As if the investigations facing them and other western suppliers at the Federal Energy Regulatory Commission weren’t enough, energy giants El Paso Corp. and Duke Energy confirmed Friday that they have received informal inquiries from the Securities and Exchange Commission (SEC) about their round-trip, or “wash,” trading activities.

Both companies signaled that they plan to cooperate fully with the agency, which already has opened probes into the round-trip trades of other energy companies, such as CMS Energy. In responses filed at FERC, Duke Energy and El Paso have denied any participation in the phony transactions, which have been used by some energy companies to artificially pump up their natural gas and electric trading volumes and revenues.

In a related development, the Commission said Friday it will take Williams up on its offer to closely review its gas trading activities in California over the past two years. The agency noted it will dispatch staffers to the Houston-based company Wednesday to examine the company’s trading books. Williams extended the invitation to FERC following a New York Times article in which a former employee said Williams’ traders intentionally drove up gas prices in California during the height of the energy crisis in the state in 2000 and 2001. The company denied the allegation.

In addition to denying round-tripping activity, Duke Energy and El Paso said they did not engage in Enron-style practices — such as Fat Boy, Death Star and Ricochet — to manipulate prices in western energy markets during the two-year period. FERC is exploring both price manipulation strategies and deceptive “wash” trades as part of its sweeping investigation of energy suppliers in western and Texas markets [PA02-2].

On Friday, FERC publicly released the affidavits of suppliers who did not request confidential treatment. There were a few surprises. The Sacramento Municipal Utility District (SMUD) said that while it had not engaged in any deceptive practices, it was “aware of an attempt” by American Electric Power of Columbus, OH, to involve SMUD in a “Ricochet” deal to take advantage of the price spread between capped and uncapped energy prices.

On Nov. 23, 2001, SMUD said it had agreed to buy from AEP 50 MW of firm energy for the hour ending 7 p.m. and 30 MW for the hour ending 8 p.m. for $12/MW to meet its load. After discussions with its scheduling coordinator and the California Independent System Operator (Cal-ISO), SMUD “discovered that AEP had attempted to sell SMUD a ‘Ricochet’ schedule,” the utility district told FERC in its affidavit.

SMUD said it “worked with the Bonneville Power Administration (BPA) and AEP to legitimize the 50 MW transaction…While expressing concern over the transaction, BPA agreed to purchase the 50 MW from AEP at $12/MW, take the energy into the BPA system, and then re-sell and deliver the energy to AEP at Captain Jack for $17/MW (energy plus $10/MW wheeling charge). AEP then delivered the energy to SMUD at Captain Jack at the original agreed-upon price of $12/MW. SMUD and AEP then canceled the 30 MW sale…The reason for the cancellation stated in the SMUD log is ‘Ricochet not allowed.'”

As the owner of 70% of the transmission system in the Pacific Northwest, the BPA has offered to provide FERC with information on the transmission services that sellers may have purchased to carry out the questionable practices, such as “Ricochet” trades. “I have asked [BPA’s] Transmission Business Line staff to make themselves available to you to discuss whether we might have transmission information that could aid the Commission’s investigation,” said BPA Administrator Stephen J. Wright.

El Paso Electric, which is not affiliated with El Paso Corp., admitted that it purchased energy from Enron during the critical 2000-2001 time frame, and that Enron Power Marketing Inc. manned its trading desk 75% of the time and served as its scheduling coordinator for the Cal-PX, but it said it had no knowledge that Enron was engaging in questionable activities. FERC last week said El Paso Electric’s response wasn’t credible, and ordered it to revise it by June 14 or be stripped of its ability to sell electricity at unregulated rates.

El Paso Electric conceded that it sold power to EPMI in a “number of transactions” that were referred to by EPMI as “Fat Boy,” but it said its “understanding of what was meant by the term ‘Fat Boy’ differed markedly from the description” offered by FERC. It noted it made a net profit of $508,000 from the transactions, a number which the Commission questioned.

©Copyright 2002 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.