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Deregulation - Page 4 - 2003
‘Unmitigated Failure’ of DeregulationAssociated Press – May 8, 2003
SACRAMENTO, Calif. (AP) A bill to reregulate California's electricity market overcame objections from energy companies and utilities on Tuesday to pass its first legislative hurdle.
Deregulating the energy market was an ``unmitigated failure,'' said Sen. Joe Dunn, D-Santa Ana, the bill's author. The measure was approved 5-3 by the Senate Energy Committee and heads to an uncertain future in several other Senate committees.
Opening the electricity market to competition resulted in ``reduced reliability and higher prices, the exact opposite of what California was promised when we embarked on the deregulation path,'' Dunn said. The 1996 deregulation law was intended to foster competition to drive down electricity prices. Instead, wholesale electricity prices rose sharply in 2000, driving three utilities to the brink of bankruptcy when they couldn't pass on higher costs to customers.
Dunn's bill would phase out retail competition and let California regulators again set profit margins for utilities.
Manufacturers, businesses, utilities and independent energy companies oppose the bill. They said it would discourage construction of new power plants and eliminate retail competition that allows large energy users to find cheaper power.
Other opponents warned the effort would lead to bloated, inefficient utilities.
California officials have long blamed energy traders and generators for gaming the deregulated market, manipulating supply and driving up costs that resulted in six days of sporadic blackouts in 2001.
Energy companies said the price spikes and energy shortages were due to a drought in the Northwest and overall electricity shortage. They also blamed poor planning by the state that allowed power plant construction to lag, even as California's electricity use surged.
The Federal Energy Regulatory Commission found that widespread manipulation in the California market contributed to the high prices.
More Than a Slap on the Wrist10News, San Diego – by Darrell Brown – May 7, 2003
(5/5/03) - Malcolm needs more than a slap on the wrist.
Former San Diego Port Commissioner David Malcolm pleaded guilty to a felony charge of conflict of interest.
A 10News investigation revealed that while serving the port, Malcolm was paid more than $200,000 by Duke Energy to put their interests above those of his constituents.
This all happened during 2000 and 2001 while energy companies were gouging San Diego ratepayers.
Even though Malcolm resigned his office and will be fined, his greed and outright disregard for the public's interest must be severely punished.
His crime carries a possible sentence of up to three years. San Diego's 10 calls on Superior Court Judge John Einhorn to send a loud and clear message ... and David Malcolm to prison…
KGTV Vice President and General Manager
Consumers Not Safe from Energy FirmsReuters – April 27, 2003
WASHINGTON (Reuters) - The top U.S. energy market regulator needs more authority to levy harsh penalties on companies that manipulate electricity markets, an industry report said on Thursday. It recommended that Congress authorize the Federal Energy Regulatory Commission to impose "adequate civil penalties" on energy firms for illegal conduct and order refunds for consumers that were overcharged for electricity.
"FERC's inability to extend penalties for market power abuse beyond what is currently allowed is insufficient to protect consumers," said the report by public interest group Consumer Energy Council of America.
The report, on how to create a national electric power market that will benefit consumers, said rolling blackouts in California, power price spikes, the collapse of Enron and related corporate scandals have stalled deregulation of the U.S. electricity market.
While 24 states and the District of Columbia have enacted legislation for retail electric industry competition, other states appear to be firmly committed to leaving their power markets as they are for the foreseeable future, according to the report.
Separately, the report raised concerns about FERC's proposed standard design for creating regional electricity markets, saying the agency has not specified how it will monitor the new power markets or how violations of its rules will be enforced.
The study did not come out and say whether FERC's proposal would be good or bad for consumers.
The report was written with advice from government officials, trade group representatives and energy company executives.
FERC chairman Pat Wood and his fellow commissioners provided advice to the panel that wrote the report, but did not say if they endorsed the study's findings and recommendations.
Wood and the other commissioners will be briefed on the report shortly and given the chance to comment, the study's authors said.
Duke Cannot Sue EnronEmployee Advocate – DukeEmployees.com – April 18, 2003
Duke Energy’s lawsuit against Enron was dismissed Thursday by a bankruptcy judge, according to Dow Jones. Duke was entwined with Enron in assorted forward commodity trading contracts.
Speculative Trading Takes TollDow Jones – April 9, 2003
(4/7/03) - NEW YORK - (Dow Jones) - Tractebel North America Inc. has joined the ranks of energy companies exiting the speculative trading business, saying it sees little opportunity for growth. Diminished liquidity, increased costs and trading scandals following the collapse of former industry leader Enron Corp. have pushed much of the energy sector out the business of buying and selling wholesale power and natural gas.
