted share, on revenue of $3.2 billion for the period a year earlier.

Analysts had forecast a profit of 27 cents a share, according to Thomson First Call.

Much of the loss was attributed to El Paso's merchant energy division, long considered the company's primary growth engine. An accounting change, poor trading results and problems with a refinery resulted in a $186 million loss for the unit.

It was the erosion in trading profits, El Paso said, that led to its decision to leave the business. The company said it wanted to find an orderly way to liquidate its $2 billion trading portfolio.

To do that, El Paso expects to create a partnership called Travis Energy Services L.L.C. early next year. The company said it wanted to segregate the credit and balance- sheet demands of the trading operation from that of the corporation.

El Paso is trying to raise $600 million in credit for the new company by pledging two assets, its interests in two pipeline companies.

El Paso said that new accounting rules and the decision to exit the trading business could result in a $600 million charge against earnings for the fourth quarter of this year.

Several analysts, however, said they were confused about how El Paso would create yet another partnership to house its assets. They also said they were confused about how that would result in a better credit rating for the trading unit, and possibly a better rating for El Paso.

The company has sold billions of dollars of assets to several off-the-books partnerships over the last few years, most recently about $1.5 billion to a master limited partnership that El Paso controls.

Some longtime critics called the creation of Travis Energy another corporate shell game.

Karl W. Miller, a former El Paso executive who is now a senior partner at Miller McConville & Company, a private firm that invests in distressed energy assets, said: "They're just hiding the ball. This is shuffling chairs and window dressing. They're not dealing with the real problems of whether they have sustainable earnings. This is juggling."

But Mr. Olson at Sanders Morris Harris said creation of new companies might be an innovative way for energy companies to liquidate their trading operations without selling them into a depressed market that now considers them tainted.

Yesterday, officials said that California prosecutors and lawyers for several class-action lawsuits were in talks with El Paso to settle claims that it cut natural gas supplies to lift profits.

More Job Losses

Reuters – by Eileen Moustakis - November 8, 2002

Duke Energy Corp. said it would cut 2,000 jobs as its profits tumbled

NEW YORK, Nov 7 (Reuters) - Enron's swift collapse a year ago set off an avalanche that swept away an estimated 20,000 jobs in the merchant U.S. energy business, a staggering toll industry analysts warn is likely to continue to grow.

"In order to maintain earnings or improve earnings you need to cut expenses and salaries are a major component of what utilities refer to as operating maintenance expense," David Schanzer, an analyst at Philadelphia-based investment firm Janney Montgomery Scott LLC, told Reuters.

Schanzer said the deregulation of the power market turned electricity into a commodity, taking an industry that was marked by some stability and creating, "a rather volatile industry in all of its components including employment."

Schanzer said with the demand for electricity waning with a sluggish economy, power supply increasing and prices remaining remarkably low, there will continue to be layoffs.

"It's more a function of the commodity cycle than it is the economy. The economy happens to be in the down part of its cycle at the same time that the commodity cycle has reached the lower part of its cycle. With the two coming together, it hasn't helped employment," Schanzer said.

Danielle Seitz, an analyst at Salomon Smith Barney agrees.

"The industry is definitely in a shrinking mode," Seitz said, warning that more job cuts should be expected as the merchant power sector reins in costs to reflect harsh new realities.


In August, industry analysts estimated 10,000-15,000 jobs had been slashed since Enron Corp.'s plunge into bankruptcy amid a raft of accounting and trading scandals that cost 6,000 company employees their jobs.

The credit crisis and steep loss of liquidity that followed forced big energy merchant houses like Mirant Corp. and Aquila Inc., ranked second in power marketing earlier this year, to shed workers or pull out of speculative trading completely.

Dynegy Inc., which just a year ago mounted an Enron takeover bid, late last month announced nearly 1,000 layoffs as its fortunes melted away. And Duke Energy Corp. said it would cut 2,000 jobs as its profits tumbled.


Salomon's Seitz said she did not expect a "massive amount" of new job cuts.

