Detailed and recorded trader tapes show that a handful of Texas utility companies, led by TXU Corp., are gaming the state’s electricity market, using the same types of schemes exposed in the California and Enron crises to reap windfall profits at the expense of Texas consumers and smaller competitors, bankrupt Texas Commercial Energy (TCE) alleged last week.

TCE said that these charges are supported in trader tapes released on Tuesday as part of a federal antitrust lawsuit filed against the firms by TCE.

“The evidence illustrates this is a fraud being perpetrated while watchdog agencies like the Market Oversight Division of the Public Utility Commission [PUC] and ERCOT [Electric Reliability Council of Texas] look the other way,” said Michael Shirley, TCE’s CEO. “In the end, it is homeowners, small and large employers, school districts — any consumer of electricity in the state — that are hurt the most.”

Cirro Energy of Plano and Utility Choice Electric of Houston have joined TCE in the lawsuit, which was originally filed in July 2003.

TCE said that this “added proof of electric market manipulation” is fully documented in an amended complaint that was filed on Tuesday in the U.S. District Court for the Southern District of Texas, Corpus Christi Division, against a number of electric providers, including TXU, AEP and Reliant as well as their affiliated companies. The lawsuit also names ERCOT, which administers the state’s power grid.

TCE said that the amended complaint includes excerpts of taped recordings of defendants’ traders discussing taking advantage of smaller competitors. The lawsuit states, “From the inception of deregulation, several electric market participants, including some of the defendants in this cause of action, began engaging in anti-competitive activities designed to fraudulently inflate the prices of electricity and related electric products…In early 2003, the ongoing manipulation dramatically increased.”

According to TCE, the legal documents detail specific examples of manipulation abuses employed by the defendants, including physical withholding of electric generation, anti-competitive energy and capacity bids and manipulation of energy schedules.

“The new evidence shows that these actions are in direct violation of Texas’ electricity deregulation law, and state and federal antitrust laws,” Shirley said. “Additionally, they are in direct violation of the company executives’ own sworn affidavits submitted to ERCOT, vowing that they would not engage in such tactics.

“What we’re seeing in Texas are the types of gaming schemes that were exposed in the failure of the California electricity market and that brought down Enron,” Shirley said. “The evidence indicates these companies have saddled Texans with artificially inflated energy costs, and they have lined their own pockets with ill-gotten gains.”

TCE said that the PUC sought to prevent such illegal manipulation of the free market in Texas, and the state’s three largest vertically integrated energy companies — TXU, AEP and Reliant — all were forced to swear under oath that they would not engage in such illegal patterns and practices.

Shirley noted that although a newly released report by the Market Oversight Division (MOD) of the PUC found that TXU’s market dominance puts the Dallas-based company in a position to undermine the market, the report does not conclude any wrongdoing by TXU. But the report was released by the MOD without considering information gleaned from taped conversations of traders and the specific company’s trading data that are part of the evidence included in the TCE lawsuit, Shirley added.

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