As a companion to its report on western market manipulation, the Federal Energy Regulatory Commission last Wednesday issued broad orders requiring Enron-affiliated companies, Reliant Energy Services Inc. and BP Energy Co. to show cause why they should not be stripped of their market-based authority and/or their blanket gas marketing certificates.

Facing allegations of gaming western power markets, both Enron Power Marketing Inc. and Enron Energy Services Inc. were ordered to respond in 21 days or lose their ability to sell power at unregulated rates. A Section 206 proceeding, which could result in refunds, also will be launched to investigate the actions of the Enron companies.

Eight companies with ties to Enron were ordered to show why they shouldn’t lose their blanket gas marketing certificates, which allow them to resell gas at negotiated rates in interstate markets. The companies, which also were given three weeks to respond, include Bridgeline Gas Marketing LLC, Citrus Trading Corp., ENA Upstream Co. LLC, Enron Canada Corp., Enron Compression Services Co., Enron Energy Services, Enron MW LLC, and Enron North America Corp. A similar proceeding under the Natural Gas Act (NGA) is expected to be initiated.

The show-cause directive against Enron Power and Enron Energy Services involved high-profile gaming strategies that Enron pioneered to influence electricity prices and trades in California. On the gas side, the eight Enron-connected companies reportedly profited to the tune of $3.2 million after running up gas prices at the Henry Hub in Louisiana, then driving them down again through the use of Enron’s electronic platform, EnronOnline, FERC staff said [EL03-77, RP03-311].

In a second order, FERC cited evidence in which a BP trader on three occasions contacted a Reliant Energy trader to ask him to buy power from an offer he was going to place on Bloomberg’s electronic trading platform. The Reliant trader was then instructed to sell the power back to the BP trader at the same price, but the transaction would occur off the trading platform.

The agency said it had phone conversations and transcripts to confirm the traders’ alleged manipulation of the price of electricity delivered to Palo Verde, a key Arizona trading hub.

In one recorded telephone conversation, “the BP trader goes on to explain that he is trying to move the market price up to $43.10 but no one will buy at that price, so he needs the Reliant trader to ‘lift his offer’ in order to increase the price,” the FERC show-cause order said [EL03-59, EL03-60]

Chairman Pat Wood said he was “pretty disappointed at this kind of activity,” and “look[ed] forward to hearing what the excuse is.”

When it comes to pulling a company’s market-based rate authority, the Commission’s bark appears to be worse than its bite. The only known case where this has happened involved El Paso Electric Co., which has been banned from selling power at market rates until the end of 2004.

“We’re going to state our case” before FERC within 21 days, said Reliant spokesman Richard Wheatley. He noted the company has been “cooperating with FERC all along, and voluntarily revealed information.”

As for the alleged activities between the BP and Reliant traders, there was “no evidence that the trades had any market impact,” said Wheatley, adding that the trades had not been authorized by Reliant. He noted the Reliant trader has been terminated.

“We feel we complied with the applicable rules and regulations. [It] remains to be seen if the actions were illegal.”

At Houston-based BP Energy, “we’re surprised and disappointed” by the Commission’s show-cause order, said BP spokesman Hugh Depland. “We supplied data and cooperated with them fully.” The company also conducted its “own investigation of our trading, and found nothing to indicate BP had manipulated the markets,” he noted.

This is a “serious issue and we take it seriously,” Depland said. The BP Energy trader who was involved in the questionable trades was placed on administrative leave and remains there.

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