Did Enron jack up energy futures?
Investigators probe whether firm manipulated power prices
By Jeanne Cummings
THE WALL STREET JOURNAL
WASHINGTON, Jan. 30 — Federal energy regulators are looking into whether Enron Corp. improperly boosted the electricity prices that Californians and other consumers in the Pacific Northwest will be paying for years under long-term energy contracts, as a private study suggests.
SEVERAL SENATORS from Western states cited the report at a Senate hearing on the impact of Enron’s collapse on the energy sector, and Federal Energy Regulatory Commission Chairman Patrick Wood said he would open an inquiry into the matter.
Overall, Wood said he has concluded that the U.S. energy markets absorbed the Enron Dec. 2 bankruptcy filing without major disruption or price spikes, and the debacle shouldn’t “sound the death knell for competition.”
Still, the FERC chairman and five other experts said the situation exposed a need for greater transaction disclosure, particularly in the area of online energy trading, Enron’s core business.
Because Enron’s trading wasn’t subject to government oversight, the evidence of price manipulation presented against Enron at the hearing was anecdotal.
Robert McCullough, a Portland, Ore., energy consultant with clients affected by last year’s energy crisis in the West, conducted research to determine Enron’s market dominance in one pricing area — the area along the California-Oregon border — by studying data voluntarily made public by other companies in the same business. His conclusion was that Enron accounted for more than a 30 percent share of the business.
On Dec. 3, the day after Enron filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code, the forward markets — hedge trading on future energy prices — on the West Coast fell 30 percent, McCullough testified. After ruling out other possible causes for the price drop — a decline in hydroelectric supply or a spike in fossil-fuel prices — “the clear implication is that Enron may have been using its market dominance to set forward prices,” he said. With Enron out of the market, prices fell.
Enron denies any manipulation. “There is political grandstanding going on right now, and it’s been going on against Enron for more than a year,” company spokeswoman Karen Denne said. “There are a number of factors that drive prices, seasonal, weather or demand factors. There have been a number of investigations into price manipulation and collusion, and none of them found Enron to engage in any of those practices.”
Indeed, Lawrence Makovich, an analyst at Cambridge Energy Research Associates in Massachusetts, told the committee that forward prices dropped markedly throughout the country earlier in the year and the decline identified in the study could have been part of that pattern.
Sen. Dianne Feinstein, D-Calif., questioned whether Enron’s trading could have contributed to California’s struggle last year to recover from an energy shortage that led to rolling blackouts, sharply higher prices charged to consumers and big political problems for Democratic Gov. Gray Davis.
Davis is running for re-election this year; he faces a tough Republican field and an electorate that gives more credit to its own conservation in ending the state’s energy crisis than to the governor’s actions.
As part of his recovery plan, Davis signed several expensive, long-term energy contracts. Though none of those agreements was with Enron, officials hope to prove that Enron’s dealings in the marketplace improperly boosted the overall market price. Such a finding could pave the way for California and other entities to attempt to break their contracts and renegotiate lower prices for consumers.
Wood said he has concluded Enron didn’t contribute to California’s short-term energy crisis last year. But, he said the allegation about manipulation of the futures market “is an interesting question.” In his review, he said he would try to determine how big the forward-market is and to what degree Enron dominated it.
He suggested to Feinstein that California file a formal complaint with his agency, which would trigger a formal, 60-day investigation. Feinstein said she would see that it is filed.
Wood also endorsed lawmakers’ suggestions that Internet energy trading should be subjected to rules for disclosure.
Much of Enron’s business — buying and selling of over-the-counter energy derivatives — was exempted from regulation by the Commodity Futures Trading Commission. McCullough and other witnesses said online traders should face the same disclosure requirements as traditional trading entities, such as the New York Mercantile Exchange.
“We need to find out if there is only one person in the pit,” McCullough said. “If there is, we know to proceed with caution.” |