"We're not shutting anything down as much as we're repositioning to where we can grow and be profitable," company spokeswoman Paula Rockstroh said Monday. "We don't see any growth in speculative trading. Tractebel North America's asset-based trading will increase as Tractebel's portfolio of assets increases."
The North American energy unit of French utility Suez announced internally last week that it will unwind its existing trading positions over the next few months and concentrate on marketing the output of its assets, which include about 2,700 megawatts of generating capacity, Rockstroh said.
The company expects to bring two new power plants in Texas and Washington state on line later this year, adding an additional 1,220 megawatts to its portfolio. Additionally, Tractebel aims to begin marketing the output of another 900-megawatts at an American Electric Power Co. plant in Louisiana, which is also scheduled to begin operating this year.
Tractebel laid off last week two or three employees from its 30-person trading group in Houston, whom weren't able to relocate within the company, Rockstroh said. The company said it will make every effort to redeploy the remaining trading staff.
Tractebel's discontinuation of speculative trading follows similiar moves by El Paso Corp., Williams Cos., Dynegy Inc., Reliant Resources Inc., Aquila Inc. and CMS Energy Corp.
Tractebel, whose expansion into the merchant energy sector was more modest than many of its industry colleagues, hasn't been hit by the sinking share prices, junked credit and investigations into trading and accounting improprieties that have plagued other companies.
But We Didn’t Know the RulesReuters – April 8, 2003
WASHINGTON, April 7 (Reuters) - Duke Energy Corp. said California's power grid operator failed to adequately define market manipulation rules which were recently cited in a Federal Energy Regulatory Commission (FERC) report, and asked the agency to reopen the record to consider the issue.
Charlotte-based Duke was one of 37 power companies and municipal utilities named by FERC investigators in a staff report as possible participants in improper trading schemes that contributed to California's energy crisis. The crisis of 2000-01 spurred blackouts and economic damage of billions of dollars.
The staff report recommended that FERC issue "show cause" orders to demand that the firms explain why such actions did not violate California tariffs, and why any unfair profits should not be repaid.
FERC said it took the 37 companies from a report issued several months ago by the California Independent System Operator (ISO), which studied market manipulation of its grid.
In a filing at FERC on Friday, Duke complained that FERC's investigative report was based on a faulty premise that the "rules of the road" were made clear to energy companies by California ISO.
"Duke Energy had no such notice," the firm said.
California parties -- including the state's Public Utilities Commission and attorney general -- asked FERC on Monday to reject the request.
Duke could have sought the information in a previous discovery period that ended last month, the parties said.
If FERC grants the request, they asked for leave to make their own inquest into so-called "camouflage transactions," where in-state sellers allegedly attempted to conceal their identities through complex arrangements with multiple third parties in the Southwest and Pacific Northwest.
The parties did not indicate whether Duke participated in the undocumented schemes, which have not been mentioned in other FERC proceedings.
Duke asked FERC to suspend any action on the staff recommendations until the company can conduct interviews and fact-finding with California ISO officials.
Duke said that if permitted by FERC, it would ask the California grid operator to turn over documents showing that the violations were clearly defined by April 9.
The filings were made in docket PA02-2.
FraudwiseAssociate Press – April 8, 2003
ST. PAUL (AP) - The Minnesota Public Utilities Commission voiced its displeasure with Xcel Energy's system for tracking power failures and voted 4-0 to direct an auditing firm to continue investigating the utility.
The PUC on Thursday also directed Xcel to encourage its employees to cooperate with Fraudwise, the Fargo, N.D.-based agency handling the investigation. A union official testified that Xcel employees were afraid to talk for fear of reprisals, and a Fraudwise representative said the company had ``reached a dead end'' in finding employees willing to talk about the problems.
``This started out with employees alleging manipulation'' of reports showing the duration of outages, Commissioner Greg Scott said. ``Now it's bigger than that - it's what is the validity of Xcel's (service quality) reporting in 2001 and 2002?''
As a condition of approving the 2000 merger that created Xcel, the PUC required the company to meet certain customer service standards, including its response time on outages.
The PUC hired Fraudwise last fall to investigate Xcel's service quality reports after some Xcel employees told the St. Paul Pioneer Press that the utility had falsified repair records to understate outage times. Xcel serves 1.3 million electric customers in the state through its subsidiary, Northern States Power-Minnesota.
