Responding to an April order requiring them to show how they have cleaned up their price-reporting practices, a number of energy companies last week told FERC they either have cut back their natural gas trading to bare-bones operations or completely pulled out of the business, fired and disciplined rogue traders, and bowed out of price reporting until reforms are enacted.

Undoubtedly, the most drastic actions appear to have been taken by CMS Marketing, Services and Trading Co. CMS “has eliminated speculative energy trading, sold over 90% of its wholesale natural gas trading book and its wholesale electric book and related supply portfolio, sold its retail natural gas operations outside Michigan, and sold its interest in a crude oil marketing business,” the company said [PA03-4]. It also is selling its energy-performance contracting business and has announced it will be selling or phasing out its Michigan gas and electric retail choice business.

The employee count of CMS Marketing has been slashed by more than 90%, which includes all of the company’s Houston-based gas and power trader positions, the company noted. CMS Marketing’s Houston office is due to close at the end of this month.

The company’s current business activities are based in its Jackson, MI, office, and are “generally limited” to the continued operation of businesses until they can be either sold or phased out, and purchases of gas for internal use, it noted.

CMS Marketing’s entire gas trading group now consists of one trader/supervisor, one person charged with managing the company’s Michigan supply portfolio and one scheduler, according to the company. Its power trading group is limited to one supervisor, one trader and five schedulers.

Following an internal review of its price-reporting activities, four employees of CMS Marketing were sacked and one was placed on disciplinary supervision, the company informed FERC. The four firings essentially wiped out the company’s gas trading group in Houston. CMS Marketing said it has suspended all reporting of price data to trade publications, and “has no present intention to resume price reporting.”

The April 30 order directed CMS Marketing and 10 other energy companies, many of which have publicly admitted to providing false data to trade publications that publish price indexes, to prove they have changed their ways. FERC ordered the companies to show they have taken disciplinary actions against rogue traders, installed controls to prevent attempt to skew price indexes in the future, or exited the wholesale gas marketing and trading business entirely (see NGI, May 5).

Dynegy Inc. reported it fired seven employees and disciplined six for price-index violations at the end of last year. Since then, “Dynegy has substantially wound down its third-party marketing and trading activities and, in late 2002, discontinued reporting trade data to industry publications.” In a letter sent to energy trade publications earlier this month, the Houston energy company said it “confirmed” that it “would permanently discontinue reporting any trade data” to the press.

Similarly, Aquila Marketing Service (AMS) said it “no longer engages in other than de minimis levels of natural gas trading and no longer reports price information to the trade press.”

As for disciplinary actions, it said “the AMS traders who were alleged to have manipulated or attempted to manipulate the published price indices have either been terminated or resigned.” Two current AMS employees reported prices during the period targeted by FERC’s probe, but “to the knowledge of Aquila and AMS, neither individual is believed to have participated in the manipulation of published price indices,” the company said [PA03-2].

Likewise, El Paso Merchant Energy LP (EPME) “no longer provides any trading data to trade publications,” said El Paso Corp.’s power merchant affiliate. “No one at EPME, including trading and risk management personnel, is authorized to communicate with the trade press about EPME’s trading.”

Traders of EPME who submitted false price and volume data to published indexes were fired in late 2002 and early 2003, the company said [PA03-7]. “While EPME does not condone any false reporting of prices to trade publications that may have occurred, it has no evidence that such reporting resulted in any unrepresentative price index.”

Starting last December, Sempra Energy Trading (SET) “removed from the trading desk the responsibility for collecting and reporting natural gas trade data,” and transferred the activity to middle-office personnel who report directly to the company’s chief risk officer’s group, according to an affidavit submitted by the company. “SET has expressly prohibited all trading and trading support personnel from communicating any natural gas trade data to trade publications.”

SET said it disciplined one employee who on a few occasions directly reported prices to Gas Daily, a Platts’ energy trade publication, that “may have been inaccurate by one or two cents.” The employee was required to attend a “mandatory compliance seminar on commodities laws and regulations by SET’s outside counsel and was suspended for one week without pay,” the company said [PA03-10].

Unlike the others, Coral Energy Resources LP said it did not find any evidence that its employees either manipulated or attempted to manipulate the published price indexes. Consequently, it noted it did not find it necessary to take any disciplinary action [PA03-3]. Nevertheless, “Coral has and will continue to cooperate with investigations of its past reporting activities and has adopted specific measures to strengthen controls and oversight regarding inaccurate price reporting in the future.”

Houston-based Reliant Resources Inc. (RRI) last week said it also was “not aware” that any of its employees manipulated or attempted to manipulate gas price indexes. Duke Energy Trading and Marketing LLC reported it “admonished” several traders who “knew or should have known” about the reporting of false data to publishers.

Following a “reasonably diligent internal review,” RRI said it could not find that any employee of Reliant Energy Services Inc. (RES), RRI’s wholesale gas marketing arm, intentionally tried to deceive the publishers of gas price indexes [PA03-9]. “Any inaccuracies in natural gas prices that may have been reported to entities that publish price indices by RES employees were the result of unintentional errors, not of attempts to manipulate the indices.”

Duke Energy said it issued “letters of admonishment” against two basis traders who either “knew or should have known” about the reporting of bogus information to published gas price indexes, and it demoted six employees to non-managerial positions and admonished them as well. All of the traders or employees were involved in gas trading in the East, according to the company [PA03-6].

Even though it was unable to uncover any wrongdoing, RRI said the remaining RES trading staff, which has been “considerably reduced” since 2000, “received extensive training in business ethics, RRI’s vision and values, and best principles and practices for energy trading.” Moreover, it noted the company ceased all price reporting last May, and does not plan to resume the activity until “reliable, industry-wide reporting procedures” can be agreed upon.

When that occurs, “RES will ensure that such reporting is conducted by personnel of the company that do not have a financial interest in the published index,” the company said.

Duke Energy said it continues to submit gas prices to publications, but it noted the company’s Business Risk Management Office — rather than individual traders — is providing the information to the energy newsletters. “A Gas Management System (GMS) or a Power Trading System (PTS) report is generated at the end of each business day to verify that transactions have been input in a timely manner. If an error or omission is discovered in submitted data for a transaction within 48 hours of when the transaction is booked, the corrected data is re-submitted to the applicable publications by the end of the business day” following the close of the 48-hour period, Duke Energy noted.

The Charlotte, NC-based energy company said it has responded to requests from the Commodity Futures Trading Commission and a San Francisco grand jury about its past reporting practices. It noted it also has had a “series of meetings” with the CFTC, including a joint meeting with FERC, to answer questions about the reporting of prices.

RRI noted it was “cooperating fully” with governmental agencies investigating its past reporting practices, but it did not provide any details.

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