Suppliers deny using Enron tactics; Power firms answer FERC questions

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The Houston Chronicle

WASHINGTON – Power suppliers have told federal regulators their behavior during the California electricity crisis was dramatically different from that of industry pariah Enron.

Many were quick to deny any similarities, but some of their practices required considerable explanation.

The Federal Energy Regulatory Commission has ordered more than 150 power companies to submit sworn affidavits explaining whether they had engaged in trading strategies similar to those used by Enron during California’s power crunch.

Enron‘s traders used 10 questionable trading strategies to, among other things, create phantom congestion on California’s power transmission, ship electricity out of the state to circumvent state price caps and submit unrealistic power demand schedules during the crisis, all at a time when California was scrambling just to keep the lights on.

In their responses, the power suppliers denied wrongdoing.

“We didn’t find any alleged Enron-style trading strategies because we are – and always have been – very different from Enron,” declared Steve Malcolm, chief executive officer of Tulsa-based Williams Cos.

“Our practices were proper and lawful, aimed at serving the public interest while delivering shareholder value,” said Hugh Rice Kelly, Houston-based Reliant Energy’s general counsel.

But some suppliers acknowledged that several of FERC’s questions could not be dismissed with a simple: “denied.”
Regulators had asked the suppliers, for example, to say whether they bought electricity from California’s Power Exchange, the now-defunct market where companies once sold electricity for delivery for the following day.

Because prices in the exchange were capped, regulators asked if companies were buying power at the capped prices, then selling it at a higher price out of state.

Reliant Energy told regulators its internal investigation had, initially, “indicated a possibility” that the company had purchased electricity from the Power Exchange and then exported that power in 2000 and 2001.

But after examining the issue more thoroughly, Reliant officials concluded the company had only exported electricity it had generated itself at its own power plants or had purchased from other companies in two-way trades – not electricity from the Power Exchange.

Williams could not say whether or not it engaged in this practice.
“Williams believes that . . . some of its . . . purchases may have been made with the expectation of reselling at a higher price to buyers in non-California markets, but . . . these cannot be verified.”

Regulators also have asked power suppliers whether they had engaged in a practice called “Fat Boy” in the Enron memos.

Using this strategy, a supplier would ship more electricity on California’s grid than its customers could take, although rules required that supply and demand balance.

Traders would use this strategy when they believed California’s utilities had underestimated the state’s power demand. On such days, the state was so desperate for electricity that a company with “excess” power available could sell it for a favorable price.

Reliant conceded that during the time period it had scheduled “small amounts of excess load.”

But it amounted to less than 150,000 megawatt-hours of electricity, less than one-half of 1 percent of the 27.8 million megawatt hours of power Reliant generated during the period.

Reliant officials said the practice helped maintain supplies to California consumers and that the activity was known to the Power Exchange and the California Independent System Operator, which supervises the grid.

Overall, Williams conceded, it had identified “a fraction of a percentage of its overall trading volumes” that had “some of the characteristics described in the Enron memo” but those transactions “were engaged in for entirely different reasons.”

Houston-based Dynegy denied using any of Enron‘s strategies, and expressed confusion about some of the descriptions. “The various Enron memoranda often provide conflicting and/or incomprehensible explanations of various trading and scheduling techniques used by Enron,” the company said in its filing. “It remains unclear to Dynegy how some of the strategies were intended to, or could have operated.”

Critics of the power industry remain unimpressed with the FERC’s investigation.

“If the FERC wants the public to feel confident about the investigation, it will have to be more aggressive than simply asking corporate lawyers to respond to an inquiry,” said Doug Heller, senior consumer advocate for the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights. “The FERC and law enforcement should be walking in these corporate offices and going through the files themselves.”

Officials at the California Independent System Operator responded cautiously to the filings.

“There’s an awful lot of information here to assimilate,” said Gregg Fishman, a spokesman for the grid operator. “It’s the FERC that asked for this information, and they’re the appropriate agency to evaluate it and make whatever decisions need to be made. It’s in their capable hands.”

Consumer Watchdog
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