"It's just 'Let's try to tighten our belts for a little while, get over this period of low power prices, high pension costs and all the other things we have to absorb'," she said.

Michael Schaal, analyst at Virginia-based Energy Ventures Analysis, added that many of these jobs may not be coming back.

"Many of the jobs in the financial services area -- energy trading, risk management -- have gone by the wayside at what had been the dominant firms," Schaal said.

"As the industry is retrenching and going back to what's called asset-based trading, there are still those positions available, but not speculative or volatility-based trading."

Meanwhile, jobs at the assets themselves are also in jeopardy as the industry replaces old power plants with more efficient generating units that require far fewer workers to run and maintain them.

Also meter readers, a huge slice of the old utility labor market, are seeing their jobs vanish, replaced by remote meter reading systems.

If there is a turnaround in sight, it is still some ways off, analysts said.

"I think the demand for electricity will start to pick up once we get past next year and that will hasten the rehiring and or recruiting of employees," Schanzer added.

Deregulation ‘Open Revolt’ in Ontario

Canadian Press – November 8, 2002

We're going to get even higher rates...increased probability of blackouts

TORONTO (CP) - Electrical utilities have been ordered not to cut off power when people can't afford to pay their bills, Ontario Premier Ernie Eves said Wednesday.

But the province's energy regulator said that was news to them and Energy Minister John Baird said he was also unaware of any such directive.

Eves made the comments after the opposition raised the case of a single mother on maternity leave in Sarnia whose power was cut off even though she'd made a partial payment on the arrears.

``I don't believe it's appropriate for a utility to cut off power to people and I will be happy to take that up with them,'' Eves told the legislature.

``This is a directive that the Ontario Energy Board issues to all utilities in the province of Ontario and tells them that they should be accepting partial payments and they should not be cutting people's power off because they don't have the ability to pay, so we will reinforce that.''

Donna Garant, a spokeswoman for the energy board, said no such order has been issued.

The Toronto Star reports that the government will announce a rebate plan Friday as well as a temporary cap on local charges and provisions for ``hardship cases.''

The first instalment of the rebate to offset high power bills could be $45 per household, a source close to the government told the paper.

Both opposition leaders accused the premier of making policy on the fly.

``There's no protocol that's been established for utilities when it comes to whether or not they should cut people off hydro,'' said Liberal Leader Dalton McGuinty.

New Democrat Leader Howard Hampton said he has checked with municipalities and utilities and ``there is no rule preventing utilities from cutting people's power off.''

Baird also appeared to contradict Eves directly, saying he's depending on the ``corporate responsibility'' of utilities to keep the power running in cases of financial hardship.

The energy board has the power to establish rules utilities must follow before cutting off people's power, he said.

An aide to Eves later said the premier was referring to a request he made of Baird on Tuesday in which he asked the minister to bar Hydro One, the province's publicly owned transmission company, from cutting off people's power.

``What he meant to say was Hydro One instead of OEB,'' said Barry Wilson.

Baird also appeared unaware of that request from the premier.

It was the third straight day that stories of personal hardship dominated question period, with Eves again promising to come up with a plan to cut costs.

Federal Environment Minister David Anderson waded in, saying it may be time for the Ontario government to rethink its entire energy policy given the massive rate increases people are paying.

``Perhaps the Ontario government is going to have to review the entire structure of its electric generation system and its distribution system,'' Anderson said in Ottawa.

A group that has long warned about the perils of deregulating Ontario's electricity market predicted Wednesday that worse is yet to come unless the Conservative government radically alters its course.

``We're going to get even higher rates and we're going to get increased probability of blackouts,'' said John Wilson, a former Hydro One board member who speaks for the Ontario Electricity Coalition.

Higher electricity prices will not only hurt individual consumers but will cause widespread, cost-driven inflation that will damage the provincial economy and drive business and jobs out of the province, the coalition said.

``The wolf at your neighbour's door is biting you and its bites are going to get bigger,'' Wilson told a news conference.