If the company fails to meet the reliability standards it could be fined by the state. Xcel began reporting its reliability in 2001 and again in 2002. The company says it has never exceeded the state standards and that its record is improving.
Fraudwise issued an interim report in March stating that the records it received from Xcel had so many missing and incomplete documents that it was difficult to evaluate the integrity of the reports. Fraudwise said it concluded that Xcel's system was ``corrupt,'' a characterization that Xcel officials strongly disputed.
In comments filed with the PUC before the hearing, Xcel acknowledged that its outage tracking system does not ``provide a sufficient audit trail'' and that the company did not ``consistently communicate'' proper procedures to employees or provide strong enough management oversight of the process.
It said it is installing an electronic system that will address the problems and is training employees in new procedures to provide more documentation of outage reports.
However, commissioners weren't impressed by the move to an electronic system, which Xcel said it expects to begin using by year-end.
``Don't sit there and whine that you have an old system,'' Scott told David Sparby, Xcel's vice president for regulatory and government affairs. ``We went for two years without you complaining you had an old system. Then you got caught.''
Tom Koehler, the assistant business manager of IBEW Local 160, which represents some of Xcel's employees in the West Metro area, said actions by the PUC to ensure workers' confidentiality would help the investigation.
To make sure of that, the PUC ordered Xcel to directly encourage cooperation from repair workers and to get the message to all employees in the company newsletter.
Price Manipulation in Western MarketsFederal Energy Regulatory Commission – March 29, 2003
Final Report on Price Manipulation in Western Markets
On February 13, 2002 the Commission ordered a Staff investigation into the potential manipulation of electricity and natural gas prices.
Staff found evidence of manipulation of both electricity and natural gas markets.
Staff proposes a series of generic and company- specific remedies for the market flaws and abuse found in the Investigation.
Dysfunctions in the natural gas market fed off misconduct, including gas transaction misreporting and wash trading
There was a misperception that the Topock delivery point was a liquid market
In fact, a single trader at Topock engaged in rapid-fire trading for volumes many times the company's needs
That single trader's actions led to an increase in the daily average price of gas of $8.54/ MMBtu in December 2000
Spot gas prices were not the product of a well-functioning competitive market
Spot gas prices for the California Refund Proceeding therefore should be replaced. Staff recommends producing-area prices plus transportation for setting the clearing price, thereby reducing gas costs by $7.03 in southern California and $4.18 in northern California, or about $5.60 on average over the 9 month refund period
Generators should be able to recover their costs on a dollar-for-dollar basis, but the California gas indices should not be use to set the market-clearing price.
These companies include AEP, Aquila, Avista, BPA, Coral Power, Duke, Dynegy, Enron, Idaho Power, LADWP, Mirant, PG&E, PacifiCorp, Portland General, Powerex, Reliant, Sempra, Sierra Pacific, Southern California Edison, and Williams
Staff recommends that Enron be directed to show cause why its power marketers' market-based rate authority and its gas marketers' blanket marketing certificate should not be revoked in light of Enron's numerous apparent instances of gaming, manipulation of gas prices, and failure to disclose changes in market share
These companies are Enron, BPA, Dynegy, Idaho Power, LADWP, Mirant, PowerEx, Reliant and Williams
ELECTRIC Western Long-Term Contracts
Market Dysfunction in California short-term markets affected long-term contracts
Analysis shows that spot power prices correlate with long-term contract prices, especially 1-2 year contracts
Spot prices in the Northwest during January-June 2001 appear considerably out of line with input costs
Staff recommends using the analysis in the Report to inform ongoing long-term contract proceedings and other complaints that long-term contracts are not J&R.
Other Staff Recommendations
Amend Sections 284.284 and 284.402 of the regulations to provide explicit guidelines or prohibitions for trading natural gas under Commission blanket certificates.
Consider a generic proceeding to develop appropriate reporting and monitoring requirements for sellers of natural gas under the Commission's blanket certificates.
Condition all electric market- based rates and natural gas blanket marketing certificates on the companies providing complete, accurate, and honest information to any entity that publishes the price indices.
Natural Gas and Electricity Price Indices:
. Require that only actual trade data be used to construct the price indices.
. Require that data sent to firms publishing price indices be provided by the risk management office of the company, not the trading desk or a trader, and be certified by the chief risk officer.
. Encourage standard product definitions for published natural gas and electricity price indices and standard methodologies for calculating the price indices.
