The Oregonian

Panel recommends investigation of PGE

04/30/03

GAIL KINSEY HILL

The staff of the Oregon Public Utility Commission is recommending that the regulatory agency investigate possible mismanagement by Portland General Electric during the energy crisis of 2000-01.

If commissioners go ahead with the inquiry -- which they are expected to do -- it would represent their first formal review of the inner workings of the energy crisis and of PGE's potential participation in trading strategies that drove up wholesale prices.

Of more significance to PGE's 740,000 customers, any findings of mismanagement could result in rate reductions, although rollbacks probably would be relatively small and only partially counter the 30 percent residential rate increase instituted in late 2001, PUC staff said.

The staff's long-awaited report, released Tuesday, calls on regulators to zero in on PGE's involvement in an Enron trading scheme known as Death Star, one of several strategies used by Enron to manipulate energy markets. The report also keys in on PGE's failure to properly account for, or post, electricity trades with Enron, which owns PGE, Oregon's largest utility.

"We think there's enough evidence with the Death Star trades and the posting errors to make an argument that PGE mismanaged that portion of its trading," said Lee Sparling, administrator of the PUC's electricity division, who led the staff review.

The staff also suggested that an investigation into possible misconduct by PGE might be warranted but recommended delaying any action on that issue until an ongoing federal investigation into the utility's trading practices was completed.

Findings of misconduct, which involve violations of federal trading regulations, known as tariffs, also could result in rate reductions, state regulators said.

PGE officials objected to the staff recommendations.

"We disagree with the staff conclusions about our mismanagement," said PGE attorney Jay Dudley. "Characterizing minor administrative errors as mismanagement goes too far."

Dudley also questioned whether the PUC could rely on findings of past mismanagement to order future rate reductions.

"We're looking very carefully at whether it has the authority to order that kind of relief," he said.

Consumer groups encouraged Oregon consumer advocacy groups, which have criticized the utility commission for failing to aggressively dissect the energy crisis and expose potential perpetrators, said they were encouraged by Tuesday's report.

"The bad news is it took this long, and it's not particularly definitive," said Jason Eisdorfer, an attorney for the Citizens' Utility Board. "On the positive side, it confirms what a lot of people have been saying -- that something fishy was going on."

The energy crisis, which lasted from May 2000 through May 2001, was characterized by huge run-ups in wholesale electricity prices. It was blamed on a variety of factors, including California's botched deregulation plan, the Northwest's drought and greedy energy companies.

Enron became the symbol of opportunistic corporate behavior when, in May of last year, information surfaced that Enron was using trading strategies nicknamed Death Star, Fat Boy and Get Shorty to exploit markets and scoop up extra profits.

PGE was drawn into the controversy as a result of a series of trades it conducted with Enron on 17 days in April, May and June of 2000. The transactions turned out to be Death Star, a strategy that enabled Enron to collect payments from California for relieving congestion on overcrowded transmission lines, even though no power actually flowed and no congestion ever threatened.

Affiliated companies, such as PGE and Enron, may conduct only limited types of trades with each other. Those trades must be posted on electronic bulletin boards so that similar deals are available to other traders.

The Federal Energy Regulatory Commission began its formal investigation into PGE's trading activities in August and is scheduled to hold a key hearing in June. An initial decision is expected by mid-July.

A state investigation would focus on essentially the same issues as those involved in the FERC inquiry. But the utility commission would concentrate more directly on potential harm to ratepayers.

The staff report issued Tuesday also was to address whether PacifiCorp or Idaho Power, the two other investor-owned utilities that serve Oregon customers, were involved in questionable trading practices. But regulators said they needed more time to gather and review relevant information. They said they would issue their findings later this summer.

Neither PacifiCorp nor Idaho Power is involved in formal FERC investigations, although agency staff have recommended that the commission require the utilities to provide more details of their trading practices in California.

Commissioners plan to hold a public meeting in June to review the staff report on PGE and to decide whether to go ahead with an investigation.

Commission Chairman Roy Hemmingway for some time has said he favors a formal investigation into PGE's trading activities. He confirmed his leanings Tuesday.

"I'm going to vote for that," he said of the staff recommendation.

Commissioner Lee Beyer said he hadn't yet read the full report but "there's probably a basis to take a hard look at this."

Joan Smith, the remaining member of the commission, completes her term today. A replacement has yet to be named.

Gail Kinsey Hill: 503-221-8590, gailhill@news.oregonian.com

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