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DWP Deal Called 'Ricochet'

Energy: Tapes detail trading ploy defended by utility. State saw it as a 'trick' to drive up costs.


SACRAMENTO — The Los Angeles Department of Water and Power orchestrated a deal in the fall of 2000 that briefly drove up the price of power before being canceled by state grid operators who said they were on to "L.A.'s tricks," according to transcripts of power trader phone conversations released Thursday by state Senate investigators.

The legislative hearing ended with a state senator warning DWP officials that their action "really looks downright rotten." But DWP managers denied that they engaged in "ricochet" power trades in which power is exported out of California, then brought back in and sold to California grid operators at a higher price.

But transcripts of 11 taped conversations on Nov. 12, 2000, among employees of DWP, the state's grid-operating agency and two private energy companies show that others described the deal as a "ricochet" banned by the California Independent System Operator, which runs most of the state's transmission system.

"I just don't see what's wrong with L.A. sending it north," said Steve Tish, a power trader with PG&E National Energy Group, to a fellow trader in one of the transcribed conversations. At the time, Cal-ISO was rebuffing the attempt of PG&E National Energy Group and DWP to continue sending power from Southern California to the Oregon border and back.

NEG trader David Pierce responded, "Well, 'cause it's a ricochet. You can't take power out of California and send it right back in. That's the definition of a ricochet."

DWP officials disputed that the power trade at issue fit the definition of an improper "ricochet," also known as megawatt laundering, because the electricity did not leave the state but rather was redirected from a point where Cal-ISO's transmission grid met that of the Bonneville Power Authority in Oregon. In documents released last month, Enron Corp. described such a scheme, as well as others called "Death Star" and "Fat Boy."

But staff of the Senate select committee to investigate price manipulation of California's wholesale electricity market concluded that the effect of what DWP officials called a "bounce-back" was the same as an Enron-style ricochet: Consumers paid more for power.

According to a Senate committee analysis of the transcripts released Thursday, the DWP deal started with 50 megawatts purchased at the Arizona border for $50 or $70 per megawatt-hour and ended with 50 megawatts sold to state grid operators at an estimated $250 per megawatt-hour.

"There was money made by a number of market participants," said Larry Drivon, special counsel to the committee. "The net effect was people paid more for this electricity than was needed to be paid."

Drivon also said that the Nov. 12, 2000, transaction may have involved speculative trading by DWP, which is illegal for a utility owned by a municipality.

DWP power trading manager Mark Ward, who testified before the panel, argued that the transaction was not speculative trading because it did not involve DWP taking a position in the market in the hope that prices would move in its favor.

"During the state's energy crisis in 2000 and 2001," said Ward in a prepared opening statement to the committee, "the Los Angeles Department of Water and Power went to extraordinary measures to help keep the lights on for the people of California. In doing so, LADWP played by the rules."

The Senate committee, chaired by Sen. Joe Dunn (D-Santa Ana), began investigating the Nov. 12, 2000, deal earlier this month after receiving a copy of an e-mail about it in documents requested from PG&E National Energy Group.

The e-mail from one PG&E trader to others warned them to "beware of ricochets with LDWP."

Senate committee investigator Chris Schreiber testified Thursday that the author of the e-mail, David Pierce, told him that when he wrote the e-mail he had in mind the same sort of electricity deal as described by Enron in its December 2000 memo.

"He made very clear that he intended the Enron definition," said Schreiber.

The distinction matters to the Senate committee because DWP officials swore in a May statement that in 2000 their traders did not engage in any transactions of the sort described in the Enron memo. DWP officials made a similar statement under oath to the Federal Energy Regulatory Commission.

Under questioning by Dunn, Ward told the committee that he interviewed several traders and their supervisors before making the declarations to the Senate and FERC. But he did not interview all the traders who were working for DWP during 2000, Ward said, including a trader involved in the Nov. 12 incident.

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