Electricity Firms Deny Enron-Style Trading Strategies

Some of California’s biggest electricity players on Wednesday denied Enron-style manipulation of California’s electricity market, but a few admitted to federal regulators that they engaged in some types of trading that critics contend may have worsened the state’s energy woes.

All of the companies defended their behavior as legal and within the rules of the state’s electricity markets run by the California Power Exchange and the California Independent System Operator, according to filings Wednesday with the Federal Energy Regulatory Commission.

Williams Cos. said it found no “Enron-style trading strategies” but did identify a small volume of trades “that have some of the characteristics described in the Enron memo but which were engaged in for entirely different reasons.”

Williams, which markets electricity from four California power plants owned by AES Corp., said it legally sold California power outside the state, but did not re-import it at a higher price.

Internal memos disclosed this month show that Enron Corp. exported power and then brought it back for sale at a higher price--a tactic it dubbed “ricochet.”

“We are--and always have been--very different from Enron,” said Steve Malcolm, chief executive of the Tulsa, Okla.-based energy company.

The Enron memos were disclosed May 6 by FERC as part of its probe of California’s troubled energy markets. The revelations outraged state officials who long had claimed that the energy crisis was exacerbated by trading tactics.

Two days after releasing the memos, FERC broadened its investigation and ordered scores of power sellers--from power plant owners to traders to municipal utilities--to state whether they used the same sorts of strategies.

The ploys included creating congestion on transmission lines and then being paid to relieve the congestion, and selling power out of state and then reselling it back into the state at higher prices. The Enron memos said rival companies had adopted some of the same tactics.

Energy consultant Robert McCullough was skeptical of the power sellers’ claims that they did not use the kind of tactics that Enron pioneered. “Obviously, admissions of guilt will be grudging at best,” he said.

FERC did not release the responses, but several companies issued statements on their filings to FERC.

Investigation to Include Sellers of Natural Gas

Separately, FERC on Wednesday widened its investigation of questionable trading strategies to include sellers of natural gas in California and other Western states. The investigation of “wash” trading--prearranged deals in which a company sells a given volume of a commodity to another firm and then buys it back at the same price--had been focused on electricity marketers.

Of the large power plant owners in California that have been repeatedly accused of manipulating the state’s power markets and of not running power plants to peak capacity, only Calpine Corp. gave itself a completely clean bill of health. Duke Energy Corp., Dynegy Inc., Mirant Corp. and Reliant Resources Inc. denied using most of the Enron strategies--particularly the most controversial--but acknowledged limited trading practices of the type that FERC is questioning.

* Duke, which operates four California power plants, said it did not use the strategies detailed in the Enron memos but did engage in “other activities that have some of the characteristics described in the Enron memoranda, but are within market rules.”

The Charlotte, N.C.-based Duke said it bought power from the California Power Exchange and exported it out of state to meet power obligations, but only during 11 hours of more than 9,000 hours during which the PX was in operation in 2000 and 2001. Duke said it occasionally appeared to create congestion, but those power deliveries were scheduled for legitimate business reasons.

* Houston-based Dynegy denied using the tactics of Enron but acknowledged submitting estimates to Cal-ISO for power needs that were too high. Dynegy said it did so on the assumption that the state’s utilities would submit estimates that were too low, resulting in a balanced schedule.

* Atlanta-based Mirant, another California generator, did not release its FERC filing but said in statement that it was able to deny eight of the 10 Enron strategies. The company said it submitted false load schedules to Cal-ISO, but did so with the grid operator’s approval. Mirant also said that, on a single day, it sold power outside California and bought back a similar amount for resale within the state. A Mirant spokesman declined to say whether a profit was made.

* Houston-based Reliant Resources repeated a previous admission that it infrequently overscheduled power on the state’s electricity grid and shipped power out of state when California was starved for megawatts. Reliant noted that Cal-ISO had the power to cut exports during electricity emergencies, but never did so.

“Our practices were proper and lawful, aimed at serving the public interest while delivering shareholder value,” said Hugh Rice Kelly, Reliant’s general counsel.

Enron’s ‘Ricochet’ Technique Decried

The Los Angeles Department of Water and Power and the Bonneville Power Administration, which were criticized during the crisis for charging high prices, denied using the Enron trading tactics. Spokesmen for the two public power marketers expressed dismay that Enron used DWP and BPA transmission lines to work some of their schemes.

Enron was able to pull off its “ricochet” technique at times by sending power to Oregon over transmission lines owned by the DWP and back into California over BPA lines to evade price caps on in-state power. Cal-ISO could not tell that the power it was buying had originated in California because it does not control the DWP or BPA transmission lines.

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Times staff writer Ricardo Alonso-Zaldivar contributed to this report.