FERC To Probe Allegations Enron Juiced Calif Pwr Lines
22 Feb 08:25
(This article was originally published Thursday)
By Jason Leopold and Bryan Lee
OF DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The U.S. Federal Energy Regulatory Commission will
investigate new allegations that Enron Corp. (ENRNQ) caused power-grid
congestion in California to reap windfall profits in the state's electricity
market, agency officials said Thursday.
"Once those issues have been raised, we have to look into them," said FERC
Commissioner Nora Mead Brownell. "We need one comprehensive, complete
investigation to bring this chapter of history to closure."
FERC "absolutely" will delve into the allegations, "no ifs, ands or buts,"
said Kevin Cadden, director of FERC's external affairs office.
In response to concerns of congressional lawmakers, FERC last week formally
launched a probe to answer allegations that Enron could have manipulated
Western-state energy markets. The new allegations will be delved into as part
of that probe, FERC said.
The allegations also have caught the attention of the House Energy and
Commerce Committee, which is conducting the most aggressive of some dozen
congressional committee probes of Enron's historic collapse into bankruptcy
last December.
"We've heard the accusations but we have not uncovered any evidence to
support them. We're checking into them," said Ken Johnson, spokesman for Rep.
Billy Tauzin, R-La., the committee's chairman.
"I have not heard of these allegations before and I am certain FERC will do a
thorough job, as always, of investigating the charges and we will, as always,
cooperate," said Vance Meyer, an Enron spokesman.
Several former Enron electricity traders alleged Thursday that Enron took
part in a yearlong campaign to cause power-grid congestion in California so the
Houston energy-trading giant could reap huge profits on electricity sales.
The traders came forward after another former Enron employee wrote a letter
to Sen. Barbara Boxer, D-Calif., offering "hearsay" allegations that Enron
manipulated power flows on California's power grid to drive up prices.
Congested transmission lines constrain power flows and create artificial
shortages that drive up wholesale electricity prices.
Wholesale power costs in California were about $7 billion in 1999, but
skyrocketed to nearly four times that amount in 2000 as prices spiked to
unprecedented levels. The state is demanding nearly $9 billion in refunds from
power providers in a proceeding under way at FERC.
The traders, all of whom requested anonymity because they work for other
Houston-based energy companies, including Dynegy Inc. (DYN) and Reliant Energy
Inc. (REI) said the practices they engaged in resulted in two days of rolling
blackouts in Northern California in May 2000. Those blackouts crippled Silicon
Valley's high-tech industry causing tens of millions of dollars in lost
revenue.
The traders said Enron held the transmission rights on Path 26, a key
transmission line connecting Northern California to Central California and also
connecting to Path 15, a major bottleneck grid pathway in Northern California,
owned by PG&E Corp. (PCG) unit Pacific Gas & Electric.
In May 2000, when a heatwave swept through Northern California, they said
Enron clogged Path 26 with power, essentially creating a bottleneck that would
not allow power to be sent via Path 15 to Northern California.
Enron used its transmission rights to create congestion on the line during
certain periods in 2000 and 2001, potentially causing power prices to spike in
the state, the traders said.
Enron was paid tens of millions of dollars by the California Independent
System Operator, the state's power-grid administrator, to free up the congested
line in order to allow electricity to be sent to Northern California, the
traders said.
"What we did was overbook the line we had the rights on and said to
California utilities, 'If you want to use the line, pay us,'" one trader said.
"By the time they agreed to meet our price, rolling blackouts had already hit
California and the price for electricity went through the roof."
The traders said this is how Enron allegedly manipulated the price of power
in California and continued to do so until mid-2001, when power prices sharply
declined.
Power prices spiked in California beginning in May 2000, shortly after the
rolling blackouts hit Northern California. The state's investor-owned utilities
were rendered insolvent by year's end because the price for power exceed the
amount the utilities were allowed to charge its customers.
By the time FERC agreed to impose price caps last summer, PG&E's Pacific Gas
& Electric utility unit had filed for Chapter 11 bankruptcy protection and
Edison International (EIX) unit Southern California Edison teetered on the
brink of collapse.
Information available from the state's grid administrator shows that
congestion revenues on Path 15 and 26 within the first six months of 2000
increased tenfold, from about $20 a megawatt-hour to more than $200/MWh. But
there is no evidence that an increase in electricity consumption in California
is the reason for the transmission line congestion, according to the ISO.
"The number of hours congested decreased on most paths in 2001, compared to
2000, with the exception of Path 26," according to a January 2002 report from
the grid operator's department of market analysis.
Beginning as early as 1998, the traders said, Enron started congesting
transmission lines in California by scheduling power over transmission
throughout the state and exceeding the amount of capacity a certain power line
could handle.
"This started out as a test," one trader said. "We would overbook the lines,
which would cause congestion. The price of power would go up on the other end
of the line where power is being delivered to."
A yearlong investigation by the now-defunct California Power Exchange, the
market where utilities bought, sold and scheduled electricity, concluded in
2000 that Enron violated the rules for trading power in California's day-ahead
market in May 1999 by submitting a bid for 2,900 megawatts on a transmission
line with a rated capacity of 15 MW, according to documents obtained in 2000 by
Dow Jones Newswires.
"On April 28, 2000, the CEO of the CalPX issued an order accepting an offer
of settlement from Enron Power Marketing, Inc., ... which finds that Enron's
conduct in the Day Ahead Market for May 25, 1999, constituted a violation of
CalPX Scheduling and Control Protocol," the documents say.
Enron agreed to pay CalPX $25,000 to settle the issue without admitting or
denying the charges. Enron spokesman Mark Palmer said at that time the
settlement wasn't an admission of guilt, but rather a "contribution to CalPX
costs for investigating the incident."
-By Jason Leopold, Dow Jones Newswires; 323-658-3874;
jason.leopold@dowjones.com; and Bryan Lee, Dow Jones Newswires; 202-862-6647;
bryan.Lee@dowjones.com
(END) DOW JONES NEWS 02-22-02
08:25 AM |
