Traders Deny Roles in California Power Crisis

SPOKANE, Wash., June 14 (Bloomberg News) — The Avista Corporation, the Williams Companies and two other energy traders, threatened by regulators for not cooperating with an investigation of California power prices, stood by claims today that they did not manipulate the state's energy markets.

Avista, which is based in Spokane, is accused of trading with Enron and its Portland General subsidiary to export power from California, then resell it to the state at a higher price. It said a review showed "standard buy/sell transactions" did not match those under investigation.

The Federal Energy Regulatory Commission accused Avista, Williams, El Paso Electric and Portland General of providing vague or inconsistent answers in its investigation into whether California markets were manipulated during the state's energy crisis in 2000 and 2001.

The commission, which questioned 150 companies, singled out the four traders and gave them until today to provide more detailed responses or risk losing the right to charge market rates for power and natural gas.

Forcing the companies to seek regulatory approval for price changes would shut down trading businesses, analysts have said. FERC has asked power traders if they used 11 trading tactics disclosed earlier this year in an Enron memo to increase power prices, or if they knew of others using them.

An Avista spokesman, Hugh Imhof, said the questions from the commission were directed at the trading unit of its utility subsidiary, not the unregulated trading activity at its Avista Energy subsidiary. Avista's utility operation stopped trading power after June 2000. "It only buys and sells power for our own needs," Mr. Imhof said.

Shares of Avista fell 7 cents, to $11.38, while Williams shares fell 40 cents, to $7.35. Shares of El Paso Electric, based in El Paso, rose 57 cents, to $13.73. Portland General does not have publicly traded shares.

FERC representatives met this week with officials at Williams, which is based in Tulsa, Okla., to review the company's California gas-trading data. "We are confident we have met today's deadline," a spokeswoman, Paula Hall-Collins, said. "We may follow up next week with written submissions" to FERC that will be made public.

FERC told Williams to provide price, volume and other data on all financial, physical and storage-related natural gas transactions in Southern California from Oct. 1, 2000, to Feb. 28, 2001.

The commission also reviewed daily profit-and-loss statements for Williams's gas transactions broken down by location and trader, and reviewed the company's long or short gas position for each day of the period.

El Paso Electric said on Thursday that it would provide FERC with every trade made during California's energy crisis. El Paso Electric, which sells power to 312,000 customers in West Texas and southern New Mexico, is not related to the El Paso Corporation, the biggest United States pipeline company.

In its filing to FERC, posted today on El Paso's Web site, the company reiterated that Enron handled its California trading, mostly selling the utility's excess power or buying power needed to meet El Paso's requirements. Enron operated the utility's trading desk 75 percent of the time during the period under investigation, the company said. El Paso Electric "did not have the means nor any reason to seek out information regarding Enron's trading activities," it said.

It its filing, Portland General said further review of trading and transmission records and transcripts of telephone conversations "showed no evidence of deception of market manipulation" on its part.

Portland General, based in Portland, Ore., submitted an analysis of its California purchases and sales at prices subject to market caps. It said it would provide additional information to FERC.

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Electric power is either instantaneously available from the generating source, or it is not.
It is not an item that can be "exported", then re-imported for profit.
I certainly don't have much respect for the Kalifornia legislators who crafted this screwy "deregulation",
but I don't see any value in having "traders" either.
They don't actually build power plants, generate or transmit electricity.
They're merely middlemen who add cost to the power bill.

Electric power is either instantaneously available from the generating source, or it is not. It is not an item that can be "exported", then re-imported for profit.

Not true for several reasons. In the first place, it's not available instantanteously. When you turn on a light in your home, some spinning generator somewhere bogs down just a teeny bit. Sensing this, it's control system orders a fuel valve to open just enough to provide you the extra 100 Watts.

This takes a finite amount of time, from a few seconds in the case of a gas-turbine, so several hours in the case of a nuclear plant.

In the second place, to keep the grid stable, there must be spinning reserves on line to pick up the slack in case of a sudden increase of load. These generators aren't pumping any power at all into the grid, but are being paid for being there if needed, just like...say...EMS Techs at the fire station.

In the third place, electricity is fungible. There is no way to tell which electron in your microwave was produced in which power plant. Generators all pump power into the grid (usually), and consumers take it out. The generators read their electric meters to know how much power they put in, and consumers read their meters to know how much they took out, but nobody knows where those pesky electrons happend to travel along the way. Think of it as a big lake with water coming in and going out at the same time.

So on paper, it's possible for a generator in California who finds itself producing an excess of power, to sell that excess power to New Mexico, and then someone in New Mexico to sell the same power back to California a few minutes later.

I don't see any value in having "traders" either. They don't actually build power plants, generate or transmit electricity. They're merely middlemen who add cost to the power bill.

Then of course you buy all your food products directly from the farmer, and fill up your tank at the refinery, right?

but I don't see any value in having "traders" either.

I have dealings with a power plant that is a so-called "peaker". It generally runs twice a day, for a few hours in the morning, and then again in the evening, this according to the contract they have with the local power company. The rest of the time, it is down. During the Enron days, they would continue running during their off-hours, selling power through Enron to whomever.

Now that Enron is out of the picture, they no longer have the same contacts to sell their spare capacity, and are back to running about half the time. They expect to rectify that soon.

Brokers play a very important role in connecting companies that have spare capacity, with companies that need that spare power.

Power plants produce power under contract. When they must go down to do maintenance, they often must themselves purchase replacement power. This they do through brokers, who purchase the spare capacity from other plants. Replacement power usually goes at a very high price, but since it is usually only for a few hours, or days at worst, it doesn't matter in the grand scheme of things.

