Washington — A sharp drop in long-term electricity prices after Enron declared bankruptcy raises questions about whether the company may have been using largely secret trades to manipulate energy markets, a Senate hearing was told Tuesday.
An energy consultant testified that in the week after Enron announced its bankruptcy, the "forward price" of electricity in the West fell sharply. Enron had been a key trader in this market, which is used as a hedge against future power price changes and is unregulated.
Federal Energy Energy Regulatory Commission Chairman Patrick Wood appears before the Senate Energy and Natural Resources Committee to discuss the impact of the collapse of Enron. At right is William Nugent, president of the National Association of Regulatory and Utility Commissioners. The two testified on Tuesday.
"That certainly raises the question about whether Enron was manipulating the West Coast market" by keeping prices artificially high, said Sen. Ron Wyden, D-Ore., in response to the consultant's testimony.
'Setting prices'
Robert McCullough, the consultant whose clients include several Northwest utilities, said "the clear implication is that Enron may have been using its market dominance to set forward prices."
Other energy experts said other reasons may have been behind the price decline, which McCullough described in Senate testimony as 30 percent but later in an interview acknowledged was closer to 20 percent to 25 percent over a two-week period before and after Enron filed for bankruptcy Dec. 2.
In any case, Lawrence Makovich, a power industry expert at Cambridge Energy Research Associates, said it would be impossible to determine simply from the decline in price whether prices were manipulated.
Makovich told the Senate Energy and Natural Resources Committee that Enron nevertheless wielded significant power in the electricity markets. It functioned not only as a buyer and seller in the long-term forward market but also set up many of the transactions.
"Enron's collapse suggests that it was a mistake to allow a significant market buyer or seller to be a market-maker without oversight," Makovich said.
Market already in decline
Mike Wilczek, market editor at Platts, said prices had been tending toward a decline on the long-term forward market long before the Enron bankruptcy, as the West's energy crunch eased and expected summer power shortages did not occur.
Still, senators criticized Enron's ability to operate so freely as an electricity trader in a system where it was required to disclose little about its transactions either to other traders or to federal regulators.
James Newsome, chairman of the Commodity Futures Trading Commission, said he has "no indication of manipulation of any futures markets by Enron."
Neither does the Federal Energy Regulatory Commission, which has responsibility over wholesale electricity markets, regulate many of those transactions. FERC Chairman Pat Wood assured senators Tuesday he will look into circumstances surrounding the price drop cited by McCullough and whether some long-term contracts involving Western utilities might have to be renegotiated.
Wood emphasized that, overall, "the collapse of Enron has not caused damage to the nation's energy trading or energy supplies." He said spot energy prices remained largely unchanged by Enron's collapse.
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