Black Hills to Investigate Former Traders; CCRO Meets on Price Indices

Black Hills Corp. announced Tuesday it is initiating an internal investigation of its past trade reporting practices in response to a request for information from the Commodity Futures Trading Commission (CFTC).

The CFTC request is in connection with its industry-wide investigation of the trade and trade reporting practices of power and natural gas trading companies. Several other companies targeted in the investigation have fired traders found to have given false price reports to publications. The U.S. Attorney's Office in Houston has brought criminal charges against a former El Paso Energy trader who allegedly submitted bad numbers to publications.

Representatives of various price reporting publications (including Daily GPI) were meeting in a closed door session in Houston Tuesday with the Committee of Chief Risk Officers (CCRO) to work on a new process for submitting information on buy-sell transactions and for aggregating the data to produce reliable average spot prices for natural gas and electric power. The key hurdle in the process is maintaining confidentiality of commercially sensitive information -- a requirement of companies submitting data. The meeting was billed as a "workshop" to flesh out a proposed process and confidentiality agreement offered last month (see Daily GPI, March 3).

The CCRO, meanwhile, has urged companies to continue reporting prices to publications to prevent a market breakdown, since there currently are no other comprehensive price discovery mechanisms available.

The Federal Energy Regulatory Commission, which is monitoring the market, is holding a technical conference on price indices on April 24. Publications, electronic trading systems and proponents of alternative price discovery mechanisms all will be testifying.

Congress has taken an interest. The House energy bill (H.R. 6) contains a provision that would require FERC to set up an electronic system to collect and monitor price transactions of jurisdictional entities (see Daily GPI, April 7). The Senate has yet to act. Data collected by FERC would be subject to Freedom of Information Act requests and to the Commission's recent penchant for making public confidential material.

The CFTC's Request to Black Hills seeks information concerning, among other things, the practices of its subsidiary Enserco Energy, Inc., relating to reporting of natural gas trading information to energy industry publications. Enserco Energy, located in Golden, CO, engages in natural gas marketing in the wholesale market and on behalf of independent producers.

Black Hills said it has retained independent counsel for the investigation. As a result of its preliminary internal investigation, the company sent documents and materials to the CFTC, including information identifying instances in which it appears that former employees at Enserco provided inaccurate reports of natural gas transactions to one or more industry publications. The individuals in question left the company before September 2002.

The Black Hills announcement said it would continue to cooperate with the CFTC, but it "cannot predict the outcome of any investigation. The company is committed to the highest ethical standards in all of its operations." Further, "the company does not believe inaccurate trade reporting to trade publications affected the financial accounting treatment of any transaction recorded in its books and records."

Enserco Energy marketing personnel no longer provide data about natural gas trades to industry publications, and since May 2002, the company has employed a chief risk officer to provide additional, independent oversight of marketing activities, and to implement enhanced risk management policies and procedures.

Black Hills Corp. is a diverse energy and communications company. Black Hills Energy, the integrated energy unit, generates electricity, produces natural gas, oil and coal and markets energy. Black Hills Power is an electric utility serving western South Dakota, northeastern Wyoming and southeastern Montana. Black Hills FiberCom, a broadband communications company, offers bundled telephone, high speed Internet and cable entertainment services.

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