Other Staff Recommendations
Require Dynegy, Aquila, AEP, El Paso Merchant Energy, Williams, Reliant, Duke, Mirant, Coral, CMS, and Sempra Energy Trading to demonstrate that they have ceased selling natural gas at wholesale or that:
--Those employees, including trading desk heads and managers, who participated in manipulations or attempted manipulations of the published price indices have been disciplined
--The company has a clear code of conduct in place for reporting price information
--All trade data reporting is done by an entity within the company that does not have a financial interest in the published index (preferably the chief risk officer)
--The company is cooperating fully with any government agency investigating its past price reporting practices
Other Staff Recommendations
Wash Trading, Monitoring and Record Keeping
--Establish specific rules banning any form of prearranged wash trading and prohibiting the reporting of any affiliate trading activities through industry indices.
--Condition blanket gas marketing certificates, as well as electric market-based rates, to require that sellers who use trading platforms use only those trading platforms that agree to provide the Commission with full access to trade reporting and order book information for the trading systems and agree to adhere to appropriate monitoring requirements.
FERC Fingers 37 for Enron-Style TradesSan Francisco Business Times – March 28, 2003
(3/26/03) - The Federal Energy Regulatory Commission pointed to 37 firms — some of them Bay Area companies — for engaging in what it has called questionable trading strategies with Enron Corp., the bankrupt energy giant that fell hard under sharp criticism for its corporate ethics. The commission also said California is due $3.3 billion for being forced into suspect deals during its energy crisis of 2000-2001. The commission staff also suggested FERC rule that Enron pay $500 million of that sum for collecting unfair profits.
In a report, commission staff said these 37 firms should prove to FERC that they did not manipulate Western markets during the California energy crisis in 2000-2001. FERC will vote at a later day whether to take the staff up on that proposal.
The 37 firms and entities listed in the FERC report are:
FERC Says California Markets Were RiggedDow Jones – by Mark Golden – March 27, 2003
(3/26/03) - WASHINGTON -- Enron Corp. and numerous other energy companies played gaming strategies in California electricity markets in violation of FERC rules, staff of the Federal Energy Regulatory Commission reported to Congress on Wednesday.
Those companies should forfeit profits made from gaming between Jan. 1, 2000, and June 21, 2001, FERC staff said.
In addition, FERC staff harshly criticized Reliant Resources Inc. for manipulating natural gas prices at the Southern California border trading hub known as Topock.
In the FERC staff report to Congress, Reliant is accused of dominating the Southern California gas market, raising prices there and selling at the top of that market.
"Reliant engaged high-volume, rapid-fire trading strategy to purchase its physical, spot gas needs ... . Reliant often bought and sold many times its needs in quick bursts, which significantly increased the price of gas in that market," staff reports said.
Between December 2000 and February 2001, when gas prices were exceptionally high, almost 50% of the Southern California gas trades on EnronOnLine were with Reliant, the staff reported. At the time, Enron's electronic trading platform dominated North American power and gas trading in terms of volume.
Reliant's churning didn't violate FERC regulations. FERC staff recommended the rules be amended to provide explicit prohibition on such trading.
While Reliant apparently can't be ordered to return profit from this activity, FERC staff recommended that gas prices used in the broad California refund proceeding be lowered.
The reports said that Enron and several other companies manipulated California's official electricity markets -- the Independent System Operator, or ISO, and the Power Exchange, or PX -- in violation of those markets' rules, which were approved by FERC.
The FERC staff recommends that the commissioners order dozens of companies to show that their behavior didn't constitute gaming in violation of the ISO and PX rules. Staff also recommends that companies disgorge unjust profit associated with violation of the rules.
Among those the staff accuses of gaming are Sempra Energy , Canadian provincial utility BC Hydro, Enron, Avista Corp., American Electric Power Co. Inc., Duke Energy Corp., Mirant Corp., Dynegy Inc., Calpine Corp., Reliant, Williams Cos. , and Constellation Energy Group Inc.
Staff, however, also blamed California's two main investor-owned utilities for gaming the markets. Those utilities are Edison International's Southern California Edison and PG&E Corp.'s Pacific Gas and Electric Co.
FERC staff found that Dynegy, Mirant, Reliant, Williams, BC Hydro, Enron, the federally owned power marketer Bonneville Power Administration, the Los Angeles Department of Water and Power and IdaCorp. Inc.'s Idaho Power withheld supplies from the California market in an effort to drive up prices.
Those companies should have to prove their innocence or disgorge profits from withholding power between May 2000 and October 2, 2000, FERC staff recommended.
