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Firm to Probe Dubious Trading of Electricity

Power: CMS Energy says no such activity involved California or the West. Reliant tells FERC it engaged in one sham deal in the state to boost its trading volume.

June 01, 2002|From Times Wire and Staff Reports

CMS Energy Corp. has named a special committee to investigate more than $4 billion in questionable power trades by its energy marketing unit, the Michigan-based gas and electricity company announced Friday.

Meanwhile, Houston energy company Reliant reported to the Federal Energy Regulatory Commission that it had engaged in one "unusually large" sham transaction in California to boost its trading volume.

So-called "round-trip" trading involves one company selling power to another firm, then buying it back for the same price.

The practice is used to make a company's revenues seem larger than they really are, and can also be utilized to drive market prices higher. FERC had asked for the data as part of its investigation of alleged market manipulation in California and the West in 2000-2001.

The use of round-trip trades in the energy industry surfaced as a result of an investigation by the Securities and Exchange Commission.

Analysts say the practice can be used to gradually nudge market prices higher, so real transactions can be made at a greater profit.

Reliant said its trade was carried out April 19, 2000, at the prevailing market price of $34.25 per megawatt hour. It released no other details. The company said it has since instituted a policy forbidding such trades.

Friday was the deadline for about 130 companies to respond to a demand from FERC on whether they had engaged in round-trip trades in the West in 2000-2001.

FERC did not release the responses, but several firms publicly denied that they had engaged in the practice in the region. Among them were AES, Duke Energy, Dynegy, El Paso Corp., Mirant, Powerex, Williams and Xcel Energy.

CMS had previously acknowledged that it used round-trip trades to inflate its revenues by more than $4.4 billion from May 2000 through mid-January this year. The company's special investigative panel will be headed by Lear Corp. Chairman Kenneth L. Way and will hire its own legal staff. It will report to the CMS board of directors.

CMS spokesman John Barnett said none of the company's questionable trades were carried out in California or the West.

California officials are also investigating whether energy traders and others improperly manipulated the market in 2001.

The agency that manages California's power grid told a state senator Friday that it didn't create false demand for energy, as the legislator has claimed.

State Sen. Joe Dunn (D-Santa Ana) said last week that the California Independent System Operator overstated its demand for power to secure supply over a weekend in November.

The allegations of manipulation mirrored tactics described in Enron Corp. memos, which led federal regulators to investigate alleged gaming of California's energy market.

But in a 15-page report to Dunn, Cal-ISO said its action "bears no resemblance to strategies suggested by Enron for getting paid for delivering unscheduled energy into California."

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