Sen. Dianne Feinstein (D-CA) has called on the Federal Energy Regulatory Commission to pay close attention to natural gas traded between November 2000 and May 2001 as it continues to investigate allegedly fraudulent and manipulative trading practices in California and other western energy markets during the critical 2000-2001 period.

“It is my strong suspicion that gas trading played a critical role in the western energy crisis, particularly in this six-month time period,” she said in a May 24 letter to Chairman Pat Wood. Gas prices spiked to as much as $60/Dth during then, or about 25 times higher than normal and about eight time higher than it was in the San Juan Basin, she noted.

Warranting particular attention, Feinstein said, are the phony “wash” trades of energy companies. At least four of these companies — Dynegy Inc., Reliant, Duke Energy and Enron — were “key players” in California at the time of the energy shortages and blackouts, she noted.

“The only purpose of ‘wash trades’ is deception. These bogus trades could very well have contributed to higher energy prices by providing false signals to the market and increasing benchmark index prices and peg prices in derivatives trades. Wash trades could also give the false impression that an exchange is legitimate. At a minimum, wash trades contributed to inflated earnings and perhaps artificially high stock prices as well,” she told Wood.

Dynegy, Reliant Resources and CMS Energy already have admitted to engaging in either gas or power “wash” trades, but they contend that these transactions were mostly designed to boost their trading volumes and revenues, and did not affect earnings or prices (See NGI, May 20). Both the FERC and the Securities and Exchange Commission are investigating the bogus trades.

In addition to focusing on the “wash” trades, Feinstein advised the Commission to examine the “actual volumes traded and which companies were actually doing the trading” in the market during the six-month period. “If the gas volumes traded were very low, it could indicate that one or more companies were gaming the market,” she said.

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