Reliant Resources Responds to FERC; Disclosed Trades Include Single Roundtrip in WSCC in 2000/2001

HOUSTON, May 31 /PRNewswire-FirstCall/ -- Reliant Resources, Inc. (NYSE: RRI), in responding today to a Federal Energy Regulatory Commission (FERC) request for information about roundtrip trades in the Western Systems Coordinating Council for the purpose of increasing volume in 2000-2001, said that among transactions previously disclosed was a single roundtrip trade of an electricity product in that region and time period. This is the sole transaction that Reliant has identified to date that is responsive to the Commission's investigation.

Very interesting, one trade doesn't sound like a lot.

I thought you might be interested in an email I sent to a reporter who talked about Corporate Greed and power trades.

(Name) there are wash sales and there are wash sales. If I sell a flat block of 10 MW for a full hour to somebody and buy it back over the course of the same full hour from the same party over the same transmission path, that looks pretty bad.

If on the other hand, I sell to company X 1 MW for every minute of the day and ask them to put that in a hydro reservoir that I can draw upon when needed for peaking, reserves, or other ancillary services, and during a single hour, ask for 24MW back or ask for 96 MW back during a single 15 minute period, then the "1 MW wash sale" during that short time span might not look quite as dishonest.

Similarly if I have nonfirm I am selling and someone is selling me back firm power, at a higher rate and from a different source, then the transaction might not look so bad. Before, I would agree to it I would want some iron clad guarantees.

Likewise if I am selling a block of power over on a transmission path to get to a company that can sell me power over a different transmission path that I can not get access on, the transaction might not look quite so bad.

The real issue is that the context of the transaction changes depending on the details.

Having given my little Pollyanna speech, I expect that when the dust settles the SEC, FERC, and the Justice Department will find folks who have violated real rules, real regulations and real laws. If that is the case, I hope they throw the book at these folks who have tarnished the image of the power professsion.

(name), a former power manager.

It really is a different world.

Now this I come closer to understanding a good reason for!
To me this could be described as stockpiling energy for later use!

The real issue is that the context of the transaction changes depending on the details

These round trips are not a concern regarding pricing. The issue is transmission saturation ....ie. band width if you will.

The issue is when the gray (not a profit or a loss) comodity is transmitted through the grid.

Transmitting the gray sale and "clogging the grid" to prevent a buyer from getting power he can purchase from your competitior (at one half the price you would charge) because you clogged the line with your own purchases is the issue here.

These round trips are not a concern regarding pricing.

I agree with you completely. What I was trying to tell the reporter was that sometimes a one-for-one sale may make sense and be a legitimate transaction.

Some times such a sale could also be a sign of something corrupt going on. Your example is such an example.

The point I was trying to make was that we should wait for a few more details before we condemn all the power companies for gaming the system. From what I have heard so far, I expect that the amount of corrupt market gaming was minimal, but existed and was practiced by a few players. I am really upset that so many people are jumping to the conclusion that Enron and everyone else was "gaming the market." Although it appears that Cal ISO was improperly asking folks to submit false bids, which seems to get little media play.

Yesterday, I was at a RTO-West workshop. It was quite interesting, especially when we discussed how the RTO was going to try to prevent folks from gaming transmission markets. At that point a whole bunch of insiders started to talk about how the Cal ISO allowed folks to consistently underschedule and how the Cal ISO should have been shot for that and how that created a panic near impossible real time market for immediate power. They assured those of us in the audience that schedules would would not be allowed to be biased and if there were a detectible bias, then the scheduler would be banned from the RTO. A utility manager talked about his Cal ISO experience where he visited the nice new building with all curved walls. He is a professional engineer and use to work at the other office of the electric utility consulting company I work for so he is pretty sharp. He said he looked at the dispatch board in the Cal ISO and asked a dispatcher why a transmission line breaker was shown as closed when the real time displays showed different frequencies on either side of the breaker. The dispatcher looked around and then asked this utility manager to come with him away from the tour. The Dispatcher then explained that the impressive display board was for display and not for real use. The utility manager was reminded of the time when Enron had secretaries pretending to be power traders for a bond tour.

Bottom line there may have been some corrupt energy traders, but I think the heart of the problem when the dust settles is going to be Cal-ISO.

Good letter.

Also, people decrying these "round trip trades" fail to understand grid-reliability issues. Sometimes you need to buy extra power "just in case". If it ends up not being needed, and the seller agrees to buy it back at the same price, the two companies have done the consumers a favor.

Did Home Depot agree to buy back all those portable generators they sold just before Y2K? Of course not. But nobody is calling them "greedy capitalists".

Potemkin village

Thank you I shall remember this term and try to use it.

The Russians won a war with the Turks/Ottomans and needed to colonize the Ukrane or Black Sea area. Catherine the Great made an offer of special privaleges, travel expenses, and free land to german speaking peasants if they would settle the land. There was a mass migration to the Ukrane of german speaking people, some of whom were called Vulga Deutch or Vulga Germans. After a few generations the rules were changed and around the late 1890's and early 1900's most left. Many came to the US, including one of my of grand parents.