The simplest and most cost-effective way to deal with the province's power-supply problems and soaring rates is to halt deregulation and put in place an aggressive conservation program, the coalition said.

California, which also went through a disastrous period of deregulation, managed to put an end to its supply problems by cutting back on usage, said Keith Stewart of the Toronto Environmental Alliance.

It was the third-most energy efficient jurisdiction in the U.S., but the state cut its demand by 12 per cent in a single year through conservation.

``The debate so far has focused on increasing supply,'' he said. ``It is not only more effective but it's a lot cheaper and a lot faster to cut demand.''

Critics also noted that regulated public power is cheaper than private power around the world.

``Clearly there's been a huge mistake and electricity deregulation, as everyone in the province knows, has been a complete failure,'' said coalition member Paul Kahnert.

``When you're driving your car and the steering wheel comes off in your hands, do you step on the gas or do you step on the brakes?''

To deal with what the coalition calls ``an open revolt'' in the province over electricity prices, the government has been looking at ways to help consumers and increase supply but no plan has yet emerged.

Previous related article:

Deregulation Brings Problems to Ontario

Duke, Reliant Cooperating with Feds

Associated Press – by John Porretto - November 5, 2002

CMS Energy Says Employees Gave Bogus Energy Pricing Information

DETROIT (AP) -- CMS Energy Corp. on Monday became the fourth energy merchant to acknowledge that its employees gave inaccurate price data to industry publications. CMS also said it might exit the business of trading natural gas and power on wholesale markets.

CMS, based in Dearborn, Mich., said it was still reviewing the price information provided by two of its subsidiaries, CMS Marketing, Services and Trading in Houston and CMS Field Services in Tulsa, Okla. CMS, the parent of Consumers Energy, Michigan's largest utility, said it began the review after other energy merchants reported similar activities.

Spokesman Jeff Holyfield said it was unclear how many employees provided the bogus price data.

"There are a number of questions yet to be answered," Holyfield said. That said, the company insisted its marketing subsidiary did not try to manipulate energy prices or CMS' share price.

Dynegy Inc. of Houston and American Electric Power Co. of Columbus, Ohio, each have fired traders responsible for reporting bogus data. Dynegy also announced the closure of its energy trading business.

Williams Cos. of Tulsa, Okla., said last month that a few of its traders had given false data to an unnamed publication whose index is used to set prices in natural gas contracts. Williams said it was cooperating with an investigation by the Commodity Futures Trading Commission and had volunteered information about the bogus reporting to the Federal Energy Regulatory Commission.

Duke Energy Corp. and Reliant Resources Inc. also have said they're cooperating with federal agencies investigating energy trades.

CMS said in May that an internal review found that its energy-marketing unit -- CMS Marketing, Services and Trading -- had made round-trip energy swaps that artificially inflated revenue and expenses by more than $4.4 billion from May 2000 through mid-January 2002.

Round-trip trades are simultaneous energy swaps recorded as trades to increase volume, and in some cases revenue, without bringing in cash.

CMS has roughly 11,000 workers worldwide. The trading business employs about 170 people…

Ex-CFO Indicted on 78 Charges

Associated Press – by Kristen Hays - November 2, 2002

HOUSTON - Former Enron Corp. Chief Financial Officer Andrew Fastow was indicted Thursday on 78 federal counts alleging he masterminded schemes to artificially inflate the energy company's profits and skim millions of dollars at shareholders' expense.

The indictment, returned by a grand jury in Houston, is essentially a formal restatement of a criminal complaint filed Oct. 2.

But the indictment is notable for the sheer number of charges, which include multiple counts of fraud, money laundering and conspiracy. One count of obstruction of justice was not included in the original complaint. If convicted, Fastow faces hundreds of years in jail and millions of dollars in fines.

Fastow, 40, is free on $5 million bond and faces an arraignment Wednesday. He is the most prominent Enron official to be charged in the federal probe.

