Energy Co. Records Traders Describing Ways To Manipulate Calif Power Market


By Jason Leopold


Traders for two of the country's largest power producers set out to "crush" California's electricity market in the summer of 2000 by congesting a key transmission line in the state with unneeded power so their companies could earn huge fees from the state's grid operator to free up the line, according to a transcript of a conversation a trader with Xcel Energy had with another trader at Southern Co.
The conversation between the two traders, recorded by Minneapolis-based Xcel, marks the first time evidence has surfaced that shows how energy companies that sold electricity in California colluded to manipulate the state's power market for financial gain. The conversation could boost California's pursuit for at least $9 billion in refunds and may result in criminal charges being filed against the Southern, which changed it's name to Mirant Corp. last year, and Xcel, state officials said.
The transcript of the conversation between an Xcel trader, who worked for Xcel utility Public Service Colorado, referred to as "Murph" and Jim Shandalov, a power trader with Southern Co., was part of a filing Xcel made with the Federal Energy Regulatory Commission May 23. A separate transcript between Murph, the Xcel trader, and another unknown trader also describes tactics the traders could employ to manipulate California's energy market.
In that conversation, the Xcel trader says Enron Corp., Duke Energy and Williams Cos. manipulate the market "all the time" by congesting transmission lines because they can earn more money from the California Independent System Operator by freeing up the lines than they would selling electricity into the market.
The earlier conversation between the traders describes two different ways to manipulate the market. The transcript reads like a script from a Hollywood movie
"You want to do an ex-post type of game or a congestion type of game plus ex-post or um?" Shandalov, the Southern Co. trader, asks the Xcel trader.
"Either/or," said the Xcel trader. "It doesn't matter?I don't want to crush the market to bad."
Shandalov then tells the Xcel trader that he will send power back and forth over the transmission lines, congesting one, and hopefully earn some money from relieving congestion on Path 26, another transmission line that is connected to Path 15.
"Does that sound alright (sic)?" Shandalov asks the Xcel trader. "I don't know how we're gonna split the money up yet."
"We'll figure it out," the Xcel trader says.
Some of the tactics described by the traders in the conversation are identical to the those used by Enron, with names such as "Fat Boy," "Get Shorty" and "Deathstar," to manipulate the California energy market. Xcel said in a May 22 filing with FERC that it did not engage in Enron-like trades, but the conversation between the traders contradicts that claim.
"Almost daily, there is further evidence that generators and traders engaged in illegal activities, intentional manipulation of the market, and a wanton disregard for the health and safety of Californians and our economy," Gov. Gray Davis said Friday.
But Paul Bonavia, president of Xcel Energy-Energy Markets, said the conversation between the traders is "confusing," adding that it does not necessarily mean they set out to manipulate California's power market.
"They talk about everything under the sun," Bonavia said Friday. "You have to go to the specific transaction and look at the accounting to ascertain what really happened. Based on that process, we have not found any indication to date that we engaged in market manipulation. However, we provided transcripts of the traders conversation to FERC and FERC could decide if it has any value."
Robert McCullough, an energy consultant based in Portland, read a transcript of the conversation between the two traders and said it's clear the traders set out to overschedule power on Path 15, a key transmission line and major bottleneck in California, and earn high fees for relieving the congestion.
"What we have here are two traders that are talking about a well known scheme to overschedule the Path 15 transmission line," McCullough said. "These are two market players attempting to combine their activities to game the ISO and probably split the profits."
McCullough said the tactics almost certainly resulted in skyrocketing wholesale prices and likely put the state's electric grid in jeopardy.
A spokesperson for the ISO was not immediately available to comment.

-By Jason Leopold; 310-551-9940; jasonleopold@hotmail.com