Hydro trader pays $1.6M for failed imports

Toronto Star - February 19, 2003
by John Spears, Business Reporter

An energy trader has agreed to pay a settlement of $1,625,000 to the authority that runs Ontario's electricity market, in connection with cross-border power trades that caught the eye of market compliance officials.

Coral Energy Inc. made the voluntary payment following several failed transactions between August and December, according to a notice on the Web site of the Independent Electricity Market Operator, or IMO. Coral is a subsidiary of Shell Oil Co.

"Coral made no admission of a breach of the market rules," according to the IMO statement.

IMO officials said they couldn't discuss details of the trades, or even say how many trades were covered by the settlement agreement.

The market surveillance panel of the IMO commented in its October report on cross-border trades that fail to materialize.

Generators and traders from outside Ontario supplied much of the province's market during the summer, when demand soared and local generators couldn't keep up.

Under market rules, the IMO, which is responsible for matching supply and demand, books imports and exports an hour in advance. If, for some reason, a promised import doesn't show up, the IMO has to scramble on short notice to fill the gap. Usually, that means it has to buy more expensive power.

By the same token, if an Ontario supplier agrees to export power and the trade falls through at the last minute, the IMO may be left with a glut of power on its hands, which depresses the market price.

Often, cross-border trades fail for reasons difficult to foresee, such as generating equipment breakdowns, or because transmission lines are fully loaded and can't handle more power.

But IMO compliance staff watch failed trades closely, because an unethical buyer or seller could manipulate prices by setting up imports or exports that it knows are likely to fail.

There were hundreds of failed transactions during the summer, 106 of which IMO staff had probed by the end of January. Investigations have been discontinued in 41 of the transactions. No penalties have been issued.

The IMO statement on the Coral settlement does not say that the company engaged in any improper conduct.

Coral spokesperson Jimmy Fox reiterated that position in an interview from Houston.

"Coral in no way manipulated the power market," Fox said. "The failed transactions had no financial benefit to Coral."

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