"These charges are full of sound and fury, but the truth about Enron has yet to be told," Fastow's attorney, John Keker, said in a statement. "When that truth is told, to a jury of 12 honest Americans, Andy Fastow will be set free."

Deputy Attorney General Larry Thompson, head of the Bush administration's corporate fraud task force, said the indictment does not end the investigation into Fastow. He also said federal officials "will use every appropriate measure to recover the ill-gotten gains of these corporate schemers."

Enron, No. 7 on the Fortune 500 list two years ago, filed for bankruptcy court protection Dec. 2 after revealing a $618 million loss and eliminating $1.2 billion of shareholder equity.

The indictment alleged Fastow and others created schemes to defraud Enron and its shareholders through transactions with off-the-books partnerships that made the company look more profitable than it was.

Prosecutors also allege Fastow gained an estimated $30 million from kickbacks funneled through Michael Kopper, his former aide, and investors or family members. Investigators say Fastow also siphoned off income from the partnerships.

Maximum penalties are 20 years for money laundering, 10 years for wire fraud and five years for conspiracy.

Prosecutors are expected to pressure Fastow to learn what he might say about the actions of his colleagues, including former Enron Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling.

Asked if the indictment could induce Fastow to cooperate with prosecutors, Assistant U.S. Attorney Andrew Weissmann said, "These are significant charges that carry significant jail time."

Fastow's attorneys have said top Enron executives approved his work and that Fastow did not believe he committed crimes.

The indictment alleged that the schemes' goals included:

  • Falsification of Enron's reported financial results to make the company appear more financially sound than it was to Wall Street, credit rating agencies and investors.

  • Artificial manipulation of Enron share prices.

  • Personal enrichment at the expense of shareholders "to whom they owed a duty of honest services."

  • Use of complex "special purpose entities" that kept poorly performing assets off Enron's balance sheets and falsely manufactured earnings.

Enron's collapse was the first in a series of corporate scandals that have rocked the business world and roiled the stock market. Investors lost huge amounts of money and former Enron employees lost most of their retirement savings.

FERC Wants Names

Dow Jones Newswires – by Kristen McNamara - October 30, 2002

(10/29/02) - Dow Jones NEW YORK -- Federal energy regulators have asked the largest North American natural gas trading companies to submit by next month the names of all current and former employees who have provided pricing data to energy industry publications.

The Federal Energy Regulatory Commission said the requests, which it issued last week, were triggered by admissions from two trading companies that some of their employees submitted inaccurate natural gas pricing data to publishing companies that produce indexes to which billions of dollars of contracts are pegged.

The commission said it is seeking to determine the extent of the misreporting. Replies are due Nov. 8.

American Electric Power Co. and Dynegy Inc. each fired a handful of employees earlier his month for providing false data to industry publications. Williams Cos. said Friday a few of its traders had also submitted inaccurate information.

AEP, Duke Energy Corp., El Paso Corp. and Sempra Energy said Monday they were among the companies that received requests for pricing information from FERC and planned to comply with the commission's requirements.

FERC asked the trading companies to provide specific information about each employee who reported natural gas information to publications in 2000 and 2001, including the dates on which they provided the data and whether any of them had been disciplined, suspended or terminated as a result of a company's internal investigations into price reporting.

The commission also requested records of employees reporting prices to the trade press, such as spreadsheets, e-mails or audio recordings.

Companies must also submit the names of journalists at the pricing publications with whom employees spoke and the specific transaction information the employees reported, such as trading volumes and average prices, FERC said.

The commission said it reserves the right to issue follow-up requests after reviewing companies' initial responses, to seek this data from additional natural gas companies and to request similar information from power marketers.

FERC, in an interim staff report in August, questioned the accuracy of natural gas price indexes, saying they may have been manipulated during the 2000-01 California power crisis.

The Commodity Futures Trading Commission is also looking into the disclosures of false reporting, which follow earlier admissions by Dynegy, Duke, Reliant Resources Inc. and CMS Energy Corp. that they engaged in "wash" trades, or offsetting transactions with the same counterparty.

