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Tapes Bolster Electricity Claims

Recordings of traders allegedly gaming the Western power market offer new evidence in California refund case.

March 20, 2004|Elizabeth Douglass | Times Staff Writer

Newly released recordings of Nevada power traders allegedly gaming the Western electricity market may give California officials fresh ammunition in their fight to prove that consumers deserve $9 billion in refunds because of widespread market abuse during the state's energy crisis.

On the taped conversations from 2000 and 2001, made public this week by the Colorado River Commission, traders appear to arrange so-called ricochet deals designed to trick California into paying top dollar for electricity that was withdrawn from the California market and later sold back at inflated prices.

In another conversation, a trader for the CRC -- a Nevada agency that manages power produced by Hoover Dam -- crowed that high temperatures in Los Angeles would produce "mo' money, mo' money, mo' money."

California officials have accused Enron Corp. and dozens of partners of gaming the state's electricity market during the 2000-2001 energy crisis through schemes with nicknames including Ricochet, Fat Boy, Get Shorty and Death Star. They say the tactics were used to manipulate wholesale power prices and that they delivered profits to the traders even as Californians suffered through rolling blackouts and soaring utility bills.

The trading practices documented on the CRC tapes mirror those found in earlier investigations. But one key California official said the recordings were particularly significant because they provided further evidence that the rigging of the state's energy market was deliberate and widespread.

"This helps make California's case because it clearly shows the intention to abuse the market by several new players, and it clearly shows that this ricochet game was being played by parties in cooperation with each other," said Erik Saltmarsh, chief counsel and acting director of California's Electricity Oversight Board, one of the state agencies pressing claims related to the energy crisis.

"I think the California attorney general, the U.S. attorney and even local district attorneys, under general rules about fraud and conspiracy, would all be interested" in the tapes, he said.

In addition to traders from Enron, the recordings capture potentially damaging conversations during the crisis between the CRC traders and representatives of Idaho Power Co., Dynegy Inc., Coral Energy, American Electric Power Co. and Powerex Corp., the marketing arm of British Columbia's provincial utility. Trading operations such as the one at the CRC routinely record phone conversations to protect against trading disputes.

The energy companies have denied wrongdoing.

George Caan, CRC's executive director, said his agency acted improperly with Nevada Power in April and May of 2000. But, he said, the practices were halted after their discovery.

He called the traders' recorded comments "very unfortunate" but said his agency was dealing in such small amounts of energy that "we could not have affected market prices at all, regardless of what the traders were saying."

California legislators, state Atty. Gen. Bill Lockyer, Saltmarsh and others have harshly criticized the Federal Energy Regulatory Commission for clinging to the notion that Enron was the sole bad actor during the energy crisis and for brushing aside evidence that California officials believe proves otherwise.

Of the dozens of entities ordered by FERC last June to answer charges of market manipulation, all but three have had their cases dismissed or settled with monetary payments and no admission of guilt. FERC has been unwilling to concede that California ratepayers are due the billions in refunds that the state's officials are seeking.

The only outstanding cases are against Enron, the CRC and Public Service Co. of New Mexico.

A coalition of California agencies and power companies has challenged FERC's settlements. In addition, the U.S. attorney's office in San Francisco is pursuing criminal charges related to the power crisis against several companies. It declined to comment on the CRC tapes.

Lockyer's office couldn't be reached for comment. A FERC spokesman declined to comment on the tapes.

During a recorded call June 1, 2000, a CRC trading manager told Powerex personnel that they had to "tag" certain power generation as coming from somewhere other than California so that officials wouldn't be able to tell that it was a ricochet deal. The practice is sometimes called "megawatt laundering."

A few days later, CRC's trading manager told a trader from Sempra Energy Trading Corp. that he was anticipating higher temperatures in California, adding, "I'm just looking for those nice little prices just to skyrocket.... I want to hear that 'cha-ching, cha-ching, cha-chinging' in the background."

The CRC recordings were released early this week after Nevada Power Co. sued to make them public. The two Nevada entities are fighting over several matters, including CRC's claim that Nevada Power owes it millions of dollars from energy transactions during the power crisis. On Wednesday, Nevada Power sued CRC traders and officials as well as the Southern Nevada Water Authority, a big CRC customer, accusing them of intentionally harming the company through schemes related to the California crisis.

Roger Berliner, an attorney representing Nevada Power's parent company, said of the CRC tapes: "It is our hope, and it is the hope of many parties, that this is the tipping point, and the FERC will say enough is enough."

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