the beaten up power industry, ripe for consolidation? some big players, with deep pockets might just be getting ready to move in. don't forget Buffett - he's picked up some utility companies already. he may not want to mess with accounting problems and probes, but he's sure likes a bargain. following article is from WSJ:
Energy Firms Deny Any Role
In Manipulating Power Prices
Williams Says It Is Seeking a Partner
To Bolster Its Beleaguered Trading Unit
By CHIP CUMMINS and MITCHEL BENSON
Staff Reporters of THE WALL STREET JOURNAL
Williams Cos., one of the nation's biggest energy companies, said it is considering
bringing in a partner to bolster its energy-trading and marketing business, a
shocking reversal for the company that underscores the turmoil that has
whipsawed the sector since last fall's collapse of Enron Corp.
Williams's disclosure came as scores of top energy companies denied they had
manipulated California's electricity prices during that state's energy crisis in 2000
and 2001.
The big trading companies, Dynegy Inc., El Paso Corp., Mirant Corp. and
Williams among them, acceded to extraordinary demands by the Federal Energy
Regulatory Commission by submitting sworn statements denying they engaged in
practices that artificially inflated prices in the California market.
FERC had demanded the statements
after receiving memos in recent
weeks written by outside lawyers to
Enron detailing various trading
strategies Enron employed to raise prices.
California politicians have seized on the memos to argue that the power crisis,
which has cost ratepayers billions of dollars, was deliberately -- and probably
legally -- engineered by power traders taking advantage of a poorly designed
deregulation law.
Big generators serving the region, including the Bonneville Power Administration
and Duke Energy Corp., also denied manipulating the California market. FERC is
expected to conclude its own investigation into what happened in California later
this year.
Williams's pursuit of a possible partner for its energy trading and marketing
business also reflects rating agencies' recent questioning of the creditworthiness of
a number of companies in the sector, an issue that could make borrowing to
support trading activities more difficult. Williams, seeking ways to bolster its
credit, told analysts in a conference call that it would consider an equity infusion or
a joint venture for its energy-trading business.
Other energy traders are feeling the pressure. Calpine Corp. and Mirant said earlier
this year that they are looking for alliances or joint ventures to help with their
credit, which is a key to any trading operation.
Williams, a Tulsa, Okla., company with interests in pipelines, oil and natural-gas
fields and energy trading, said it continues evaluating a wide array of options to
improve its balance sheet and satisfy rating agencies, which are considering
downgrading its debt.
Bill Hobbs, head of Williams's trading business, said the company has held "early
discussions with various parties," but said none of the discussions was advanced.
Williams officials declined to name possible partners. Mr. Hobbs said the company
would prefer not to share the trading operation, "but if that's the only way we have
to continue to grow this business in the manner we want to, then that's certainly a
path we'll look to."
The move is an extraordinary turnaround for Williams, which just last year boasted
it could make more than $500 million a year in profit from its trading business
alone, whether typically volatile energy prices were going up or down. Last year,
the company said trading contributed $1.28 billion in operating profit.
The company also said it is considering an acquisition that would boost its balance
sheet, though such a transaction is "the longest shot," according to Mr. Hobbs.
Investors appeared to like the news, boosting Williams shares. In 4 p.m. New
York Stock Exchange composite trading, Williams shares were up $1.71, or 11%,
at $17.71 each.
But investors and many analysts have lost confidence in the whole energy-trading
sector amid disclosures that Enron, the sector's one-time leader, inflated earnings
and hid debt in off-balance sheet partnerships set up to benefit the company's
executives. In addition, Dynegy and others recently admitted to so-called
"round-trip" trades that boosted volume but otherwise didn't create value.
In its FERC filing, Williams said that a review of its trading "didn't find any alleged
Enron-style trading strategies," according to a news release. But it did identify
"Williams-specific transactions amounting to a fraction of a% of its overall trading
volumes" that have some of the characteristics described in the Enron memo,
though it said they weren't used to manipulate the California market.
"There were just very few of these transactions and the volumes were very
insignificant," Mr. Hobbs said.
Duke Energy, Charlotte, N.C., said in a statement that its trading operations
"followed the market rules in place in California."
Dynegy said in its 12-page filing that the Houston energy company didn't engage in
any of the strategies outlined in the Enron memos. In its response to whether it
engaged in practices to artificially increase demand, Dynegy said it didn't.
However, the company pointed out that its written demands were only forecasts,
which might have varied with the actual loads it encountered each operating hour.
Even so, the company said it "used its best judgment to develop its demand
forecast."
In its filing, Southern California Edison Co., a utility unit of Edison International,
also said it didn't artificially pump up demand or engage in "relieving congestion,"
in which a company gets paid for relieving transmission congestion that it
artificially created. However, it did say -- as did Dynegy -- that it might have sold
extra power beyond what it thought its demands were. Those sales "were not the
result of any strategy," officials said, but they "necessarily resulted from the impossibility of exactly forecasting load
and supply."
Northwest utilities also denied engaging in market manipulation strategies. The Bonneville Power Administration, the
federal agency that markets power from federal hydroelectric dams in the Northwest, says its transactions were
designed to cover shortages in the Northwest, then suffering a drought.
Bonneville noted that when it bought power in California markets to meet its customer loads, it was resold at or below
the California cap of $250 per megawatt hour, except for two hourly sales that were sold at $275.
"The bottom line is we are not in the same game, not in the same mind-set as traders," said Ed Mosey, a Bonneville
spokesman. "Our transactions were for power-related reasons, to meet our loads."
Bonneville, however, said it may have unknowingly engaged in so-called ricochet strategies -- buying power at capped
rates in California, moving it out of state, and then reselling it back to California at uncapped rates -- because the
agency deals with many power sellers throughout the West. But the agency said its review of transactions and taped
conversations of its traders didn't reveal evidence of such trades. Bonneville noted that when it had transmission
capacity, it did conduct transactions in which it received power from California and redelivered it back, but they were
few and it earned just $21,509 in fees from those transactions.
Bonneville also added that during February and March 2001 it was simultaneously buying power to meet its loads and
acquiring power for California from third parties that wouldn't sell directly to the state because of concerns about
getting paid, and these may have the appearance of ricochet trades.
Weeks before the sworn statements were filed, at least one California politician was already expressing concern about
the value of the sworn documents and saying FERC itself should subpoena data and depose traders.
In a May 10 letter to FERC Chairman Pat Wood III, state Sen. Steve Peace said FERC's immediate response to the
Enron memos presents "the prospect of another shoddy, incompetent and naive investigation" similar to others where
FERC "made 'phone calls' to marketers to inquire whether they were withholding power," Mr. Peace wrote. "Not
remarkably, FERC found no evidence of such activity."
Mr. Wood declined through a spokesman to discuss the sworn filings. |
