Enron Corp.’s relationships with El Paso Electric, Avista Corp. and affiliate Portland General Electric were so cozy that it was impossible at times to distinguish who was calling the shots at the companies’ energy trading desks, according to the FERC staff report on the status of the agency’s probe into energy price manipulation and trading irregularities.
In the interim report released Tuesday, the Commission staff also said the evidence it had against the companies and their utility affiliates was far more extensive than it revealed in the interim report, which has been forwarded to several congressional committees. “To ensure fairness to the companies, as well as to avoid compromising the cases against them, staff believes that specific details of evidence…should be discussed only in orders voted out by the Commission, rather than in a report to Congress.”
Preliminary evidence indicates “El Paso Electric’s management may have failed to properly supervise Enron’s use of El Paso Electric’s assets…and may have allowed El Paso Electric’s assets to be used improperly,” staff said. In fact, “market participants complained that, when they called El Paso Electric’s trading desk, they were uncertain whether they were actually dealing with El Paso Electric or with Enron.”
In response to a show-cause order issued by FERC in early June, El Paso Electric admitted that Enron personnel manned its trading desk 75% of the time during the critical 2000-2001 period, when California faced a power supply shortage and prices soared. This information was at odds with the company’s claim in May that it knew nothing of Enron’s dealings on its behalf.
FERC staff cited a letter from Enron to El Paso Electric executives in which “Enron discusses how the two companies had taken advantage of the unseasonably hot weather and unit outages that occurred in the West during a single month in the summer of 2000.” El Paso Electric reported revenues of more than $7 million for that month as a result of its partnership with Enron, it noted. El Paso executives wrote back two days later, saying this was a “great illustration of what is possible when teamwork, knowledge, initiative and accountability all come together.”
The high level of revenue for a single month “is, in and of itself, not evidence of improper conduct, but does indicate that further investigation is needed,” staff told the full Commission. It also asked FERC to explore whether El Paso Electric may have violated the agency’s open-access transmission requirements.
In response to staff evidence, the Commission on Tuesday initiated a Section 206 investigation into El Paso Electric’s dealings with Enron and its conflicting statements submitted to FERC staff, at the end of which the agency could order the company to pay refunds for electricity sold in the West, and could strip El Paso Electric of its license to sell power at unregulated rates. FERC has taken similar actions against Avista and Enron affiliate Portland General, as well as Enron Power Marketing Inc. (See Daily GPI, Aug. 14)
With respect to Portland, OR-based Portland General, staff said it had “preliminary evidence, taken from transcripts of recorded telephone conversations, indicating that Portland and Enron knowingly engaged in transactions that may constitute violations of the [FERC] standards of conduct and/or the companies’ codes of conduct.”
Based on transcripts of telephone conversations for a single month during the two-year period, staff indicated Enron employees used non-affiliated utilities as middlemen to buy and sell power with Portland General in effort to circumvent FERC rules limiting such sales between affiliates. “It is highly doubtful that this kind of conduct occurred only in that single month. A separate investigation would allow discovery of instances of questionable transactions not only during, but also before and after the two-year review period,” it noted.
“Enron and Portland often required the cooperation — either knowing or unwitting — of third parties for their inter-affiliate transactions. At this point in time, staff is making no recommendations with respect to those third parties, pending the completion of our analysis of the roles such third parties played,” the report said.
Spokane, WA-based Avista has admitted that it routinely acted as a middleman in the Enron-Portland General transactions, and that its traders “did have questions about the transactions,” staff noted. But it disputed Avista’s claim that it was “used” unwittingly by Enron, saying this was “not reconcilable” with the company’s own admission that it acted as a go-between as a routine matter.
Staff also took issue with Avista’s claim that it was unable to conduct a meaningful analysis of its past trading transactions because its telephone tapes could not be reviewed by electronic search methods. “This response is in sharp contrast to many other [companies] that made a considerable effort to provide full and complete responses to the [FERC] data requests…Staff finds that Avista’s response is less than forthcoming.”
FERC staff said it would continue its investigation of trading operation in western markets, and issue a final report at a later date. The final report, it said, would review round-trip, “wash,” trades of electricity and natural gas in the West; give the findings of its investigation into allegations that Williams Cos. Inc. attempted to manipulate gas markets in the West; analyze the relationship between physical and financial natural gas and electric products; analyze selected sales data from short-term, seasonal and long-term forward contracts; and spell out the role that EnronOnline played in the energy markets, along with interviews of former Enron employees.
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