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FERC Staff Details More Evidence of Enron Gaming Practices

Supplemental testimony filed by FERC staff as part of a review of various Enron trader audio tape files shows additional examples of how the now-bankrupt former energy trading giant tried to game the Western power markets in 2000-2001, Commission staff said [EL03-180, et al].

FERC staff has been plowing through thousands of hours worth of audio tapes as part of a FERC probe into possible manipulation of California's energy markets in 2000-2001 and Enron's relationships and practices in the West during that time frame.

The audio tapes have been investigated by Commission staff in three stages. The first stage was an exhaustive review of all 2,966 hours of audio tapes provided to the Snohomish Public Utility District No. 1. The second stage was a statistically derived random sampling of the remaining 21,000 hours of audio tape from Enron's West Desk trading operations in Portland, OR.

The third stage is a targeted investigation of the Enron tapes using various leads to select specific channels, traders, and dates. Several FERC staff members filed prepared testimony this month related to findings reached in the third stage of the probe.

FERC staff member Natalie Tingle-Stewart confirmed in her April 14 testimony that there was a particular focus to the targeted review that differed from the earlier reviews. Specifically, staff focused on three narrow aspects of the tapes: conversations related to potential "Death Star" transactions, conversations that shed more light on the nature of partnership arrangements and how they worked and conversations that revealed an intent to game the system through various strategies.

FERC trial staff "found additional conversations that show that the Enron energy traders in the Portland office were clearly attempting to use strategies that violated the [California] ISO market rules," Tingle-Stewart noted.

In his supplemental testimony, FERC staff member Edward Gross said that he found "a number of additional examples of taped conversations relating to Enron's standard practices for bidding into the ISO's ancillary services markets in the hour-ahead and day-ahead markets that indicate that Enron knowingly engaged in gaming practices (such as paper trading) which violated ISO market rules and consequently impacted system-wide reliability negatively."

Gross referred to a series of conversations in which various Enron traders and personnel discuss among themselves the standard practice of "zeroing" out day-ahead ancillary service bids to prevent receiving an ancillary service award.

"Specifically, Enron traders are left scrambling to try and find capacity to cover an unintended ancillary service award that occurred because of improper execution of Enron's standard paper trading practice of 'zeroing' out the day-ahead bids," Gross testified.

Throughout these conversations "it is clear that these Enron personnel are aware that being unable to provide the ancillary services in the event Enron is called to deliver on an award creates reliability problems for the ISO. In addition, there are a number of calls where Enron employees contact what appear to be personnel at generators as they scrambled to cover the ancillary service bid that it has been awarded."

Included in these conversations are discussions of how to explain the problem to the California ISO so as to make it appear that the remaining "unzeroed" bid is the result of a simple glitch in the Enron system software rather than a standard trading practice, according to the FERC staff member.

Gross noted that the series of calls ends with a conversation between an Enron employee and an ISO operator who asks specifically about a series of previously submitted schedules that "disappeared" (except for one apparently unintended bid). The Enron employee explains that none of the schedules should have been submitted and that Enron is experiencing a computer glitch which it is trying to resolve with their "client service rep."

Meanwhile, Commission staff member Barry Sullivan used his supplemental testimony to address specific Enron trader audio tape files concerning the Death Star market manipulation trading strategy.

In previous testimony, Sullivan noted that FERC staff was continuing with a targeted investigation of the Enron trader audio tapes and that staff would present the results of the targeted tape investigation after it received permission from the Department of Justice to disclose the contents of the tapes.

"Trial staff has received permission from the Department of Justice to use additional audio tape evidence, which I am presenting in this supplemental tape testimony," Sullivan said.

Among other things, Sullivan identified and provided transcripts of conversations and specific audio files that he referenced in his March 1, 2005 initial tape testimony concerning 17 specific days of Death Star deals between Enron and Portland General Electric.

FERC last month posted on its website the filed testimony of several FERC staff members related to the audio tapes probe (see NGI, March 7). At that time, one of the Commission staff members said that staff had only "scratched the surface of the amount of material in hand" and recommended further review of Enron Power Marketing Inc. (EPMI) energy trader audio tapes of telephone conversations.

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