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---------------------- Forwarded by Carla Hoffman/PDX/ECT on 11/21/2000 02:11
PM --------------------------- Enron Capital & Trade Resources Corp. From: "Pergher, Gunther" <Gunther.Pergher@dowjones.com< 11/21/2000 12:52 PM To: undisclosed-recipients:; cc: Subject: DJ Enron, Powerex Investigated For Alberta Price Fixing 20:31 GMT 21 November 2000 =DJ Enron, Powerex Investigated For Alberta Price Fixing By Cheryl Devoe Kim Of DOW JONES NEWSWIRES TORONTO (Dow Jones)--Canada's Competition Bureau raided the offices of Enron Canada Corp. in Calgary and Powerex Corp. in Vancouver earlier this year as part of an investigation into suspected electricity price fixing by the two companies, according to documents obtained by Dow Jones Newswires. Bureau investigator David Bloom alleges in an application for a warrant he used to gain access to the offices that in the summer of 1999, Powerex and Enron were coordinating bid restatements and inflating the price each received for electricity as they traded on the Power Pool of Alberta. The investigation hasn't yet produced any charges against either of the companies, according to Enron. The Competition Bureau declined to comment on the status of the case. Both Enron Corp. (ENE), which owns Enron Canada, and Powerex, a unit of provincially owned British Columbia Hydro & Power Authority (X.BCH), deny breaking any rules or laws. From Powerex's point of view, Albertans are looking for someone to blame for high power prices, which have become a political issue in the province. "They just find it easy to blame us for what are pretty fundamental market design flaws," Powerex president and chief executive Ken Peterson told Dow Jones Newswires in an interview. Deregulation Spurs Search For Someone To Blame The search for someone to blame has repeated itself across every deregulating market Enron has participated in, Enron Corp. spokesman Mark Palmer said. "Almost every time that either power markets or natural gas markets or even oil markets or gasoline markets have experienced any kind of price volatility, there have been investigations done," Palmer said. Enron has been scrutinized before as part of wider energy markets investigations, he said, but never found to be breaking the rules. This is the first such investigation into Powerex's actions, Peterson said. The Competition Bureau, based in Ottawa, won't say whether the investigaion is ongoing, citing disclosure rules under the Competition Act. The companies themselves said they're not sure of the investigation's status. Their seized files were returned several months ago, but Powerex hasn't heard from the Bureau since then. Enron did receive a call from the Bureau last week with a question, according to Enron Corp. spokesman Eric Thode. The investigation began when the Power Pool of Alberta's system controllers noticed the clearing price for a megawatt of electricity was topping C$100 with unusual frequency. The Pool's price is set by participants submitting bids to buy or sell power for the following day. Until Oct. 19, 1999, a bidder could restate the amount of power in a bid or offer an unlimited number of times, until 20 minutes before the hour of transmission. The price paid for every megawatt of power needed by the Pool in a given hour is set by the most expensive unit needed to meet demand. Alleged Bid Rigging Methods Detailed According to the Competition Bureau search warrant application, Powerex and Enron were rigging their bids in the following manner: Powerex would lower the volume of an existing offer. As little as two minutes later, Enron would increase its offer for the same period by the same volume, but at a "significantly higher price," according to the warrant application. Sometimes, Enron would increase its offer even before Powerex had dropped its offer. Power Pool market analyst Owen Craig, who once worked in Enron Canada's gas trading group, found that "as a result of restatements, involving mostly Powerex and Enron," the Pool price was raised once to C$200/MWh, four times to between C$354.29 and C$499.93, three times to between C$500 and C$541.63, and 10 times to between C$801.02 and C$998. Based on the restatement patterns, Craig, and then the Bureau's Bloom, concluded that no new energy was being offered to the Pool. They believed the power was just being transferred from Powerex to Enron and then offered at the higher price, according to the warrant application. By cutting the volume offered by Powerex, the more expensive power offered by Enron would likely be needed, and every participant would get the higher price. Powerex's Peterson doesn't take issue with the trade history as detailed by the Bureau, but denies that the company's traders were doing anything wrong or that the two companies had some sort of arrangement. "And we're adamant about that," Peterson said. "There was no deal with Enron. There was no expectation about what their behavior would lead to in terms of a change in prices or anything like that." Powerex traders were merely locking in their price, cutting the company's risk, which Enron agreed to take on by buying the power at a fixed price, Peterson said. "Whenever Enron's offer of high-priced energy was declined, within moments of Enron being advised by the Pool that their energy would not be required, Powerex would restate an identical volume of energy back into its lower priced unit," according to the warrant application. Peterson's response: "We're operating in a very tight market there and we felt an obligation to make sure the power got delivered into Alberta." Enron also denies it broke any Power Pool rules or Canadian laws. "It boils down to we were offered power at a price lower than we thought we could sell it at," Enron's Thode said. "And that's what Enron and every other company does that's in the business of trading." The May 25 search warrant covers the companies' actions between June 1, 1999, and Oct. 19, 1999. On Oct. 20, 1999, the Pool changed its restatement rules, essentially closing the loophole, though it did so without ever making public its investigation into Powerex and Enron. Power Pool spokesman Wayne St. Amour declined to discuss details of the investigation. "Market surveillance is in place to, among other things, protect the interests and activities of market participants," he said. Those convicted under Canadian law for bid-rigging can be fined an amount at the court's discretion and/or jailed up to five years. A conviction wouldn't likely affect Powerex's ability to trade in the U.S., Peterson said. In Canada "there would have to have some follow-on action by the Alberta parties to inhibit that. And so far, they still like to get our power." Companies Concerned About Reputations The bigger problem, Peterson said, is what the case will do to the Powerex reputation. "Essentially both companies are concerned about it because we have a lot at stake from a reputational point of view," Peterson said. "Both companies, I believe, conduct themselves in the highest possible standard. But these are difficult times in the business with prices going crazy in Alberta and California and people looking for somebody to blame. There's always a possibility of collateral damage when politics gets involved." Powerex parent company BC Hydro is also suspected by the Power Pool of Alberta of unfairly providing access to transmission through British Columbia, linking Washington with Alberta, as detailed in an Oct. 13 Power Pool market surveillance report. Again, no charges have been laid. Company Web sites: <http://www.powerex.com,<; http://www.enron.com -By Cheryl Kim, Dow Jones Newswires; 416-306-2017; cheryl.kim@dowjones.com (END) Dow Jones Newswires 21-11-00 2031GMT Copyright © 2000, Dow Jones & Company Inc G_nther A. Pergher Senior Analyst Dow Jones & Company Inc. Tel. 609.520.7067 Fax. 609.452.3531 The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. <<Pergher, Gunther.vcf<< - Pergher, Gunther.vcf
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