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News Release
Energy Trading Report Calls for Formal Investigation of Portland General Electric
April 29, 2003 (2003 - 011)
Contacts:  Lee Sparling, OPUC Staff, 503 378-6137; Bob Valdez, Public Information Officer, 503 378-8962
Salem, OR – In a draft report on its investigation into questionable trading activities during the western energy crisis, the staff of the Oregon Public Utility Commission recommends that the Commission open a formal investigation into possible mismanagement by Portland General Electric (PGE).
The investigation would focus on PGE´s involvement in "Death Star" type transactions and its failure to post its trades with Enron properly.
The staff recommends delaying any action on misconduct by PGE until the Federal Energy Regulatory Commission (FERC) completes its review of whether PGE and others violated FERC tariffs or federal statutes.
Commission staff is also investigating whether PacifiCorp and Idaho Power engaged in misconduct or mismanaged their trading activities. The staff expects to report its findings and recommendations on those two companies later this summer.
Finally, the staff asks the Commission to reaffirm that customers will be held harmless from any penalties imposed by FERC or other authorities.
The 45-page report examines the western markets in 2000-01 from the perspective of whether the activities of Oregon´s three investor-owned electric utilities violated any Oregon statutes or Commission rules or orders. The staff focused on conditions imposed in the Enron merger with PGE, requirements for dealings between affiliated companies, and the Commission´s general authority to set rates.
The staff concluded that the Commission has the authority to reduce rates to compensate customers for the effects of past utility misconduct or mismanagement. As Lee Sparling, Administrator of the Commission´s Electric & Natural Gas Division, explained, "If a utility violates a tariff or law, it´s guilty of misconduct and the Commission can reduce rates to compensate customers for any harm done. If it mismanages any aspect of its operations, the Commission can cut rates to compensate customers because they did not get the good management they paid for in rates."
The staff recommended postponing any decision on a misconduct case because FERC is still looking into whether the utilities violated FERC tariffs or federal laws in 2000-01. The staff believes, however, that there is enough evidence to open an investigation now into mismanagement by PGE.
The first stage of the investigation would address whether PGE mismanaged its trading activities. The second stage, if necessary, would determine what relief is appropriate for customers. Relief would have to be prospective as Oregon law prohibits retroactive rate relief. The staff report notes the possibility of removing some amount of management salaries from rates to compensate customers.
PGE, in response to a FERC data request, identified 17 days during April, May, and June of 2000, when it may have been used as an intermediary in Death Star transactions with Enron Power Marketing, Inc. (EPMI). Death Star was a strategy used during the 2000-01 energy crisis to collect congestion relief payments from the California Independent System Operator (ISO) without actually causing any power to flow.
PGE claims it unwittingly participated in the trades. However, the draft report states that the company should have questioned the deal offered by EPMI, for several reasons:
  • PGE should have been cautious in its dealings with EPMI because it is subject to regulatory requirements that prohibit it from giving undue preference to its affiliates.
  • PGE reviewed and then rejected a deceptive trading strategy proposed by EPMI in 1999, but did not scrutinize the Death Star deals to the same extent.
  • PGE managers and traders knew the transactions were being done to get around certain restrictions imposed by the California ISO.
  • The convoluted nature of the deal should have raised red flags.

PGE also discovered and then reported to federal and state authorities that it made posting errors in 65 percent of its transactions with EPMI (1,290 out of 1,979) in 1999-2001. PGE asserts the posting errors had no effect on market prices. The posting requirements are designed to ensure that PGE does not favor its affiliates by buying at a higher price or selling at a lower price that it is willing to offer others.
The staff report notes that the case for mismanagement is not open-and-shut and therefore recommends a formal investigation to allow staff to present its case to the Commission and to allow PGE to respond.
The staff is requesting written comments on the draft report by May 21. It will then finalize the report and present it at a special public meeting in June.
The Commission remains active in two multi-state refund cases and is participating in ongoing FERC investigations into possible market manipulation and contract modification.