Staff also said that some 16 companies, mostly municipal utilities, were trading partners of Enron in strategies that violated rules. Profit resulting from those violations should be returned to California, FERC staff recommended.
Further, "Traders from Reliant and BP Energy apparently coordinated their efforts to manipulate Western electricity prices," the staff found. BP Energy is a unit of BP PLC .
Specifically, on three occasions a trader from BP phoned a Reliant trader and asked him to buy electricity on the electronic trading platform operated by Bloomberg LLP. The Reliant trader then sold the electricity back to BP over the counter at the same price.
These three wash trades apparently raised market prices for electricity, the staff found.
"Therefore, staff recommends that the commission initiate proceedings to revoke Reliant's and BP's ability to sell power at market-base rates," the staff said Wednesday.
In addition, staff found that prices in the Pacific Northwest were elevated beyond what would be expected in a normal competitive market and that a FERC judge should begin proceedings to investigate the Northwest electricity market.
Despite the many new revelations of misbehavior by energy companies Wednesday, FERC staff cleared Williams of an allegation that it attempted to corner the market for natural gas in California. That accusation first appeared in the New York Times on June 2, 2002. Williams was accused of trying to increase prices for natural gas in January 2001.
"Staff concludes that the claims are unsubstantiated," the FERC report said.
FERC commissioners were voting Wednesday on many of these recommendations.
The commission did approve a proposal that will raise refunds to California power customers $1.5 billion to a total of $3.3 billion, a FERC spokesman said.
FERC spokesman Kevin Cadden made the projection based on proposals the commissioners approved from staff on how to remedy unjust and unreasonable electricity prices in the California market for the period from Oct. 2, 2000, to June 20, 2001.
The commission expects refunds to be distributed by the end of the summer.
California utilities and state regulatory authorities have been seeking refunds of up to $8.9 billion, but a FERC administrative law judge had ruled that the refunds should total only $1.8 billion.
FERC Response Is Late, WeakPublic Citizen – www.Citizen.org - March 27, 2003
Statement by Tyson Slocum, Research Director for Public Citizen's Critical Mass Energy and Environment Program
(3/26/03) - The Federal Energy Regulatory Commission's (FERC) response to the overwhelming evidence that the West Coast energy crisis was caused by the willful manipulation by energy companies is belated and weak. In November 2000, FERC concluded that West Coast energy prices were not just and reasonable, but it has taken the commission 28 months to conclude that corporate misdeeds were the cause. The companies include AEP, BP, Duke, Dynegy, El Paso, Enron, Mirant, Morgan Stanley, Reliant, Sempra and Williams.
In 2000 and 2001, energy companies engaged in a year-long campaign of extortion of tens of millions of West Coast households and businesses. The companies responsible not only ought to be held accountable but should be prevented from manipulating the market again. It is unconscionable that FERC has not permanently revoked market-based rate authority for the companies that caused the crisis. Instead, FERC has only sought a refund of the ill-gotten gains. These corporate criminals set astronomical rates by manipulating the availability of energy in a deregulated market. They should not be allowed to do so again.
In its findings, FERC singled out Enron Energy Services (EES) as a major participant in some of the most egregious manipulation schemes, concluding that EES was one of the largest perpetrators of manipulation strategies in the California market. Thomas White was in charge of this Enron division until President Bush appointed him Secretary of the Army in May 2001. Public Citizen renews its call for White to appear before the U.S. Senate to respond to questions we believe he did not truthfully answer during his July 2002 testimony.
Enron Deregulation Lobbyist Failed to RegisterPublic Citizen – www.citizen.org – March 26, 2003
Public Citizen Calls on Congressional Investigators to Determine Whether Enron Lobbying Firm That Pushed for Energy Legislation Violated Law
WASHINGTON, D.C. - A firm that lobbied for Enron Corp. in 1999 and 2000 should be investigated for potentially failing to comply with a law that requires lobbyists to register with Congress, Public Citizen said in a letter sent today to the Secretary of the Senate and Clerk of the House of Representatives.
Through documents obtained by a Freedom of Information Act request, Public Citizen learned that Cadwalader, Wickersham & Taft, a Washington, D.C., law and lobbying firm, contacted government officials on behalf of Enron and set up meetings between Enron and the President's Working Group on Financial Markets about proposed amendments to the Bankruptcy Reform Act of 1999 and 2000. Enron sought to add amendments that would permit large-scale retail energy trading and derivatives contracts to be made in deregulated markets, and reclassify those derivatives so they would be counted as larger assets in bankruptcy proceedings.
