The Commodity Futures Trading Commission (CFTC) and the U.S.Department of Justice are now after three people for allegedlymisappropriating energy futures trades from Coastal, defrauding thecompany of millions of dollars. Robert C. Rossi joins formerCoastal States Trading Corp. employee Steven G. Soule; and Kyler F.Lunman II, owner of Hold-Trade Inc. (Ltd.) as a respondent in thecase.

A federal grand jury in Houston has returned an 18-countindictment against Rossi, Soule, and Lunman, charging them withconspiracy, commodity fraud, wire fraud and money laundering inconnection with the scheme.

According to a CFTC complaint, filed Dec. 22, Soule and atelephone clerk on the New York Mercantile Exchange (NYMEX) carriedout wrongful allocations, and Lunman and Hold Trade furthered thescheme. The wrongdoing, which came to light in early 1997, is saidto have occurred from at least Sept. 4, 1993 through about Dec. 31,1995. The amended complaint alleges that Rossi committed fraud intwo fashions. One, by aiding and abetting the other respondents;and two, as controlling person of floor broker entities known asRefined Energy Executions Inc. and Refined Executions Inc.,knowingly inducing Refined to violate the Commodity Exchange Act(CEA). Rossi is alleged to have assisted the scheme by permittingthe use of Refined’s facilities and telephone clerk.

The original complaint says Soule entered most of Coastal’scrude oil, heating oil, and natural gas futures orders, which hegave to telephone clerk Thomas F. DeMarco at Refined. “Soule andDeMarco together ensured the successful completion of the wrongfulallocations by creating doctored floor order tickets and enteringinto additional transactions to replace those transactions thatwere misappropriated. Lunman and Hold Trade completed the scheme byproviding the accounts into which the misappropriated Coastaltrades were placed, monitoring the movement of Coastal’s profitabletrades into those accounts, and disbursing the ill-gotten gainsamong the scheme’s participants. All respondents benefitedfinancially from their roles in the scheme.”

Soule was employed by Coastal, first as a futures tradingcoordinator and later as a manager of futures trading, from aboutSept. 4, 1990 to about Dec. 20, 1994. Before that, between Januaryand September 19990, he worked as a telephone clerk for Refined onthe floor of the NYMEX.

The amended complaint institutes a public administrativeproceeding to determine if the allegations are true and whethersanctions should be imposed. Possible sanctions include a cease anddesist order, a permanent trading prohibition, civil monetarypenalties not exceeding $100,000 for each violation, andrestitution. At press time Friday, Coastal had not returned a callfor comment. Joe Fisher, Houston

Georgia PSC Taking More Aggressive Approach to Deregulation

Concerned that a threshold number of Atlanta Gas Light (AGL)customers in certain warmer regions of Georgia may not switch toalternative suppliers by the next winter heating season, theGeorgia Public Service Commission is taking action to changeGeorgia’s gas competition law, SB 216, to get AGL out of themerchant function possibly by next fall.

“We’re contemplating an aggressive move on being able to getAtlanta Gas Light out of the consumer sales,” Commissioner Lauren(Bubba) McDonald told NGI. The legislation that is being crafted bythe commission and is expected to be introduced this week wouldchange the current law and “escalate the commission’s authority asfar as moving AGL’s customers into the competitive marketplace,” hesaid.

There are nine gas consumer regions in the state that wereseparated because of differing supply mixes and upstreamtransportation. Under the current law when 33% of the customers ina given region, or pool, have switched to alternative suppliers,the others are notified and given 100 days to choose a marketer. Ifthey haven’t chosen a marketer by the end of that 100 days, the lawcalls for the commission to randomly assign them to one.

Currently some areas are very close to reaching the 33%threshold. A total of 397,000 customers, or 28% of AGL’s 1.45million customers, have switched to alternative suppliers sincecustomer choice began four months ago. The Athens pool has thehighest participation rate at 27.3%. The other most active areasinclude Macon, with 25.2%; Augusta, 23.6%; Newnan, 23.2%; Atlanta,which has 968,000 customers making it the largest pool, with 21.7%;and Rome, with 20.8%. However, customer choice hasn’t caught on aswell in the regions farther south where winter heating isn’t muchof an issue. Customer participation in Savannah is at 16%. InValdosta, it’s 17.4%, and in Brunswick, which is the farthest southof all nine areas, participation is at only 12.9%. With the end ofthe heating season approaching, the PSC is concerned several of thepools in Georgia could go through at least one more heating seasonunder AGL’s wing.

“This could go on for a long period of time and we would stillhave AGL in the consumer sales,” said McDonald. “I’m concerned thatwe’ll have some 200,000 customers out there still with AGL after amillion have already switched over. Are there going to be strandedcosts that those 200,000 are going to have to eat? We don’t know.

“If we move forward with this legislation, we would initiate aneffort with timely notice to all consumers that we would expediterandom assignment prior to some point in time.” He said that pointin time could coincide with the expiration of AGL’s volumetrictransportation pricing program. AGL was forced by the commissionearlier this month to return to volumetric pricing and refund $14.5million to customers because of a public uproar over AGL’s decisionto switch to demand-based billing last November. The PSC said thedemand-based billing program was on track to overcharge customers$300 million by September. AGL’s volumetric pricing ends Sept. 30,when it will return to a demand-based billing method.

AGL Likes the Idea

An Atlanta Gas Light spokesman said the company has not seen thelegislation and therefore could not comment accurately on anydetails of the PSC’s plans. However, AGL generally is in favor ofswitching all its customers at one time rather than on ninedifferent dates.

“One thing that has happened over the last months has beenconfusion about gas rates, confusion about gas deregulation. Ifyour company was faced with imposing a deadline for when 1.45million customers must choose a marketer or be assigned one andcommunicating that to all your customers, you would want to do itall at once,” said AGL’s Ross Willis. “[Otherwise] you are going tohave a lot of confusion about what the deadline is.”

The legislation, however, also may take some freedom away fromAGL. McDonald said it also will include language that would givethe PSC more power to regulate daily balancing. The PSC would liketo be able to step in when there is a question about balancingpenalties, he said. “We would rather have a better grasp on thatrather than it being left out there for the company to handle allby itself. It’s basically supposed to be a pass through right now.It would continue to be so, but if it got out of hand, i.e.,through excessive penalties or some of the directions maybe thatthe company would like to take, we just wouldn’t have to go throughall the hearing processes to be able to take action. We would justhave a little firmer handhold on it.

“Since we are responsible for making this work, we think weshould stick our neck out a little bit more and take a strongerapproach and a heavier hand and see if we can’t do what Atlanta GasLight Co. wanted to do in 1997 through the legislative process andget out of consumer sales.

“I told Atlanta Gas Light’s new president this is what you askedfor now you’re going to get it,” said McDonald. “Now that’s prettyblunt but sometimes they get a little blunt with us too.”

He said the PSC is working with the leadership of both the houseand the senate and expects the legislation to be introduced thisweek. “If it’s not introduced [this] week then there probably willbe no legislation because we are presently just a day over half ofthe Georgia legislative session.”

Rocco Canonica

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