The announcements that some companies submitted inaccurate information to publications has caused both organizations to revamp their methods for gathering and reporting data. It also triggered reviews by some companies of their price reporting procedures to determine if any of their employees submitted false information.

Some traders, such as Willliams, Reliant and El Paso, have stopped providing prices. Others, like Mirant Corp. and AEP, have begun issuing information from their risk management offices.

Platts, an energy information company owned by McGraw-Hill Cos. to which AEP said its traders provided false information, announced Monday more stringent guidelines for gathering the power and gas price data it uses in its indexes. Prices, which the publication in the past collected from traders, must now come from a company's risk management office and must be certified by a senior executive at the company.

Alleged Falsified Energy Evidence

Saint Paul Pioneer Press – by David Hanners – October 30, 2002

(10/29/02) - Managers in Xcel Energy's Trouble Department -- under pressure to produce missing documents that would show how long power outages lasted -- ordered workers last week to write new "trouble tickets" for outages that occurred several weeks ago, workers have told state Commerce Department officials.

Some workers told the Pioneer Press they expressed concerns to the company that it might be difficult to remember details of jobs they did last month. They said they were told they could just write in a code that indicates the outage was the customer's responsibility, not Xcel's, the workers said.

The code -- COSE, for Customer-Owned Secondary Equipment -- instructs Xcel's computer to list the outage as lasting one minute.

"They're literally going through thousands of trouble tickets," said one employee, who asked that his name not be published.

State regulators are investigating Xcel and its subsidiary Northern States Power-Minnesota for allegedly falsifying the service reliability data it is required to submit to the state. Some of the data involves the length of outages, so accurately recording the time the power went out and when it was restored is essential.

NSP provides power to 1.3 million customers in the state. The utility company declined interview requests for this article, and would only respond with a written statement: "Issues relating to our outage reporting data and practices are subject to investigation by the state, and we decline to comment on these matters." Similarly, Commerce Department spokesman Bruce Gordon declined comment, saying the matter was part of an "active investigation."

However, current and former Xcel employees have told the Pioneer Press that the utility's managers routinely shave time off repair records. According to documents they have provided, the time-shaving takes place both in the Trouble Department, the unit responsible for fixing ordinary outages, and also in the Construction Department, which is responsible for bigger repairs.

Xcel can be fined $100,000 per violation if it doesn't meet certain reliability standards. One of those standards limits the average duration of the outage suffered by the average Xcel customer.

Records obtained by the Pioneer Press show that outages that lasted several hours were reduced to just a few minutes when they were entered into the company's computer. Those figures are the ones that are used for compiling the reliability reports Xcel must submit to regulators.

The state Public Utilities Commission has ordered an independent audit of Xcel's outage records to see if they are fraudulent. But Commerce officials and the attorney general's office, the two offices involved in the investigation, have said that the utility's record-keeping might make an audit almost impossible.

When the Commerce Department ordered Xcel to turn over records on four months' worth of outages last month, the agency was disturbed to find that the utility lacked complete and corroborative records for 61 percent of the 8,320 outages in that period.

When the Trouble Department gets a call about a problem, it sends out workers -- called "troublemen" -- to make the repair. When the troubleman done, he fills out a small form called a trouble ticket. It records such information as the job number, address, the time the call came in, the time he got there, the time power was 100 percent restored and the nature of the problem.

The information on those tickets is supposed to be entered into a computer record. A supervisor is supposed to make sure the information on the handwritten ticket and computer record matches, and then both records are turned in.

But workers have said the handwritten trouble tickets often get lost or thrown out. They say the tickets are harder to alter than the computer records.

When Xcel handed over its outage records to the state, it said it couldn't find trouble tickets (or tickets that had been filled out properly) for more than 3,500 of the 8,320 outages.

Xcel downplayed the missing handwritten tickets, though, telling state regulators that the company considered the electronic records more reliable. It told the state that the handwritten trouble tickets were little more than "a supplemental source of information."

