Judge wants more details on Avista trades

The Spokesman-Review | Friday, 4-4-03 | Alison Boggs

[lilylangtree]

Avista Corp. will go before a federal judge next week to defend its trading activities during the 2000-2001 energy crisis. Curtis Wagner Jr., chief administrative law judge for the Federal Energy Regulatory Commission, is particularly interested in two energy-trading practices, which he cited Wednesday in an order setting the April 9 hearing. In the order, Wagner said he wants more information about the $11.8 million Avista Energy (Avista's energy trading subsidiary) earned through the "sell back of ancillary services." He also wants to know more about the "counterflow revenues" of close to $100,000 that Avista Energy allegedly earned.

FERC staff investigated Avista last year because of a series of trades between Enron Power Marketing Inc., Portland General Electric Co. (an Enron subsidiary) and two Avista entities. FERC staff concluded that no one at Avista Utilities or Avista Energy had knowingly engaged in improper trading.

The agreement between FERC staff and Avista exonerated the Spokane company, but is contingent upon Judge Wagner's approval. Then, on March 26, FERC reports on the manipulation of West Coast energy markets were released. Avista, which thought its issues had been investigated and resolved, was surprised to see its name resurface. "The fact that we're still included in there is kind of a mystery to all of us," said Avista spokesman Hugh Imhof. Imhof said the specific issues in the judge's order were investigated by FERC staff and found to be properly conducted trades. The company said it did earn the $11.8 million, but said it did so through proper, legal trading activities.

The ancillary services the judge referred to are essentially reserve power supplies, said Dave Dickson, Avista Energy's vice president of electric marketing and trading. California has reliability requirements, Dickson said, so it buys power reserves to make sure it has enough energy to meet demand. It has to pay to reserve the power regardless of whether it ends up using it. Once a buyer reserves the power, three things can happen, Dickson said. One, it will use the power. Two, it won't need it, but still has to pay for it. Or three, it won't need the power, but the price of the power will drop and it will have the option of selling the reserved power back at a lower price and recouping some of its money. The third option is called "selling back ancillary services" and FERC acknowledges that it is a legitimate form of trading.

On many occasions, Avista Energy sold power reserves to California. At times, Dickson said, the state did not need the power and sold back its right to the power, recouping some of the price it paid. Avista Energy then had the right to sell the power to another buyer. "There were numerous market participants who sold ancillary services. We were one of several," Dickson said. From January 2000 to June 2002, Dickson said, such transactions netted Avista Energy $11.8 million.

Wagner's order also refers to the term "Get Shorty" in the same section as "ancillary services." Get Shorty, also called "paper trading," is referred to in FERC's March 26 report as an Enron trading strategy in which the company would commit to providing reserve power that it didn't actually have. Dickson said such a strategy would not apply to Avista Energy because the company follows through on commitments made to customers. "We always had the ability to deliver," Dickson said. "Avista Energy performed when it was called upon."

Dickson said Thursday he could not elaborate on the judge's reference to "counterflow revenues," which alleged earned Avista Energy close to $100,000. Avista officials are trying to clarify how that amount was calculated, Dickson said.

[lilylangtree]

"The fact that we're still included in there is kind of a mystery to all of us," said Avista spokesman Hugh Imhof." Well, Mr. Imhof, what about the Wednesday, June 12, 2002 newspaper blurb indicating the Bobby Schmidt, an Avista Corp. director who brought commodity trading expertise to the company's board VOLUNTARILY resigned shortly before the announcement of the beginnings of a FERC investigation. According to the Avista Chair, Gary Ely, Schmidt helped the company during unsettled times. "He brought to our company a wealth of knowledge and experience, and his expertise was of enormous value as we addressed both opportunities and challenges in our business," Ely said. Schmidt was hired in 1997 with his resume long on commodity trading. He was a former member of the Chicago Board of Trade and associated with Refco, the world's largest trading company. When Schmidt was hired, the former chairman, Paul Redmond of then Washington Water Power (Avista), said Schmidt's commodities background would help the company position itself for energy deregulation. Yeah, Mr. Imhof, Avista, Enron, Portland General and others helped create the California energy crisis, and you're still wondering why you're included. Think about it!

[Ernest_at_the_Beach]

Thanks for the alert on this!

Calpowercrisis:

To find all articles tagged or indexed using Calpowercrisis, click below:
	click here >>>	Calpowercrisis	<<< click here
(To view all FR Bump Lists, click here)