Enron's impact in West questioned Did Enron power price manipulations affect the Pacific Northwest's ratepayers and utilities? Les Blumenthal reports on an effort to find out.

Les Blumenthal - Scripps-McClatchy Western Service

U nder pressure from three senators, including Washington Democrat Maria Cantwell, the chairman of the Federal Energy Regulatory Commission agreed last week to investigate whether Enron's manipulation of long-term, West Coast energy markets drove up rates for millions of consumers.

The request was based on an analysis done by a Portland-based energy consulting firm that concluded prices in the so-called forward futures markets for electricity declined by almost one-third immediately after Enron declared bankruptcy.

The consultant, Robert McCullough, told the Senate Energy and Natural Resources Committee that because of its size Enron had "enormous" ability to influence the long-term markets and inflate prices. McCullough said the drop in long-term energy prices a day after Enron's bankruptcy left the "very clear impression" Enron has manipulated the market.

Though the politicians' suspicions may have been whetted by McCullough's testimony, Northwest energy officials are far from convinced. They say energy prices had already started to fall as the economies in Washington and Oregon nose-dived and last year's summer drought was replaced by a solid snowpack.

"You couldn't design a better scenario for lower prices," said Ed Mosey, a spokesman for the Bonneville Power Administration. "The reason prices dropped was not because of Enron."

Steve Klein, power superintendent for Tacoma Power, said the price of power was headed down regardless of Enron.

"I don't think this is as simple and straightforward as people may think," Klein said of the federal investigation.

Enron, however, remains a convenient target and questions persist, in part, because trading in the energy futures market, or derivatives, has been largely unregulated. Enron had lobbied to keep the energy futures market free from government oversight.

In a letter to FERC Chairman Pat Wood formally requesting the investigation, Cantwell took note of the drop in prices on the futures market for electricity in the West.

"Where there's smoke there's often fire and we must investigate whether we have a simple coincidence here, or something more," Cantwell wrote. "The public deserves answers and, if appropriate, corrective action."

Wood apparently was taken off guard by McCullough's study and the questioning by Cantwell and Democratic Sens. Ron Wyden of Oregon and Dianne Feinstein of California.

"This certainly raises questions about whether Enron was manipulating the West Coast market," Wyden said.

While promising the investigation, Wood insisted the collapse of Enron had not damaged the nation's energy markets and spot prices for electricity remained stable.

Top FERC aides were later overheard laughing about Wood's promise to investigate, saying the chairman often makes such commitments when something was sprung on him suddenly.

Even though Congress in 2000 exempted trading in over-the-counter energy derivatives from regulation by the Commodity Futures Trading Commission, Cantwell said the energy commission has the authority to investigate allegations of price manipulation involving long-term power contracts.

Wood said the commission will first try to establish the size of the energy-futures market, and Enron's share, before trying to determine why prices dropped sharply after the bankruptcy.

Ratepayers, however, should not expect any quick relief as the commission works with glacial slowness. The commission is still trying to decide whether Tacoma Power and a handful of other Northwest utilities are due roughly $500 million in refunds for overcharges by energy suppliers last year.

As far as Tacoma Power goes, Enron was never a major supplier, Klein said, and the utility had stopped dealing with the Houston firm long before the collapse. Tacoma has no outstanding contracts with Enron and was never heavily committed in the futures market, Klein added.

But BPA was forced to scramble to meet the demand for power last year and Enron was among the top 10 energy marketers it traded with, Mosey said. Even though McCullough's study was "very misleading," Mosey said, the energy commission needed to investigate.

"It's a good idea to take a look at everything," Mosey said. "But instead of looking for a boogey man, perhaps we ought to be looking at how we could manage the markets better."

•Les Blumenthal is a Washington reporter for Scripps-McClatchy Western Service.

-- Anonymous, February 07, 2002