Widespread hydro price gouging found in California

Power traders tell colleagues to 'stick it to 'em'

Associated Press - April 27, 2003

WASHINGTON (AP) - At the height of the California power crisis, U.S. energy traders bragged of charging double the going rate, slowing down power plants and one urged colleagues to "stick-it to 'em" when selling to California, memos released by federal regulators showed.

The memos were part of the evidence California officials used to make their case for $9 billion in refunds at the U.S. Federal Energy Regulatory Commission.

The commissioners agreed with the state Wednesday, saying their investigation found widespread manipulation of natural gas and electricity prices and supplies in California.

Pat Wood, chairman of the Federal Energy Regulatory Commission, said that as a result of the manipulation California would receive more than the $1.8 billion in refunds recommended by a FERC judge in December. The exact amount is to be determined in the coming months.

The FERC singled out seven subsidiaries of bankrupt Enron Corp. and five other companies for taking advantage of a dysfunctional market and reaping millions of dollars in unjust profits.

"The price gouging abounded," Commissioner William Massey said, adding that he regretted FERC did not intervene earlier to police the newly deregulated power market in California.

The commission released reams of previously confidential documents Wednesday, giving a glimpse into the trading practices of the energy companies that profited during the crisis.

Among the exhibits California submitted:

• A Mirant e-mail from July 2000 that urged 11 traders to revise bids and "stick-it to 'em!!''
• An internal Powerex memo that acknowledged the company was selling at high prices to "ensure compensation for increased regulatory (risk of FERC refunds) and credit risks.''
• An Enron employee evaluation that praises the trader for routing power out of California, then selling it back into the state, in order to avoid price caps.

The agency is considering placing limits on the profits of four marketers of wholesale power and banning eight gas companies from selling natural gas in California, Wood said.

The investigation also found a close link between prices for electricity and natural gas, the fuel at many power plants.

After a 13-month investigation, FERC concluded "that many trading strategies employed by Enron and other companies violated the anti-gaming provisions" of marketing rules.

"Enron manipulated thinly traded physical markets to profit in financial markets," FERC said, estimating that Enron made more than $500 million in online trading in 2000 and 2001.

FERC investigators recommended the companies be forced to give up unfairly earned profits.

The energy crisis cost the state as much as $45 billion over two years in higher electricity costs, lost business due to blackouts and a slowdown in economic growth, according to the Public Policy Institute of California.

Shortcomings in California's energy market rules and a shortage of electricity stemming from the lack of hydropower in the Northwest in 2000 "made this fertile ground for the manipulation we found," said Donald Gelinas, who headed FERC's investigation.

Toronto Ontario