Enron is a top trade partner of the BPA's
Oregonian
01/30/02
TOM DETZEL
WASHINGTON -- The Bonneville Power Administration disclosed Tuesday
that bankrupt energy dealer Enron is one of its top trading partners and
has contracts to sell to BPA power at more than double current rates.
The federal power marketing
agency would not divulge how
much it is cumulatively
obligated to pay Enron for the
electricity, which was bought in
late 2000 and early 2001 when
prices were peaking during the
California crisis.
But Ed Mosey, a BPA
spokesman, said the contracts,
which cover varying periods
extending through 2006, are
being reviewed by a team of
lawyers and economists at the agency in light of the Enron bankruptcy
proceeding.
He said the BPA has contracts to buy 360 megawatts of power from
Enron and to sell the company 300 megawatts. The BPA's average cost
to buy is about $50 a megawatt-hour, he said, reflecting the relatively high
prices of a year ago. The average price to sell is closer to current rates,
now about $18 a megawatt-hour.
One megawatt of electricity is enough to power about 600 Northwest
homes.
The BPA-Enron link was first raised Tuesday morning at a hearing called
by the Senate Energy Committee to explore the effect of the Enron
collapse on energy markets.
In an interview from the BPA's Portland headquarters Tuesday, Mosey
sought to minimize the potential financial risk from the Enron contracts,
even as he confirmed that the BPA plans to report a $216 million loss for
the federal fiscal year that ended last September.
It was a year in which a near-record drought limited hydropower output at
the same time California's meltdown sent wholesale power costs to record
heights, forcing the BPA to boost rates it charges its utilities by 46
percent. That spawned rate increases across the region for residential and
commercial ratepayers.
At the Senate hearing, two Northwest senators asked the government's
top energy regulator to investigate charges that Enron used its dominant
market position to manipulate long-term prices in the Northwest.
Sens. Ron Wyden, D-Ore., and Maria Cantwell, D-Wash., made the
request at the hearing after a Portland consultant testified that forward
prices for power at the Northwest's major exchange fell 30 percent just
after the Enron bankruptcy.
The consultant, Robert McCullough, said that no other factors but the
bankruptcy seemed to affect the market and that he was "appalled" at the
sudden drop.
"The clear implication is that Enron may have been using its market
dominance to set forward prices," McCullough told the committee. "This
isn't simply a question of one trader making money and another trader
losing money; those are prices that directly impact consumers."
The BPA's sudden emergence in the Enron controversy underscores the
reach of the company that was the country's biggest energy trader before
its Dec. 2, 2001, bankruptcy, brought on by the disclosure of huge
off-the-books losses.
Several energy experts said Tuesday they weren't surprised that the BPA
would hold contracts with Enron given the company's dominant position
and the BPA's role as the region's top provider of wholesale electricity.
"All the major utilities in the region, I'm sure, have some exposure to this,"
said Bob Jenks, executive director of the Citizens' Utility Board in Oregon.
McCullough raised the issue of the BPA's contracts at the hearing in
ominous tones, contending that Enron "may possibly be the largest single
commercial partner" of the BPA.
But Mosey said one other national energy marketer has a bigger contract
with the BPA, as does Alcoa, the aluminum company that has a two-year
agreement to sell the BPA power for two curtailed factories in
Washington.
The BPA markets electricity from the federal Columbia River hydropower
system, but it was pushed into the wholesale electricity market last year
as it scrambled to find enough power for its customers under new five-year
contracts that began last October. The low costs of hydropower meant
that the BPA's prices were still a bargain even after the agency
announced rate increases.
Utilities had flocked to the BPA, signing contracts for 11,000 megawatts,
or 3,000 more than the hydro system produces. The BPA bought some
1,500 megawatts back from industrial customers at $20 a megawatt-hour,
purchased 1,000 megawatts on the open market and acquired the rest
through conservation. The Enron contracts helped fill the gap.
"The bottom line is (Enron) is a large trading partner, but they're not the
largest," Mosey said. "When you look at our transactions with them,
they're not going to sway our budget one way or another."
He added that if the BPA hadn't bought power from Enron, it would have
turned to someone else and still paid the prevailing market prices.
Mosey declined to provide more specifics about the BPA's dealings with
Enron or other energy providers, saying that disclosing the details could
create a competitive disadvantage for the agency in the power market.
However, he said lawyers and economists are reviewing the Enron
contracts in light of the bankruptcy "to see what our options are." Both
Enron and the BPA are meeting terms of the deals, he said.
Although the BPA will end up owing Enron more for power purchases than
it will get for sales, "that's not a bad position to be in with a bankrupt
company," he said.
The BPA's managers had been predicting poor financial results in
quarterly reports through most of last year, so the $216 million net
revenue loss the agency will report against $4.2 billion in revenues comes
as no surprise.
However, the BPA's reserve fund also shrunk by $186 million to $625
million, and the agency got a boost as well from more than $600 million in
credits to offset its annual debt payment to the U.S. Treasury for the 29
Columbia River dams.
The BPA had worse results in 1992 and 1993, both drought years, when it
posted losses of $274 million and $297 million respectively on about $2
billion in revenues in each period.
At the Senate hearing, Pat Wood, chairman of the Federal Energy
Regulatory Commission, pledged an inquiry into Enron's handling of
Northwest energy trades based on McCullough's assertion of possible
market manipulation.
"We still have people in the Puget Sound area and various parts of the
state paying a 50 percent increase in their electricity rates," Cantwell
said. "This to Northwest consumers seems to be what they've been
thinking all along -- that where there's smoke there's fire."
The hearing was called, in part, to examine the need for more regulation
as a result of the Enron collapse. Forward contracts -- bilateral deals such
as those traded by Enron and other participants in the Northwest --aren't
currently regulated.
Wyden said he's "not sure it's possible to confidently conclude that Enron
wasn't manipulating those markets" given the lack of information that was
available about the trades.
McCullough is a former utility executive who's working for Northwest
utilities that want the Federal Energy Regulatory Commission to order
refunds for last year's rate gyrations.
Before Enron's finances started unwinding, an administrative judge
recommended against refunds, ruling that the Northwest market worked
as it should have despite the record prices. The case is pending at the
regulatory commission. You can reach Tom Detzel at 503-294-7604 or by
e-mail at tom.detzel@newhouse.com.
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