But Xcel's own company manuals say just the opposite. In those documents, obtained by the Pioneer Press, the utility says trouble tickets are an "official document" to be used in lawsuits and claims, and for determining "time duration of outages."

The manuals say a supervisor must review all trouble tickets turned in that day and make sure they are complete. Workers said that practice had fallen by the wayside.

"In reality, a lot of these tickets were dumped," said one worker. "They didn't think there'd be any need for them, they didn't think anybody would ever ask for them."

The worker and others said managers have been going around with lists of outages that don't have trouble tickets and telling troublemen to fill them out after-the-fact.

Troublemen handle several calls a day, and asking them to recall what time power was restored on a job several weeks later is often fruitless, the workers said. When some of them mentioned that to managers, they were told they could just write the code "COSE" on the trouble ticket.

That code is used when a troubleman determines that the customer's problem is being caused by something inside the home or business that isn't Xcel's responsibility.

So far, workers say they've only filled out trouble tickets for jobs since the beginning of September. "I think they're actually trying to be accountable," one worker said. "But since they've waited a month already, they can't come up with the paper."

FERC Invited to Bow Out

Dow Jones – October 29, 2002

(10/25/02) - WASHINGTON - (Dow Jones) - The Federal Energy Regulatory Commission ought to concede the policing of wholesale gas and power markets to the Commodity Futures Trading Commission, the head of an industry group told FERC on Friday.

"Energy trading should be regulated with the same toughness and integrity as the New York Stock Exchange," said Paul Cicio, executive director of the Industrial Energy Consumers of America.

When asked by FERC Commissioner William Massey if that should be done by the FERC or the CFTC, Cicio answered, "By the CFTC."

The comments add to the growing call for the CFTC to monitor energy markets. Currently, the buying and selling of actual energy is regulated by FERC, energy futures exchanges are regulated by the CFTC, while the over-the-counter markets for energy derivatives fall through the cracks.

At an energy traders' conference earlier this week, several speakers said they think the CFTC will take over energy markets as a result of the various scandals over the past two years.

"We have to restore consumer and investor confidence," Cicio said. "Speculators are manipulating the market. The integrity of gas prices and indexes has been called into question."

An important step to take is the separation of regulated pipeline companies from subsidiaries involved in energy trading and merchant power and gas production, Cicio insisted.

Energy Trading Woes

Dow Jones – October 29, 2002

(10/25/02) - WASHINGTON (Dow Jones) -- More than two years of a western energy crisis followed by the Enron Corp. bankruptcy and a raft of problems for other merchant energy companies have put the U.S. natural gas system at risk, people in the industry said told federal regulators Friday.

Energy companies and one Enron executive have admitted to manipulating prices in gas and power markets. Companies have had to restate earnings and are being forced to raise their accounting standards. Credit rating agencies have downgraded merchant energy companies and integrated utilities alike as earnings have plummeted for the past year.

"There is no doubt we have slowed down the ability of the industry to build needed infrastructure in the short-term," said Fred Fowler of the Interstate Natural Gas Association of America.

Former energy market giants Enron, Dynegy Inc. and Aquila Inc. have exited the markets, while companies like Williams Cos., American Electric Power Co. and El Paso Corp. have substantially cut back trading.

Liquidity has all but dried up for local gas markets beyond of the benchmark Henry Hub, Mike Stice, president of ConocoPhilips' Gas Power unit, told the Federal Energy Regulatory Commission on Friday.

Without trading and signing of long-term supply contracts at those hubs, gas producers and pipeline companies aren't investing in the very expensive infrastructure that almost everybody feels is needed, industry executives told the FERC at a special, well-attended conference on natural gas.

One expected source of supply to meet rising U.S. demand is Canada, but even there developers are hesitant.

"The market is very thin for the developing regions 10 years to 20 years out," said the Canadian Association of Petroleum Producers' Greg Stringham.