The Cadwalader firm lobbied for Enron on a number of levels - contacting working group officials and U.S. Department of the Treasury staff on the company's behalf, and planning and preparing materials for Treasury's review, Public Citizen's letter said.
Although that bankruptcy bill never passed Congress, the provisions for retail swaps were subsequently included in the Commodity Futures Modernization Act of 2000, allowing Enron to engage in energy trading without government oversight. This freed Enron to profit by withholding supply and driving up the cost of wholesale electricity, leading to the West Coast energy crisis in 2000 and 2001.
"Enron and the Cadwalader firm fought so hard for these provisions, and their eventual victory meant enormous electricity rate increases and rolling blackouts for consumers on the West Coast. The least they should do is meet their obligation to register with Congress," said Tyson Slocum, research director with Public Citizen's Critical Mass Energy and Environment Program. "By failing to register, Cadwalader has shielded its involvement with a corrupt corporation that went on to defraud the public."
The Lobbying Disclosure Act of 1995 requires that lobbying activity be registered with the Secretary of the Senate and Clerk of the House within 45 days of the first contact with government officials. The maximum penalty for a violation is $50,000. The three Cadwalader employees who did extensive work on the bankruptcy bill amendments were never registered as lobbyists for Enron. The firm is registered as a lobbyist for other companies, but not Enron.
Documented contacts between Cadwalader's employees and government officials include:
- In May 1999, Treasury staff circulated an internal memo regarding Cadwalader's proposed amendments to the bankruptcy bill, calling them "Statutory changes proposed by Cadwalader/Enron."
- In June 1999, Norman Carleton, Treasury's director of finance policy analysis, circulated an e-mail describing the working group's general opposition to the Enron/Cadwalader proposals because they were too broad. He sent a second e-mail the same day, adding, "I forgot to mention that Enron has been lobbying for expansion of the netting provision s with the help of the Cadwalader law firm." Two days later, Treasury staff and Cadwalader lobbyists held a conference call.
- On Sept. 10 and Nov. 10, 1999, and March 1, 2000, Cadwalader submitted additional proposals to Treasury staff, which the staff discussed in e-mails that were heavily redacted before being given to Public Citizen.
"Cadwalader was pushing for drastic deregulation of the energy market, which has always been a priority for Enron, and the records are quite clear that they were working together to push the agenda on Treasury," said Slocum. "But this law exists to keep Congress and the public apprised of who is influencing decisionmakers. Congress needs to enforce its laws to their full authority."
FERC Levies $20 Million FineTulsa World – by Russell Ray – March 25, 2003
(3/18/03) - The Federal Energy Regulatory Commission slapped Williams Cos. Inc. with a $20 million fine Monday, the largest civil penalty it has ever issued, for using "anticompetitive practices" barred by law. Under a settlement with FERC, Tulsa-based Williams agreed to pay the fine over four years. The first payment of $4 million is due in mid-May.
The total financial impact to Williams, which is cutting jobs and selling assets to pay down billions in debt, will be an $8 million charge against profits made in the fourth quarter of 2002, Williams said.
The commission found that Transcontinental Gas Pipe Line Corp., Williams' largest gas pipeline, provided an affiliate company, Williams Energy Marketing and Trading Co., access to computer databases containing specific information about customer accounts and pipeline operations.
Interstate gas pipelines are prohibited from giving preferential treatment to an affiliate under FERC rules. Transco had been violating those rules since 1999, investigators found.
"This settlement should make it abundantly clear that improper dealing will not be allowed to jeopardize the economic growth that comes with open and fair markets," Pat Wood, FERC chairman, said in a prepared statement. "The commission will not tolerate this kind of anticompetitive behavior."
Regulators allege the information gave Williams' trading unit an advantage over its competitors. Through the company's Intranet site, Williams traders were able to examine contract information for Transco's nonaffiliated customers, invoices and real-time gas flow data, according to papers filed Monday with FERC.
Although Williams signed the settlement, the company did not admit to any wrongdoing. Williams traders gained no advantage from the Transco information, which was posted on Williams' Intranet site inadvertently, said Kelly Swan, a spokesman for the company.
"We don't think the information was acted upon or used to harm any competitor," Swan said.
"We could have fought this and it could have gone on for years," he said. "There's a cost to the penalty. There's also a cost for pursuing your innocence. We've got other things to take care of right now."
