Utilities heap big demands on PGE

Requests for refunds for overcharges could run into the millions

Embattled Portland General Electric faces accusations that it played a bigger role than its management has admitted in Enron Corp.'s manipulation of wholesale electricity prices during the Western energy crisis two years ago.

Those complaints are at the heart of demands by Western utilities that are streaming into the Federal Energy Regulatory Commission for $40 billion in refunds from Enron, PGE and a host of other power distributors for overcharges during the 2000-2001 crisis.

The demands come from utilities and companies that purchased power at stratospheric prices on the wholesale markets during the crisis.

Tacoma Power and Light, which will seek a $144 million refund for the cost of power purchased on the spot market Ñ $3.2 million of it from PGE Ñ blasted PGE, which is owned by Enron, for withholding information on its role in Enron's market maneuvers.

PGE's role in its parent company's schemes were financially devastating to the entire Western region, said Philip Chabot Jr., an attorney for the Tacoma utility and the Port of Seattle.

Tacoma's most incriminating evidence is a Jan. 14, 2002, e-mail on daily power prices sent by PGE analyst Scott Gardner to Enron managers and PGE Chief Executive Officer Peggy Fowler and two PGE vice presidents. The affiliate agreement between PGE and Enron prohibits the sharing of pricing and trading information.

'By providing that to Enron suggests a violation of affiliate rules,' said Philip Movish, whose Denver consulting firm Energy & Resource Consulting Group also was hired by Tacoma Power and Light. 'It's giving another competitor who is an affiliate the competitive advantage. This is a document that should not be given to PGE managers.'

Tacoma doesn't have any basis for saying that the e-mail demonstrates PGE violated its code of conduct, said PGE spokesman Kregg Arntson. There is a difference, he said, between sharing information through the corporate reporting structure and with a power-marketing affiliate. Chabot is not making that distinction, he said.

'We will demonstrate in our testimony that we meet the code of conduct,' Arntson said. 'We've not heard about the antitrust, RICO accusations from Tacoma. We're not able to respond because it has not been submitted through a formal process.'

Chabot says PGE could face shareholder lawsuits and the possibility of antitrust and RICO (Racketeer-Influenced and Corrupt Organizations Act) action for helping Enron profit from the energy crisis of 2000-2001.

In addition to Tacoma Power, the Port of Seattle, city of Seattle, PacifiCorp, Sierra Pacific Co. and almost every other West Coast utility is expected to file refund requests. PGE's actions are expected to be the focus of the utilities' evidence for a refund, said Portland energy consultant Robert McCullough.

Hold on, or sell?

Revelations of PGE's alleged participation in Enron's market manipulations are expanding just as a change in the utility's ownership is being considered. Enron is expected to determine in the next several weeks whether to sell PGE or retain it as part of a restructured company Ñ and if it sells, whether to a private buyer or the city of Portland.

Enron spokesman John Ambler said the company still is in the process of evaluating bids. Whether the federal and state investigations have hurt PGE's resale value is uncertain.

McCullough said the investigation fallout has 'put the city in the driver's seat, and they obviously have the best financing.'

On Monday, PGE will submit written testimony to the Federal Energy Regulatory Commission in response to the agency's investigation into market manipulation.

The agency has threatened to revoke PGE's authority to trade its excess power on the wholesale market, suspend its trading license and levy fines if the utility is not more forthcoming. It is seeking information about almost 2,000 transactions that PGE traders conducted on 17 days between April and June 2000.

PGE claimed that it made $182,000 from Enron-related deals out of a total of $57 million during that span of time.

The California Independent System Operator, which oversees the power grid in the state, also has been investigating power trades from October 2000 through July 2001 and has uncovered additional suspicious trades between utility companies, including PGE and Enron. The trading schemes were known to Enron traders as 'Death Star' and 'Ricochet.'

'We found a number of instances that appear from the outside are the same games that Enron played,' said Gregg Fishman, spokesman for the California Independent System Operator , who would not identify the number of transactions.

Movish, the Denver consultant, said the independent analysis found as many as 259 days of transactions, rather than the 17 days suggested by PGE.

A number of participants, including PGE, 'fell into some appearance of that level of activity,' Fishman said. 'In what appeared to be suspicious activity turned out to be innocuous; in other cases, it was not. We're the evidence technician at what could be a crime scene. We're just cataloging evidence right now for FERC and the U.S. attorney's office in San Francisco.'

Though the federal agency and PGE had launched settlement talks in December, there have been no discussions to settle the case in the past two weeks, PGE's Arntson said. FERC's staff has until May 12 to respond.

In the meantime, the Oregon Public Utility Commission is expected to wrap up its own Enron investigation in the next week.

Grand jury investigation

Even more serious charges, however, could arise from the grand jury investigation in U.S. District Court in San Francisco into Enron's alleged tampering with the energy market. The California grand jury subpoenaed PGE's director of risk management, Kristen Stathis, who recently submitted written testimony to District Court, Arntson said.

The Competitive Supplier Group Ñ an industry trade group that includes the Bonneville Power Administration, San Diego-based Sempra Energy Co., Spokane-based Avista Corp. and Puget Sound Energy Inc. Ñ plans to file testimony on behalf of PGE in the federal proceedings, Arntson noted.

Two former traders in Enron's West Power Trading Division in Portland, Tim Belden and Jeffrey Richter, pleaded guilty to wire fraud in U.S. District Court. West Power marketed and supplied electricity to California wholesale customers through energy markets controlled by the California Power Exchange and the California ISO.

Both men admitted to devising and implementing a series of 'fraudulent schemes through these markets' to increase Enron's revenue.

FERC fined Houston-based El Paso Electric Co. $14 million for its participation in trading violations; Avista Corp. has settled charges as well. Both utilities played a smaller role than PGE, said Portland energy consultant Robert McCullough, a former PGE executive.

'PGE has been implicated in a lot of bad behavior,' he said. 'This is going all the way up the chain of command. The most important thing PGE faces is 'Have they done enough homework?' Clearly, the feds are all around them.'

Movish, the Denver consultant, criticized the FERC investigation for allowing utilities to control the scope of their own internal investigation.

Staff members of the federal agency did not return phone calls.

'It's like asking the guy who robbed the bank how you robbed it,' Movish said. 'The problem we have here is, the data we need to analyze this is not there.

'Until someone is allowed access to the data, which has been sequestered, no one can know the final accounting. Then we can find out who the guilty parties are.'

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