The loss of big marketers as intermediaries has concentrated market power in the hands of a few producers, increased price volatility and raised the risks for consumers, Calpine Corp. gas executive Craig Chancellor said.

"Marketers created price transparency, increased liquidity and helped control prices," Chancellor said. "The result is that there may well be an extended gap between reaction to fundamentals by infrastructure." Power Crisis Hurting Gas Industry

The natural gas industry has been roiled by the western U.S. electricity crisis, Fowler said. Ongoing negative headlines for the industry have combined with lower profits, especially for independent power producers, to drive away investment.

"We are operating in a hair-trigger business environment," Fowler said Friday. "To reduce headline risk of the industry, the FERC should focus its resources on the prompt resolution of California and more generic electricity issues."

Regulated gas pipeline companies won't sign contracts with power companies that have credit ratings below investment grade. Without contracts, they won't build new pipelines.

"It's very important to the natural gas industry that some equilibrium be re-established for the power industry," Fowler said. "There's not demand for new pipelines until a shipper is willing to sign a capacity agreement. We need capital markets willing to invest for that."

Wayne Andrews, equity analyst for Raymond James, sees the problem as more fundamental. The lack of new drilling despite high gas prices is because gas producers don't have projects that are financially justified until prices rise further. "They don't have the project inventory to ramp up that activity at these prices," Andrews said.

Calpine's Chancellor said that his company can't sign long-term pipeline capacity contracts because of its junk credit rating, but he insisted that the FERC ought to require pipeline companies to lower their collateral requirements or reduce the regulated profits pipeline owners get, based on their lack of risk-taking.

"If you're going to require more credit assurance, then that should be reflected in a lower rate of return," Chancellor said. "The commission shouldn't allow monopoly pipelines to make a run on the bank. Their rates of return aren't based on the actual risks faced by the pipelines, and this is only contributing to the credit death spiral and the lack of investment in the infrastructure."

Others said that the energy companies have only themselves to blame and that FERC is right to prosecute them.

The Federal government ought to resolve its various investigations quickly so that the industry can get back to business, Fowler advised.

"There's no doubt when you have this kind of destruction in the capital markets that there's going to be a sharp 'V' turnaround," Fowler said. "The important thing is to get that to happen as quickly as possible."

CA Energy Withholding Debate Continues

Associated Press – by Jennifer Coleman – October 28, 2002

(10/25/02) - Managers of the state's power grid said Friday they didn't have enough information to agree with energy regulators' finding that electricity generators were at fault for California's rolling blackouts in 2001.

The California Public Utilities Commission issued a report in September saying a majority of the blackouts were caused by energy companies withholding power from the market.

The California Independent System Operator, which manages most of the state's power grid, studied the PUC report at the request of Sen. Joe Dunn, D-Santa Ana. Dunn heads the legislative committee investigating the energy crisis.

The ISO agreed that some generators failed to follow dispatch instructions from grid managers, sometimes citing "economic considerations," and didn't offer their full energy output to the grid. This caused grid managers to have to scramble to find enough energy to balance the grid.

The ISO also agreed with the PUC report that noted grid officials had reported times when generators "refused to run, citing lack of cooperating personnel, or argued with ISO operators over the prices at which they would run.

"Such conduct is unacceptable, particularly during system emergencies," the ISO analysis stated.

Because the PUC didn't turn over the raw data and a thorough explanation of its methodology used in the report, ISO officials said they couldn't fully agree with the PUC's conclusions.

"In May 2001 we found evidence of physical and financial withholding. Whether that caused the blackouts is something we can't conclusively state in this report to Sen. Dunn," said ISO spokeswoman Stephanie McCorkle.

The PUC report singled out the five largest energy suppliers -- Duke, Dynegy, Mirant, Reliant and AES/Williams. The generators have denied that they withheld energy, saying their fleet of aging plants worked more hours than in previous years.

Duke Energy spokesman Patrick Mullen has said the PUC's assertion that Duke had power available on May 8, 9 and 10 of 2001, which could have helped prevent blackouts, was a "total misrepresentation of the facts."