The company is focused on preserving and raising cash so it can pay this year's maturing debts, Swan said. "We recognize that the opportunity was there," Swan said. "The FERC has raised some very important issues. We have taken corrective measures."
Williams bought the 10,560-mile Transco system in 1995. The pipeline carries natural gas from the Gulf Coast to markets in 12 states.
Williams is trying to reduce its exposure in energy trading through either a joint venture or a sale of all or portions of its trading portfolio. The trading unit began losing money last year following the collapse of Enron Corp. and a sharp decline in trading activity.
The trading unit, which accounted for half of Williams' operating profit in 2001, lost $624.8 million in 2002. Overall, the company lost $736.5 million, or $1.60 a share, last year.
El Paso Price Manipulation SettlementFT.com – by Sheila McNulty – March 24, 2003
(3/23/03) - The Federal Energy Regulatory Commission (FERC) has ordered to be released by this Wednesday all documents from its inquiry into the manipulation of energy prices in the western US.
This might well mean further embarrassment for El Paso, the biggest US pipeline company, which has been at the centre of litigation by California against energy companies since the state suffered blackouts in 2000/01.
Yet the Houston-based company has sought to head off any legal implications from the FERC's investigations by settling last week the charges by California that El Paso had manipulated natural gas prices, costing consumers more than $3bn.
The settlement, unveiled on Friday, was valued at $1.7bn and comes as El Paso races to convince shareholders it is acting in their best interests ahead of a proxy battle to be fought at the May 20 annual meeting.
Analysts had considered the California dispute El Paso's biggest liability in the battle, after a FERC judge last year found, in an interim decision, that El Paso subsidiaries had illegally squeezed the supply of natural gas to California during its energy crisis. The FERC was to issue a final decision by month's end.
California, and the other parties to the case against El Paso (including Washington, Oregon and Nevada), are now going to ask the FERC to put off any action.
"We believe the effective global nature of this pending settlement removes a material overhang off El Paso that should substantially facilitate its ability to get back on its feet quickly," said Ronald Barone of UBS Warburg.
El Paso crafted the settlement to minimise immediate demands on its cash at a time when the company is under considerable financial stress following a loss of confidence in energy traders emanating from Enron's collapse.
The company admits no wrong-doing, but if the settlement is approved by the FERC and the courts, El Paso will provide up-front cash of $100m; $2m from the company's officer bonus pool; $125m in El Paso stock; natural gas delivered to California valued at $45m per year for 20 years; a $125m price reduction on power contracts with California; and additional payments of $22m per year over 20 years.
Yet El Paso's critics remain dissatisfied. Indeed, Arizona has filed its own case against the company. Eleven lawsuits were filed in California against El Paso, and at least one is continuing.
However, analysts still do not have a clear picture of El Paso's financial position. It has not yet reported its earnings for 2002, in which the company lost its investment-grade credit rating.
"It remains impossible to truly understand the fundamentals of El Paso and arrive at a pure fundamental value for the company," said Gordon Howald of Crédit Lyonnais Securities.
Adding to the uncertainty is El Paso's search for a new CEO after the recent ousting of William Wise, who had led the company for the past dozen years. And then there is the proxy battle for control.
"The opposition is quite formidable, in our opinion, and is expected to unfold a very stringent turnaround plan in the near future," said John Olson, of Sanders Morris Harris, the Texas investment bank.
"This is likely to provoke an even more aggressive turnaround plan on the part of the incumbents."
FERC Releasing Secret Energy DataReuters – by Chris Baltimore – March 22, 2003
(3/21/03) - WASHINGTON (Reuters) - Thousands of pages of data, interviews and trading records collected in a probe of alleged price manipulation by Enron Corp. and others during California's 2000-01 energy crisis will be released on Wednesday, the Federal Energy Regulatory Commission (FERC) said.
Under pressure from California lawmakers, FERC on Friday finalized its plan to make public the now-secret materials on the same day the agency will issue a staff report on alleged price gouging that cost the state billions of dollars.
Last year, the FERC released internal Enron memos that documented trading schemes with names like "Fat Boy" and "Death Star" that were meant to exploit weaknesses in the state's flawed market rules.
The memos detailed how, for example, Enron moved wholesale electricity out of California, then back within state borders to evade a price cap.
A second former Enron top trader, Jeffrey Richter, last month pleaded guilty to conspiring to commit wire fraud in connection with those schemes. Last autumn, former trader Timothy Belden did likewise and agreed to help prosecutors in their ongoing investigation.
2 TERABYTES OF DATA
California state officials and lawmakers are eagerly awaiting the release of the documents as well as FERC's final report into the behavior of Enron and other trading companies.
