Power Trading Scandals Raise Fears
By Leonard Anderson
SAN FRANCISCO (Reuters) - Reliant Resources Inc's (NYSE:RRI - News) admission Monday of fake energy trades spells rising consumer anxiety about electricity prices and more bad news for the already snail-like pace of power deregulation, consumer analysts said.
Energy regulators are likely to get an earful, too, from consumers who are troubled by disclosures that power companies employed questionable trading practices in California at the height of the state's energy crisis in 2000-2001.
"Electricity consumers are not very happy about the prices they pay. We're getting a consistent flow of complaints about high electric bills," said Terrie Prosper, spokeswoman for the California Public Utilities Commission.
The giant American Association of Retired Persons senses growing confusion among its 35 million members about electricity prices and deregulation, said Susan Weinstock, who tracks national economic and utility issues for AARP.
"We haven't done a scientific survey but there is a lot of concern among our members about rates and what will happen next, especially after the disaster in California and the Enron troubles," Weinstock told Reuters.
California's energy crisis resulted in blackouts, soaring power prices and the bankruptcy of the state's biggest utility.
Mark Cooper, research director for the Consumer Federation of America, said news that Reliant engaged in sham energy transactions designed solely to boost trading volumes and puff up revenues is a good reason to kill deregulation.
"These practices of double dealing and market manipulation call into question the fundamental structure of deregulation. There is absolutely no public confidence in deregulation, not anyplace," Cooper said.
WASH TRADES
Houston-based Reliant Resources said Monday it arranged with other power traders to buy and sell power to each other at the same price -- called wash trades -- to inflate revenue and create the impression they owned a bigger market share.
Reliant's admission came after another blow to the power industry's credibility last week when federal regulators released Enron Corp. (Other OTC:ENRNQ.PK - News) memos outlining trading strategies with names like "Death Star" and "Fat Boy" used to manipulate electricity supplies and boost profits.
The bankruptcy of former top energy trader Enron last year was accompanied by a flood of questions about the accuracy of the energy industry's financial statements and accounting practices.
"Our members have broad concerns. 'Where are the regulators? What is going on? What does this mean for my rates?' are the questions they're asking," said AARP's Weinstock.
State and federal regulators and the Congress "need to stop and take a hard look," said Cooper of the Consumer Federation.
The Securities and Exchange Commission and Commodity Futures Trading Commission should develop rules for electricity trading, while Congress must slam the brakes on deregulation and the repeal of federal laws governing utility operations, Cooper said.
Deregulation promised more competition among electricity generators and lower prices for consumers.
But so far only a trickle of residential customers -- less than 1 percent in California, for example -- has switched from familiar utilities to independent energy providers.
PRICES GO UP
Prices have not dropped much for small customers -- they have gone up sharply in California -- while big business and industrial companies negotiated their own power deals.
"Deregulation never made sense. Now we have a definitive demonstration of the vulnerability of the electricity commodity itself," Cooper said.
Electricity trading in the dealer-to-dealer wholesale market, however, was exempted from regulation by Congress under the Commodity Futures Modernization Act in December 2000.
"Consumers see the news about Enron and Reliant and think we can do something immediately to fix things," said the CPUC's Prosper. "But we can't act alone because we don't regulate the independent power companies," she added.
The CPUC, which ordered a 40 percent price increase last year after a six-year rate freeze, gets about 400 price complaints a month.
The agency, however, has filed lawsuits for price refunds against power producers and appealed to the Federal Energy Regulatory Commission for help.
California pioneered the swing to unregulated power markets in 1996, and other big states like Texas, New York, Pennsylvania, Michigan, Illinois and Ohio moved toward deregulation.
Twenty-four of the nation's 50 states have enacted partial or full legislation designed to break open their electric markets to competition, a move encouraged by FERC.
The trend has slowed to a crawl, however, in the wake of the collapse of California's market, which shoved PG&E Corp.'s (NYSE:PCG - News) Pacific Gas & Electric utility, the state's biggest, into bankruptcy and almost brought down Edison International's (NYSE:EIX - News) Southern California Edison utility.
Some states, like Nevada and New Mexico, have even called a halt to efforts to deregulate their sectors until some order is restored to the region's power market following California's failed experiment. |