"The amount of power the CPUC indicates was not made available was actually under the control of the California Independent System Operator," he said following the report's release.

The ISO analysis disputed that, saying Duke's plants were subject to the ISO's emergency dispatch authority, but that doesn't mean the ISO controls the power.

"Although the ISO can direct a plant to run, in real time the ISO cannot force any plant to run," the ISO report said.

Traders Gave False Energy Prices

Bloomberg News – October 26, 2002

TULSA, Okla., Oct. 25 (Bloomberg News) — The Williams Companies, the owner of natural gas pipelines, said today that its traders provided phony information to a journal that compiles gas price indexes used by the industry in sales contracts.

The company, the third to admit lying about energy prices, has stopped providing information to publications about gas trades, a spokesman, Kelly Swan, said. Williams shared its findings with the Commodity Futures Trading Commission, which is investigating the industry's trading.

The other two companies, Dynegy and American Electric Power, fired traders earlier this month for feeding bogus prices to industry publications. Regulators are investigating whether traders used false data to rig prices and manipulate energy markets, causing California's energy crisis in 2001.

Mr. Swan said Williams would stop reporting trade information to industry publications immediately. The company would not say how many traders were involved or which publication received the bogus prices.

"The lack of clarity in this disclosure doesn't bode well for Williams," said Jake Dollarhide, an asset manager at Fredric Russell Investment Management. "It makes a bleak situation even more so."

American Electric and Dynegy fired a total of 11 traders for making bogus reports.

American Electric's false reports went to Platts, a division of McGraw-Hill. The federal commodities commission subpoenaed Platts for lists of subscribers and employees who gathered prices as part of a broader investigation of trading practices.

A second agency, the Federal Energy Regulatory Commission, concluded in August that prices published by Platts and rivals "may be subject to manipulation." Platts disagrees.

Neither Dynegy nor American Electric has responded to requests that they specify which reports were false.

SEC has "Formalized" Duke Trading Inquiry

Reuters - October 25, 2002

(10/24/02) - WASHINGTON, Oct 24 (Reuters) - Duke Energy Corp. said on Thursday that the Securities and Exchange Commission earlier this month "formalized" its inquiry into the company's use of so-called wash trades, in which electricity is simultaneously bought and sold to boost trading volume.

In its quarterly earnings statement, the giant North Carolina-based utility and power marketer also announced it would cut nearly 2,000 jobs as its third quarter profits fell 71 percent.

"We understand that the formalizing of the inquiry is simply standard operating procedure by the SEC," a Duke spokesman said. "We are continuing to cooperate with all the respective government agencies involved."

Duke said in a statement that the SEC informed it in mid-October that the agency had "formalized its inquiry" into Duke's trading activities.

The company also said it had responded to subpoenas received last summer from the Commodity Futures Trading Commission and by a federal grand jury in Houston about its energy trading activities.

Duke acknowledged earlier this year that it identified some 61 wash or "round-trip" trades, where energy is simultaneously bought and sold at the same price to increase trading volume and revenue. Regulators examined about 750,000 trades made by Duke from January 1999 through June 2002.

Other energy companies, including CMS Energy and Reliant Resources, have also admitted to using wash trades.

Several governmental probes into wash trades and other questionable trading schemes have been underway for months. The Federal Energy Regulatory Commission is investigating the role that wash trades played in the California energy crisis, while the SEC is focusing on whether any of the trades distorted corporate balance sheets.

The CFTC, which regulates futures and options contracts traded on exchanges, is also looking at trading data.

Two federal grand juries in Houston and San Francisco are also examining energy trading issues that grew out of the collapse of Enron Corp.

Last week, a former Enron trader admitted in a San Francisco courtroom that he was part of a conspiracy to artificially boost electricity prices during California's devastating energy crisis that began in mid-2000. Prosecutors said Timothy Belden was one of the principal architects in trading schemes that boosted Enron's profits by hundreds of millions of dollars.

Deregulation - Page 24 - 2002