Firms including Dynegy Inc., Williams Cos. Inc., and Duke Energy Corp. asked FERC not to release the documents until they were reviewed by the companies.
FERC said in a brief order on Friday that the agency "remains convinced that the release of the information ... is necessary and in the public interest."
The information trove FERC will open includes more than 2 terabytes of data -- enough to fill 1.5 million floppy disks, it said.
However, FERC said it will not release evidence linked to alleged natural gas price manipulation by former traders with El Paso Corp. and Dynegy.
U.S. prosecutors recently charged two former traders of allegedly submitting fake natural gas trades to a McGraw-Hill Cos. Inc. newsletter that publishes widely used natural gas price indices. Federal officials asked FERC to keep secret those documents because of the ongoing criminal case.
REFUND DECISION DUE
On Wednesday, FERC commissioners will also rule on California's demand for $7.5 billion in refunds for electricity supplies bought during the crisis.
An initial decision by a FERC judge in December awarded the state just $1.8 billion in refunds. The state still owes suppliers $3 billion, meaning California would still have to give about $1.2 billion to suppliers if FERC commissioners uphold the decision.
FERC had also planned to issue a decision on whether El Paso withheld natural gas supplies from California during the state's energy crisis. However, El Paso said it asked FERC to delay its ruling because of a tentative settlement unveiled on Friday with California.
California estimated the value of the settlement at $1.7 billion, including cash, stock and natural gas deliveries.
FERC also this week signaled that it wants to release documents collected during its investigation into El Paso, the largest U.S. natural gas pipeline company.
The Enron investigation is before FERC in docket PA02-2, the California refund case is EL00-95, and the El Paso case is RP00-241.
Energy Market Probe InformationDow Jones Business News – by Andrew Dowell – March 22, 2003
(3/21/03) - NEW YORK -- The Federal Energy Regulatory Commission Friday ordered the release of all documents related to its investigation of alleged manipulation in the western U.S. energy markets. The files are huge and include company transaction data, transcripts of conversations between traders, and e-mail submitted by energy companies and the state of California and gathered by FERC staff.
The FERC's decision means there are likely to be further embarrassing disclosures ahead for energy companies. The energy companies have seen their credibility hurt after conversations in which traders discussed shutting down power plants to boost prices were made public.
"It's about time," said Steve Maviglio, spokesman for California Gov. Gray Davis. "The governor is pleased that FERC will lift the veil of secrecy, so the whole world will finally be able to see the extent of market manipulation that FERC is ready to sweep under the rug. You'll see the specifics of what actually went on, for example, dates, times, conversations. They make a mighty strong case."
The commission Friday gave five days' notice of the release, which it said wouldn't come before March 26.
FERC has been under political pressure to release the documents, which had been treated as confidential.
The documents to be released are at the heart of the commission's investigation into the causes and consequences of the western energy crisis of 2000-2001. The crisis was marked by skyrocketing power prices, blackouts and the insolvency of California's two largest utilities.
California has long argued that the high prices were the result of market manipulation by power generators and traders. Energy companies counter that the crisis was produced by the state's poorly designed deregulation framework and a genuine supply shortage.
The commission has said it will release the conclusions of its west-wide market-manipulation investigation by the end of March. By that same deadline, FERC is also to rule on California's pursuit of refunds from companies that sold electricity and gas in the state. Both issues are on the agenda for the commission's meeting next Wednesday.
In ordering the information released, the commission said it concluded the potential harm of disclosing matters that were commercially sensitive or involved existing contracts was outweighed by the public's interest in reviewing the data that formed the basis of FERC's decisions on an important issue.
Spokesman for Duke Energy Corp. and Reliant Resources Inc., two companies that own power plants and trade electricity in California, agreed.
"We support FERC's conclusion that it is in the public interest to lift the protective order on the record of proceedings," Duke spokesman Pat Mullen said. "We've said all along that these issues should be decided on the facts, not rhetoric, and we welcome the chance to have the record set straight once and for all."
Companies and their share prices, however, could come under pressure if embarrassing incidents are disclosed, Christine Tezak, an analyst at Schwab Capital Markers, wrote in a research note earlier this month.
Reliant and Duke are both subjects of the inquiries. Others include Williams Cos. , Mirant Corp., Dynegy Inc. and Sempra Energy . FERC has gathered information from more than 200 companies under the investigations.
"We respect the FERC's decision," Dynegy spokesman David Byford said.