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Enron Mail |
This one is particularly amazing ...
Electricity traders' tech habits get scrutiny Posted at 10:23 p.m. PDT Sunday, June 10, 2001 BY JENNIFER BJORHUS Mercury News State officials investigating California's extraordinary energy prices are zeroing in on how energy traders use the technology tools of their profession -- from e-mail and specialized software to Internet energy data sites and online trading floors. This technology may be key, they say, to helping traders acquire the intimate knowledge needed to manipulate California's troubled energy market. With minute-to-minute knowledge of market conditions, some traders went even further, two lawsuits charge, illegally coordinating bids and sending electricity prices to record-breaking levels. The state Attorney General's Office has subpoenaed from power generators software used to formulate bidding strategies, names of employees providing computer support, communications with a prominent industry Web site and the name of firms that handle computer networks. And a state Senate committee has hired an information technology consultant to help them look into how traders tracked patterns on the state's Internet-based spot market, among other things. ``Once you were knowledgeable about its operations, the opportunity to game it became pretty obvious,'' said Sen. Joe Dunn, D-Garden Grove, who chairs the committee. Anti-trust laws Working together, or colluding, to fix prices is illegal and violates state and federal anti-trust laws. Sharing sensitive industry data, if it involved financial markets, would be considered insider trading and would be treated far differently, said Anjali Sheffrin, head of market analysis for the Independent System Operator, which manages the state's power grid. The Securities and Exchange Commission polices the nation's stock markets, but wholesale energy trading goes largely unwatched by federal regulators. San Diego attorney Mike Aguirre agreed with Sheffrin. Aguirre is part of a team of lawyers who have filed two lawsuits against leading power generators such as Dynegy, Duke Energy and Williams Energy Services. ``It's basically an embryonic kind of trading market that involves the sharing of inside information, and the only reason they're getting away with it is there's no SEC cop,'' he said. Energy companies dismiss these charges as speculation. ``All of these `What ifs?' '' said Dynegy spokesman Steve Stengel. ``The fact of the matter is we've played by the rules, we've acted ethically, we haven't done anything wrong.'' Energy companies say the way they use technology is all above board. ``That's something that we're proud of, that we have all of the tools to do the best possible job in the trading,'' said Paula Hall-Collins, spokeswoman for Tulsa-based Williams Co. Not everyone is persuaded that energy companies actually conspired to hike prices. Some public officials and energy industry players call the technology focus a red herring. California's energy problems are far more fundamental, they say, than click-happy energy traders with spreadsheets. The now-defunct California Power Exchange, for example, was something of a sitting duck, unable to freely shop around for the best electricity prices. Wealth of data Other experts believe the sheer wealth of data floating around -- from river flows to 30-day forecasts of power line outages -- gives traders an unfair advantage. ``That's exactly the issue,'' said Severin Borenstein, director of the University of California Energy Institute. ``The issue is whether all this information is actually doing more harm to competition than benefit to the efficiency of procuring and selling power.'' The best illustration of this is a somewhat legendary Web site blunder. In that incident, an energy industry association called the Western Systems Coordinating Council posted highly sensitive real-time data about transmission of extra-high voltage electricity in California. Alarmed that such information could be used to game the market, the state's grid operator last October demanded that the trade group take the information off the site, which it did. A former energy trader who spoke to the Mercury News on the condition that he not be identified, said: ``When you can calculate exactly what a market needs and where its surplus is going to come from, then you have the ability to essentially fix prices. It's like a linear equation. You know exactly what the end equation is going to be.'' At issue are how traders employ the tools that, like the telephone and fax machine, are standard in trading electricity: software, data Web sites and Internet energy exchanges. Dunn and other public officials acknowledge that it isn't clear how technology was used in suspected abuses. And no one has turned up slam-dunk evidence of collusion. The ISO has done extensive studies that conclude traders drove up prices through gaming. The high prices have cost the state at least $6.7 billion since May 2000. ``Energy traders trade information among themselves,'' the ISO's Sheffrin charged, comparing it to insider-trading. ``These traders are calling each other up all the time.'' The former energy trader who talked to the Mercury News agreed energy traders as a very incestuous group. They talk and e-mail every day. ``Sometimes many, many, many times a day,'' he said. ``Some of them have instant messaging.'' He said he believes it could amount to ``de facto collusion.'' But proving collusion in court is extremely difficult. The sticking point, said UC's Borenstein, is showing exactly what energy traders did with the information. ``These guys aren't actually sitting down in a room together,'' Borenstein said. ``They sort of watched each other and said, `Well, other firms are keeping capacity out and we will too.' '' The former energy trader said he doubted that investigators would prove collusion because traders will cover their tracks. ``They're expunging hard-drive data as we speak,'' he said. ``The documents are long gone.'' Lawsuits Two class-action lawsuits, filed on behalf of taxpayers by San Francisco and by Lt. Gov. Cruz Bustamante, accuse the energy companies of colluding to drive up prices. Neither lawsuit clearly documents how the energy companies engaged in secretive data-sharing. The Bustamante suit, however, targets a new Internet site for wholesale energy trading launched last fall by heavy-hitter energy companies such as Duke and Reliant. The Atlanta-based Web site, IntercontinentalExchange, is one of at least a dozen such electronic trading floors that have popped up on the Internet in the last four years. None of these trading exchanges -- which analysts say are the wave of the future -- are regulated. IntercontinentalExchange declined to comment since it is not a party to the suit. The lawsuit charges the site ``has several features that support collusive behavior amongst market participants.'' One is that only approved traders have access to IntercontinentalExchange and those traders can pick who they want to trade with and shut other traders out. And more importantly, Aguirre said, the energy companies who own many of these Web exchanges get the tremendous benefit of having a record of all the trades. ``It gives them an enormous amount of market data that no one else has access to,'' he said. ``It's a conduit for collusion.'' ------------------------------------------------------------------------------ -- Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660. # # #
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