The Commodity Futures Trading Commission (CFTC) ordered Dynegy Marketing and Trade and affiliate West Coast Power LLC Thursday to pay a fine of $5 million to resolve charges that they colluded to manipulate natural gas prices for more than two years by submitting bogus trading information to energy newsletters that publish gas price indices.

Without admitting or denying any wrongdoing, the affiliated companies entered into a settlement with the CFTC that requires them to “jointly and severally” pay a civil penalty of $5 million, to “cease and desist” from further violations of the Commodity Exchange Act (CEA), and to cooperate with the commission in its continuing investigation into the manipulative practices of other energy companies.

The CFTC order holds each company liable for their share of the $5 million, but if one of the companies — West Coast Power, for example — should be unable to pay, then under the “severally” provision Dynegy would be responsible for the entire amount, an attorney told NGI. West Coast Power is a 50/50 joint venture between Dynegy and NRG Energy Inc. Dynegy acted as the agent for West Coast Power in supplying energy to California.

Both companies reported false gas trading information, including price and volume data, to certain energy publications that compile price indices from at least January 2000 through June 2002, according to the CFTC order. The commission specifically noted that “Dynegy knowingly submitted false information to the reporting firms in an attempt to skew those [indices] for Dynegy’s financial benefit.”

In a prepared statement, the CFTC further said, “Dynegy caused West Coast to submit information misrepresenting that West Coast was a counterparty to fictitious trades,” and it noted the Houston-based energy firm “did not maintain required records concerning the information which it provided to the reporting firms or the true sources of the information relayed to those firms.” These acts were violations of both the CEA and CFTC regulations, the agency said.

The CFTC announcement did not say which energy publications were involved, whether the publications actually used the fictitious prices, or if the two companies were successful in skewing the market. Price survey publications, including Natural Gas Intelligence, have maintained that market liquidity serves to moderate the influence of individual price submissions, and that the aggregation formulas and market research and expertise of professional price survey staffs have ferreted out those price submissions which appear to be outside the range of the rest of the market or otherwise unexplainable.

The CFTC said it was aided by the Federal Energy Regulatory Commission and the Department of Justice in its investigation of Dynegy and West Coast Power. “We will continue to pursue all other companies that potentially committed the same types of egregious acts. Since false reporting can have serious repercussions on the futures markets, we will bring down the hammer on all violators,” said Gregory G. Mocek, director of the CFTC’s division of enforcement.

“It is my belief that with the filing and simultaneous settling of this enforcement action, the commission sends a clear message to all companies that engaged in similar behavior…a message that their actions will not be tolerated and that they will be prosecuted and subjected to the full consequences of the law,” noted CFTC Chairman James E. Newsome. Other energy companies that have admitted to reporting false prices to publications include American Electric Power, Williams and CMS Energy.

Newsome challenged “other companies to come forward with information and cooperate with our investigations, so that we can close this chapter of abuse.”

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