Regulators investigate electric price manipulation

Daily Record, The (Baltimore), May 23, 2002 by Nancy Kercheval

The Federal Energy Regulatory Commission wanted to know if Maryland energy wholesalers took positions in any of the 10 ways of "inc-ing load" or "relieving congestion" to manipulate electric or natural gas prices.

In a FERC directive, the agency said it wanted the specifics of any activities under the heading of "get shorty" or "load shift" or "death star."

It asked for the details of the company's executions of activities known as "wheel out," "fat boy" or "ricochet."

And it wanted the admissions or denials filed with the agency by the end of business yesterday.

Allegheny Power Energy Supply and Constellation Power Source both assured FERC that neither had engaged in any trading strategies in the Western United States that would artificially inflate trading volumes or revenue.

It's just one in a series of queries by FERC in connection with the Enron investigation. The request went out to all sellers of wholesale electricity and ancillary services to the California Independent System Operator and the California Power Exchange during 2000 to 2001.

FERC ordered each company to respond -- under oath in the form of an affidavit -- to the inquiries of the trading practices.

Allegheny Energy and Constellation set about intensive internal investigations and uncovered no illegal or suspicious activities.

"Allegheny Energy Supply buys, trades and sells energy in the marketplace to serve our customers and profitably generate value for our shareholders," said Allegheny Energy Supply President Michael P. Morrell in a statement issued yesterday.

"All of our trading activity has been, and will continue to be, conducted with the highest degree of integrity and fairness and in compliance with the spirit, as well as, the letter of all laws and regulations," he added.

As for Constellation, the company said, "In today's response to FERC's data request dated May 8, 2002, Constellation Power Source confirmed that it did not engage in any of the practices outlined in the request.

"This determination was made after a diligent and thorough review undertaken by the company and its counsel which included a review of electronic and paper records as well interviews with current and former personnel with potentially relevant information," the company said.

As part of its fact-finding investigation, FERC is looking for other participants in these trading schemes engaged in by Enron traders in the West -- and particularly California.

Under the "inc-ing load" activity, a company artificially increases load on a schedule it submitted to the California Independent System Operator with a corresponding amount of generation. The company dispatches the scheduled generation, which is in excess of the actual load, and charges for the excess generation.

Under the "relieving congestion" plan, a company creates congestion in the California Power Exchange's market, and then relieves that congestion in the real-time market. The California Independent System Operator ends up making a payment to the company, which has taken actions such as reducing schedules or scheduling energy in the opposite direction of a constraint.

Based on these two activities, FERC identified 10 strategies used by companies to elicit payments for nonexistent or falsified inflated events.