U.S. Regulators Find Widespread Manipulation of 
Gas, Electric Prices and Supplies in California


Federal energy regulators said Wednesday that their 
investigation found widespread manipulation of natural 
gas and electricity prices and supplies in California.
Pat Wood, chairman of the Federal Energy Regulatory Commission, 
said that as a result of the manipulation California 
would receive more than the $1.8 billion in refunds 
recommended by a FERC judge in December. The exact 
amount is to be determined in the coming months.
The FERC singled out seven subsidiaries of bankrupt 
Enron Corp. and five other companies for taking 
advantage of a dysfunctional market and reaping 
millions of dollars in unjust profits.
"The price gouging abounded," Commissioner William Massey said. 
He said he regretted that FERC did not intervene earlier 
to police the newly deregulated power market in California.
The agency is considering placing limits on the profits of 
four marketers of wholesale power and banning eight gas 
companies from selling natural gas in California, Wood says.
The investigation also found a close link between natural gas 
and electricity prices. Gas is the fuel at many power plants.
After a 13-month investigation, FERC concluded "that many 
trading strategies employed by Enron and other companies 
violated the anti-gaming provisions" of marketing rules.
"Enron manipulated thinly traded physical markets to profit 
in financial markets," FERC said, estimating that Enron 
made more than $500 million in online trading in 2000 and 2001.
FERC investigators recommended that the companies be 
forced to give up unfairly earned profits.
The energy crisis cost the state as much as $45 billion 
over two years in higher electricity costs, lost business 
due to blackouts and a slowdown in economic growth, 
according to the Public Policy Institute of California.
Shortcomings in California's energy market rules and a 
shortage of electricity stemming from the lack of hydropower 
in the Northwest in 2000 "made this fertile ground for 
the manipulation we found," said Donald Gelinas, who headed FERC's investigation.
The regulatory agency capped wholesale power prices 
across the West and instituted other changes in June 2001 
that brought a quick end to the energy crisis. A FERC 
administrative law judge has since found that California 
was overcharged $1.8 billion for power.
Wood ordered an investigation in February 2002 after 
California officials repeatedly charged energy marketers 
with gouging California's utilities and its customers.
Two months later, FERC obtained an internal Enron memo 
that described trading strategies, including sham 
transactions and other schemes aimed at creating 
congestion on the Western power grids and forcing up prices. 
Two former Enron traders have pleaded guilty to federal 
charges stemming from the trading strategies.
The memo indicated that other companies had similar strategies, 
but provided no details. Energy companies have largely denied wrongdoing.
Separately, California last week agreed to a settlement 
with El Paso Corp., for $1.7 billion, ending a dispute 
over whether the company withheld natural gas from California 
to drive up prices. Many California power plants use natural gas.

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