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The Oregonian

Trades: Regulators tell 60 groups to explain practices during crisis



In a sweeping crackdown on alleged market manipulation schemes, federal regulators Wednesday ordered 60 power sellers and utilities to justify their electricity trading practices during the West Coast energy crisis of 2000-01.

The action, the latest in a lengthy investigation into the potential scamming of California energy markets, is aimed at a host of companies, including the three investor-owned utilities serving Oregon customers: Portland General Electric, PacifiCorp and Idaho Power.

Regulators also demanded that Portland-based federal power marketer Bonneville Power Administration and public utility Eugene Water and Electric Board explain questionable trading activities during the crisis.

If the Federal Energy Regulatory Commission finds that any of these entities violated, or "gamed," the rules governing California's energy markets, it can order them to disgorge all profits gained from the transactions. It also can revoke violators' "market-based rate authority," which would bar companies from competitive trading activities.

The orders, among several rulings issued by the commission Wednesday, emphasized regulators' eagerness to settle up with controversies that have roiled for two years after the energy markets have calmed. The contentious aftermath has pitted Western states against one another and drawn in 150 energy companies and traders.

"We need to put these issues behind us and provide the regulatory certainty our competitive energy markets so clearly require," said FERC Chairman Pat Wood.

Energy shortages hit California in May 2000, driving up wholesale electricity prices more than 10-fold. Millions of customers were without power during six days of intermittent blackouts, and California's largest utility, PG&E Corp.'s Pacific Gas & Electric, declared bankruptcy in April 2001 after racking up $13 billion in debt buying power on the open market. High power prices gripped California and other Western states for a year, subsiding in June 2001.

The energy agency launched an investigation into possible market manipulation in February 2002, prompted by the discovery of memos that outlined the aggressive trading strategies of Houston-based Enron. Through schemes with nicknames such as "Death Star," "Fat Boy" and "Ricochet," Enron manipulated the markets to drive up wholesale prices and bring in more profits, regulators determined.

Enron, once the largest energy trader in the country, collapsed into bankruptcy in December 2001.

Enron bought PGE in 1997. It is trying to sell the utility, which serves 743,000 Oregon customers, to satisfy some of the claims of its creditors.

An early target In addition to Enron, PGE was among FERC's early targets. Last August the commission launched a formal investigation into PGE's trading practices, zeroing in on a series of trades conducted with Enron's trading arm, Enron Power Marketing.

PGE denies that it knowingly engaged in any manipulative practices, although it admits it may unwittingly have helped Enron complete a series of Death Star transactions in the spring and summer of 2000.

The strategy allowed Enron to collect payments from California for relieving congestion on overcrowded transmission lines even though no power flowed and no congestion ever developed.

The commission has yet to rule on the case. A hearing is scheduled for Oct. 21.

The order issued Wednesday doesn't implicate PGE in the Death Star strategy. Instead, it targets the utility for possible participation in two other manipulative schemes. In one, called Ricochet, traders exported power from California at day-ahead market prices, then sold the electricity back to the state at higher real-time prices. In the other, transactions involved congestion pricing and were a variation of Death Star.

PacifiCorp, which is owned by Glasgow, Scotland's ScottishPower; Idaho Power, Puget Sound Energy and the Bonneville Power Administration, also were named in the order. Also on the list of 60 companies were huge energy traders such as Duke Energy of Charlotte, N.C., Dynegy of Houston and Mirant of Atlanta.

Another order In an accompany order, the energy agency zeroed in on companies that may have forged alliances with Enron and others to manipulate markets. The list of 24 companies included Eugene Water & Electric Board and PacifiCorp.

In the Eugene utility's case, regulators questioned an arrangement the utility had with Sempra Energy of San Diego that may have allowed Sempra to export power from California, "park" it with the Eugene utility, and then sell it back to California at higher prices.

Lance Robertson, a utility spokesman, said the Eugene Water & Electric Board already has explained the activity to regulators and conducted an internal analysis showing that the vast majority of the transactions involved power from outside California.

"This wasn't a case of parking power from California," he said.

Robertson said the utility will cooperate fully with the commission's latest demands, "although we're not entirely clear what they're asking for."

PGE officials also expressed some confusion at regulators' most recent order, given the reams of information already submitted. Specific claims against the utility should become clear in several weeks when California must submit specific transaction data for each of the gaming practices, said PGE spokesman Kregg Arntson.

PacifiCorp officials said the utility operates corporate-owned power plants to supply electricity to its customers and that only small amounts of wholesale purchases are made to meet demand.

"We are confident we will be able to demonstrate we did not undertake any transactions to manipulate markets," said PacifiCorp spokesman Dave Kvamme.

The Bonneville Power Administration, which markets almost half the electricity consumed in the Northwest, said it abided by market rules when it traded with California, often providing critical supplies of power.

"We bid low into California markets so as not to drive up prices," said BPA spokesman Ed Mosey. "We were a price taker, not a price setter."

Despite the claims of innocence, the commission said it was prepared to sanction those found to violate California's market rules either by gaming or "anomalous market behavior."

"The practices found to have violated the tariffs are rooted in deception or misrepresentation," the commission said in a news release accompanying the orders.

In addition, the partnership alliances forged by Enron and others had a "profound adverse impact on the Western power markets," the commission said.

Bloomberg News contributed to this report. Gail Kinsey Hill: 503-221-8590; gailhill@news.oregonian.com