California, in her incompetence, has discouraged power plant construction over the past, what, twenty years? Not surprisingly, she is in a bind, and has been forced to buy major amounts of power at "replacement power" prices. Obviously Californians don't want to admit that they are fools, nor are their elected officials and beaurocrats willing to own up to their culpability; much easier to blame the brokers who went out and found them the power they needed to keep the lights on.

Politically, things still have not changed much; it is still a nightmare to get a power plant permitted in California, and I frankly don't know why anyone would want to try.

Brokers play a very important role in connecting companies that have spare capacity, with companies that need that spare power.

Exactly. That's how markets are made efficient.

Thanks to brokers, middlemen, and interstate highways, consumers don't have to grow their own tomatoes or buy them from the farmer down the road - they can buy the cheapest ones available that week whether from down the road or across the nation.

The lack of knowledge of basic economic principles in the California legislature is simply astounding.

I have dealings with a power plant that is a so-called "peaker". It generally runs twice a day, for a few hours in the morning, and then again in the evening,
The rest of the time, it is down. During the Enron days, they would continue running during their off-hours, selling power through Enron to whomever.

In other words, instead of building the additional plants necessary to satisfy growing demand, brokers such as Enron inappropriately utilized "peaker" plants full time to supply base-load power to the grid. Then when peaks did occur, the predictable power-shortages and exorbitant electricty prices followed.

"Peakers" need to be operated as intended: once or twice daily (or even weekly) to satisfy demand peaks. They should not be pressed into service 24/7/52 just because some pinhead "trader" wants the market to create occassional shortages and excessive prices.

Thanks to brokers, middlemen, and interstate highways, consumers don't have to grow their own tomatoes or buy them from the farmer down the road - they can buy the cheapest ones available that week whether from down the road or across the nation.

LOL! Yea You're right it's always cheaper when you have to pay a middle man, that's why the Costco's and Home Depot's of the world don't do too well...NO middlemen/brokers to buy from...

It's always much cheaper to buy tomatoes from a middleman profiting from producing nothing than it is directly from the man down the road that produces them.....< /sarcasm >

Sorry, but in your example it isn't the Ca. legislators who don't understand "basic economic principles", it's you.

So on paper, it's possible for a generator in California who finds itself producing an excess of power, to sell that excess power to New Mexico, and then someone in New Mexico to sell the same power back to California a few minutes later.

Maybe you haven't been paying attention. We were told we had a power shortage, now you (the power industry apologist?) are saying we had enough excess to send to New Mexico at the same time we weren't capable of producing enough.

We had power going back and forth across the western states, but somehow couldn't be delivered to the unsuspecting consumer untill it went from here to New Mexico and then back....AT AN ARTIFICIALLY INFLATED RATE.

It's not just California. It might be your "deregulated" state too.

(Deregulated) Pennsylvania probes spike in power costs (sound familiar?)

Beginning in January 2001, the price of capacity abruptly rose from about $5 per megawatt hour to $177 per megawatt hour for nearly three months, the commission said. .......
By April 2001, when PJM changed its rules with FERC, capacity prices dropped sharply and returned to historic price patterns, the commission said.

Penn. is supposed to be the poster child for "deregulation".

Exactly. That's how markets are made efficient.

One of the services I saw brokers, like Enron, bring to the electric utility marketplace, was a knowledge of 'hedging' that most electric utilities didn't understand.

Oil and then natural gas became commodities traded on various options markets. Oil & natural gas can be converted to electricity or in some cases subsituted for electricity. Aluminum, is also a commodity traded on options markets and electricity is a major component in its production.

Until Enron and some other traders entered the market, most electric utilities I knew just bought and sold electricity. After the traders entered the market, I saw a number of the smarter utilities, learn from the traders in ways to "manage" their future fuel prices so they in turn could manage their costs to their consumers. Not all did a good job of this as it takes some OJT to figure things out.

One utility I know was concerned about the potenial for natural gas fuel escalation and so as part of a powerplant contract made the developer purchase some natural gas reserves in Canada. That project during the 2000-1 power crisis was producing all the power it could at very, very attractive prices.

In short the traders helped change the way some utilities were doing business. The way it happened was by being a competitive threat. That in turn, forced the utility to adopt "best practices" to survive the competitive threat. Electric utilities, as regulated monopolies, have been very slow in adopting "best practices." Part of what I believe FERC is trying to do with 'deregulation' is force utilities to adopt best practices by making them have to 'compete.'

I see that Davis gave you the day off. ...or are you doing your usual disrupting on California taxpayer time?

I proposed that goods are available to consumers at less cost thru free markets crammed full of brokers, distributors, and "middle-men" than the would be without those "greedy-capitalists" that you hate so much.

You said I didn't know anything about economics.

OK, genius, let's do a little test of your theory. I've already done my half.

I just drove to the local supermarket and bought a 4oz. can of black ground pepper for $.99. It took me one hour of my time, and one gallon of gasoline for my pickup truck.

Both the pepper and the gasoline went through at least three brokers, importers, wholesalers, distributors, etc., before I purchased them - and I assume that each one of them made a profit. (If they didn't, they would go out of business, of course.)

OK, now you do your part of this basic economic test. You go buy 4oz. of black pepper from the source. No middle men allowed, so you will have to grind it yourself, package it, and bring it back to your home without relying on anybody else.

Check back in a couple of weeks and let us all know what the total cost in dollars and your time was. (Be sure to include your air fare to India.)

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