Bankrupt Texas Commercial Energy (TCE) has filed a federal antitrust lawsuit against various electric companies claiming that they violated federal and state law by illegally manipulating the Texas electric market and fraudulently inflating prices.

Defendants named in the lawsuit are all participants in the Texas electric market and include affiliates of TXU, Reliant, American Electric Power (AEP) and Mirant, TCE said last Monday.

The lawsuit was filed in the Federal District Court in the Southern District of Texas-Corpus Christi division, where TCE filed for Chapter 11 bankruptcy protection on March 6.

The lawsuit claims that the “willful actions” of the defendants damaged TCE’s financial stability and corporate reputation. Those actions, the lawsuit says, forced the company to file for Chapter 11 bankruptcy protection in order to protect its entire customer base from being transferred to higher cost providers and to allow the company time to prove that it had been victimized by market manipulation.

TCE’s complaint says that at the time of the “most notable and damaging series of manipulative events” in February 2003, TCE was a profitable and competitive retail electric provider (REP) generating annualized revenues of over $200 million. The complaint further states that the suppliers’ “illegal acts” resulted in $15 million of fraudulent charges for TCE, as well as a financial crisis for the company and many of its customers.

“Texas Commercial Energy is a victim of market power abuses in an energy marketplace that is mandated by Senate Bill 7 to be a level playing field for all participants,” said TCE President Mike Shirley, referring to the legislation that laid the foundation for restructuring the state’s electricity market. “This is all about big business abusing power and purposefully manipulating markets to help themselves, while hurting smaller Texas companies and consumers.”

TCE said that its lawsuit offers evidence to show that the suppliers “have a history of repetitive and illegal market manipulation.”

According to TCE, all of the defendants — as a condition of selling power in Texas — were required in June 2002 by the Public Utility Commission of Texas (PUCT) to execute affidavits affirming that they would not engage in the type of manipulation and other fraudulent activities experienced in California. They also agreed that they understood that such actions would not be tolerated nor allowed in Texas. The suppliers were also required to affirm that they had sufficient management controls in place to ensure that their companies would not practice such abuses in the future, TCE said.

Shirley said that the PUCT required these affidavits after its earlier investigations into 2001 market manipulation abuses led to over $10 million in fines being levied against four Electric Reliability Council of Texas (ERCOT) market participants, including TXU, Reliant, Mirant and AEP.

“TCE believes that the PUCT knew these prohibited activities had occurred and could potentially occur again in the Texas market,” Shirley said. “TCE also believes the PUCT wanted these affidavits as assurances from the market participants that they would not engage in such activities. It is precisely these types of fraudulent transactions that played a major part in the failure of the California deregulated electric market. Unfortunately, such behavior continues to occur in Texas despite the efforts of the PUCT to prevent it.”

The lawsuit also states that anticompetitive practices by the power companies have “purposefully burdened consumers with unnecessarily high energy prices, willfully undermined the creation of a competitive energy marketplace in Texas as mandated by Senate Bill 7, and seriously damaged TCE’s ability” to operate as an REP.

In its complaint, TCE references a recent PUCT investigation citing continuing manipulation in ERCOT. The filing also points to a summary report issued earlier this year in which the PUCT’s market oversight division found that “hockey stick” bidding materially contributed to price spikes that were out of line with any rational basis for the cost (see NGI, March 17 ).

Hockey stick bidding is when a market participant submits a small portion of its bid at an extremely high price. If ERCOT procures all available bids, including the tip of the “hockey stick,” then the most expensive MWh sets the market clearing price.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.