Thank you, I think I understand the meaning and the context of this term.

The problem with the premise of your pathetic milquetoast email to the reporter is you don't understand the free market or you're too much of a wimp to simply declare to this reporter or to idiot b*tch socialists like Barbra Boxer and imbecile Oregon senator Ron Widen that the price reflects whatever the market will bear. And that Enron, Reliant, et al ARE NOT TO BLAME FOR A F***ED FROM THE START ENERGY TRANSMISSION GRID POLICY THAT CALIFORNIA idiot liberal-socialist politicians implemented pandering to the idiot voters. Typical lazy, do-nothing corner-cutting politicians that think they can pass the buck to "evil-rich-white-corporate" taxpayers.

And I can guaran-damn-tee-ya that the crooked California ISO employees and directors will NEVER be held accountable and will be allowed to skate free. Because as long as timid wimp power traders are too damn intimidated to stand up for their industry and their company, then chimp brains like Barbra Boxer and Ron Widen will just continue to b*tch slap the timid power traders all across the senate hearing rooms on national television for all the nation to see and for the people to continue to believe wrongly that the energy traders are evil and should be punished. It's too damn bad that the "energy traders" and employees that have testified at these bogus senate hearings could not have taken the cue from former Enron CEO JEFF SKILLING when he stood up to these idiot senators and did not let them stupidly and dishonestly misstate facts. It was refreshing to see Skilling shove their lies back in their faces and boldly and angrily interrupt the idiot grandstanding senators from babbling nonsense and lies. Do you not wonder why there have not been any traders from either Pennsylvania or Atlanta Georgia systems that serve 5 states? It's because they have proven the overwhelming success of deregulation.

...you don't understand the free market or you're too much of a wimp to simply declare...

Gosh, I must have punched your hot buttons.

Let me see if I can't punch a few more. In your quest to defend the free market, have you ever heard about anti-trust laws in the US. We don't have a "free market" in this Country. Are you aware that by international treaty there are a bunch of regulations on a variety of things from "dumping" to governmental subsidies. Totally free markets don't exist.

I am not sure I would want to live in a world where I was expected to "maximize" my profit potential or be considered a failure. In my marketing of services to my clients, I have had opportunities when they are despirate to charge them exorbinent fees. On occasion, when I never cared if I was hired by that client again, I have done so, but it was to send them a message to remind them about how they treated my firm in the past. I had one client that use to regularly pay me 6 months late. I decided that I would increase all my rates to that client by 35% and grant them a 20% discount if they paid within 30 days. They came to me and thought this was wonderful and they paid within 30 days. I felt like they were contribuing to the past works cost of money they had cost me, and were now behaving so it was worth doing.

Generally, I try to make sure that my clients feel that the savings I have provided them, more than pay for my services. I use to work for a company that had a set of core culture sayings that included our goal was something to the effect to: do good work, contribute to a positive society, have fun, and make a little money. At the end of the month, if we have been profitable, I don't lay awake at night saying if only I had charged my clients a little more. My glass is half full not half empty. I am happy making enough money to meet my needs, and don't feel bad if I could have made a little more. I have also sold power in power markets and figured out "market prices" for electricity sold to California. I always remembered that someday when I sold power, I might need to buy it as well. I worked at establishing relationships with my trading partners were we would help each other, as opposed to seeing who was the most despirate.

After rereading the post I wrote to you, I apologize to you for being disrespectful, i.e. calling you a wimp. That was uncalled for. You obviously know much more than me regarding selling power/energy and you sound like an honest businessman.

I am sick though of these dishonest preening politicians Boxer, Ron Widen and Gray Davis brow beating energy company employees and the employees not standing up for themselves and correcting the lies Boxer, Freeman and others spew. Instead they sit there meekly and silently when they should be interrupting the politicians to tell the whole story of what caused the crisis.

I agree with you completely.

I was in WA DC talking to staff of Senators tennis-shoe-mom Murray & Cant-Vote-well along with the staff of Congressman Inslee on the day that the Washingotn Post covered the Enron-Death Star, Get Shorty, etc. memo's. I tried to point out that what they were saying was politics and this was way to important for politics. I told several staffers that I was more shocked about what the Cal-ISO and DWR had done than by what Enron was accused of having done.

The staff person for Inslee in particular would not listen to a word I was trying to say as it was not in his political script. I cautioned him, that asking Ashcroft and FERC to throw the book at folks could come back to haunt the democratic party. He wanted to hear nothing about what I had to say. After I got back from DC I even sent him an email with some documentation and links to Sacramento Bee newspaper articles that indicated the Cal ISO had really misbehaved during the energy crisis.

You are right in that this is politics of the worst sort and truth is the victim. May of the staff of the companies being quized by the Senate and House should stand up to these folks with harsh answers about who are the real villians and why did California do nothing once it knew it had a problem. A victim should fight for its rights nor role over.

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