A broad coalition of natural gas producers, consumer groups and utilities, including Apache Corp. and the American Public Gas Association, used sharp words Wednesday to criticize energy traders and marketers for manipulating gas and electricity markets to create volatility, which, they said, could be stopped if transparent trading systems were put in place by regulators.

In a web-cast press conference, several members of the newly created Coalition for Energy Market Integrity and Transparency (EMIT) said energy deregulation had been “hijacked by speculators and futures traders operating under the guise of ‘energy marketers’ who have rigged the system to skim billions of dollars from producers and consumers, while providing little or no actual services.”

Arthur Corbin, president of the Municipal Gas Authority of Georgia, who was speaking on behalf of the American Public Gas Association, said, “natural gas is far too important to this country to allow speculators and traders to churn the commodity at a multiple of hundreds, if not thousands, of times the actual amount of physical gas supplies, resulting in a market where the price skyrockets from $2 to $10 and back down below $2 in a matter of 18 months.”

The rules of “fair dealing, reporting, price discovery and availability of timely and meaningful market information to all — not just inside traders — are hallmarks of legitimate exchanges and should be brought to the over-the-counter markets, including online platforms,” Corbin said.

He also urged “accurate, timely gas supply, transportation and storage reports” be required by the Federal Energy Regulatory Commission, with penalties imposed on companies that misrepresent the numbers or fail to provide information. “Right now, all this reporting is voluntary, and the numbers are all over the map. Incomplete, inaccurate and unsubstantiated numbers can and do affect the price of gas.”

Apache CEO Raymond Plank blasted the “unholy alliance between the brethren” of marketers, that operate as middlemen between producers and consumers to create volatility. The marketers claim, “volatility is what we make money on,” but actually, they are “merely manipulating prices to their advantage.”

Each price downturn, said Plank, forces producers to shut in marginal gas wells that can never be restored to production. “With every down-cycle, we lose valuable infrastructure, capital and people. Even with 1,000 drilling rigs running, we have barely been able to keep gas production flat; the latest downturn has taken the rig count below 700. That sets up a supply shortage, which will mean higher prices for consumers. The only winners are the middlemen.”

California State Sen. Joseph L. Dunn, who is leading an investigation into possible energy market manipulation in the state, said problems first “surfaced in California,” but “anyone who considers it only a California problem is probably set up to be the next state to be in the same place.” Dunn said the market volatility being created was “not just an Enron issue. There are others infinitely involved in establishing the market and introducing the volatility…that could be turned on at will” to manipulate California’s gas and power markets.

“Enron and its clones promised greater efficiency and cheaper energy prices but have delivered just the opposite,” Dunn charged. Unregulated companies controlled 74% of California’s gas-fired generation in the winter of 2000-2001, with “zero accountability and no market transparency.” He warned that other states “are vulnerable to price-fixing schemes,” and said, “the risk is growing as more gas-fired generating plants come on line.” He said, “stay tuned, and I raise the red flag for Chicago, New York, Louisiana…If actions are not taken now, you will find yourselves in this place sooner or later, maybe even 2002 before it comes to an end.”

“Market-makers such as Dynegy, El Paso and Williams” helped to kill a Senate energy bill amendment by California Sen. Dianne Feinstein, said Plank, “which would have provided only modest oversight of over-the-counter energy trading markets. The last think they want is the bright light of day shining on their operations.” The “first sure way is indeed to have transparency,” but he said that changing current accounting procedures used by energy marketers would require them to subtract the non-cash items, such as hedges, from earnings statements.

“There are a lot of accounting income revenues that companies won’t see except over a period of several years,” Plank said. “It creates the illusion of fiscal responsibility.” Enron “and the other coconuts…the brethren running around…it doesn’t match up with what we want for ourselves in America. It matches up with Osama bin laden. It’s time the politicians proved otherwise.”

The Apache CEO noted the conflict of interests for traders, who act as the “middleman in the middle of the chain” between producers and consumers. There is more than “one bad actor out there,” he said. “Please…don’t think that all the rest of them [marketers] didn’t hug and kiss. We believe there’s plenty of evidence if this is pursued far enough…there is significant collusion.”

Plank, who several times criticized operations at Dynegy, called into question the company’s accounting methods, which he said masked its true earnings. “Dynegy would have had a reduction of cash from operations below the reported earnings” last year, but instead, an “infusion of cash” from Citicorp “provided $300 million,” which Dynegy used to reverse “the negative trend from 1999 and 2000 and gave them, eureka, positive cash from operations.” Turning its negative numbers to positive earnings was the “biggest Ponzi scheme that I have ever read about in American corporate history,” Plank charged.

The coalition’s broad goals, which it said would be achieved through stronger regulation, include the following:

The nonprofit organization already has a significant industry membership, including the American Public Gas Association; American Public Power Association; Halliburton; Louisiana Independent Oil and Gas Association; Noble Drilling; Schlumberger; and the Texas Independent Producers and Royalty Owners Association.

To learn more about EMIT, visit the web site at www.fairenergymarkets.com.

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