The Federal Energy Regulatory Commission will issue a final report on the results of its high-profile investigation into manipulation of energy prices in western markets either by the end of the year or in mid-February 2003 at the latest, Chairman Pat Wood told energy executives Wednesday.

“The final report is going to say here’s where we’re going and here’s where we’re not going” with respect to the probe, which the Commission began last February, he said during the Lehman Brothers 2002 CEO Energy-Power Conference in New York. FERC “[will] make it real clear who’s in the net and who’s not” in that document.

In an interim update on its probe forwarded to Congress in August, the Commission said it had “preliminary indications” of “possible misconduct” and price manipulation involving six companies — El Paso Electric, Avista Corp. and marketing affiliate Avista Energy, and Enron Corp. affiliates Portland General Electric, Enron Power Marketing and Enron Capital and Trade Resources Corp. FERC opened a formal Section 206 investigation into each company to determine the extent of any wrongdoing and the type of disciplinary actions warranted (see Daily GPI, Aug. 14)

“At the point they’ve been investigated and there are enough issues raised,” the companies “need to have their day in court to basically say they did or didn’t do something that violated a law or a Commission regulation; [they] have the ability to have their rights adjudicated before a judge” at the agency, Wood said. “We [FERC] served the role as grand jury.”

Because the Section 206 hearings will be open to the public, “you folks can hear the pros and cons presented to a judge.” The Commission will ultimately receive a report from the judge recommending “further action, punishment or exoneration” of any charges brought against the six companies.

FERC, which Wood noted has become “Washington’s favorite four-letter word,” initiated its wide-ranging probe into supplier manipulation of energy prices seven months ago in response to pressure from Capitol Hill lawmakers, a number of who accused the Commission of being lax in its oversight of the market.

Wood noted that many existing market problems, particularly in California, were inherited from prior FERC administrations. “It’s our job [now] to clean up the mess, and…the California mess is certainly part of that. I would have preferred not to have a hand in that garbage…but people have the right to due process,” he told energy executives.

“There are two sides on the [power] refund issue. There are two sides on these market investigation issues. There are two sides on the long-term contract issue. We’ve got good judges that are looking at those in a public fact-finding hearing to make sure what happened” isn’t repeated, Wood said.

“The experiences that happened in California and in the West and [with] Enron and other companies…[involve] job-affecting, life-affecting and investor-affecting issues,” he noted. “We’re not just here to put Band-Aids on a lot of short-term fixes,” but rather are here to “provide leadership to make sure [this] doesn’t happen again.” He said he “wasn’t hired to be a potted plant.”

The energy trading segment of the market, which has been subject to increased financial pressure and scrutiny by federal investigators and regulators, “has taken a real hard hit” during past months, but “on the other side of this, we’re [going] to need those folks” to act as intermediaries between buyers and sellers and bring “rationalization” to the market, Wood said.

He noted that FERC is keeping a close eye on the energy assets that are quickly changing hands in the market. The agency has become “cognizant of concentration of ownership in specifically geographic markets. This is something you can expect us to look at.”

Responding to questions from executives, Wood said he believes the electricity market will have a “good amount of supply over demand” through the summer of 2004. At that point, however, he said he anticipates supply will become “a lot tighter,” given that construction of new power generation facilities has pretty much come to a halt due to a lack of investment.

Turning to natural gas, he noted the “real future is going to be LNG [liquefied natural gas] and Canadian/Alaska gas” in meeting the expected 32 Tcf domestic demand in 2012. “The Congress knows that; the Commission knows that.” FERC will be “spending a lot of time this fall focusing on what we need to do to make sure that LNG can work.” Wood said a number of concerns and “economic issues” have been raised about the regulatory treatment of LNG, which he believes are “important to clarify at the front end of the decade.”

The issues involved in a northern pipeline, one that would link Alaska’s North Slope to the Lower 48 states, “are huge,” he said. Noting that there is “a lot of congressional interest” in seeing the Alaska pipeline built, Wood said FERC would wait and see “how that one plays out” on Capitol Hill before it proceeds. There is support in both the House and Senate to include in the omnibus energy bill incentives for industry to build the pipeline.

He noted the Commission appointed a technology expert, Eric Wong, Wednesday to “educate” it about the technological solutions to challenges related to the electric transmission, power generation and gas pipelines. He believes technology will be the “golden pot at the end of the rainbow” for the energy industry. Wong is on loan from Cummins West Inc., where he currently is employed.

FERC said it plans to invite selected experts to apprise the agency of key technologies that are relevant to its policy changes in the power and natural gas markets.

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