Ethical Lapse by Power Grid Trader Revealed

By NANCY RIVERA BROOKS

April 23, 2002 12 AM PT

TIMES STAFF WRITER

A trader for California’s grid operator dangled inside information and aggressively pressed an Enron Corp. electricity trader to help set a high price for power July 3, but the Houston energy firm did not fully cooperate, according to a transcript of the conversations released Monday.

Rep. Doug Ose (R-Sacramento) asserted that the incident, which led to the firing of the trader for the California Independent System Operator, was not the isolated action of a misguided employee, as Cal-ISO has portrayed it. Ose, chairman of the House subcommittee on energy policy, said the incident shows that the grid operator is not independent enough from state influence and called on federal regulators to investigate.

For the record:

12:00 a.m. April 24, 2002 FOR THE RECORD
Los Angeles Times Wednesday April 24, 2002 Home Edition Main News Part A Page 2 A2 Desk 2 inches; 43 words Type of Material: Correction
Power bidding--A story in Tuesday’s Business section about an electricity trader for California’s grid operator who shared secret bidding information with an Enron Corp. trader should have made clear that Enron said its subsequent bid was a coincidence and had been formulated before the traders spoke.

Cal-ISO spokeswoman Stephanie McCorkle said the agency is continuing its own investigation of the matter but believes that the trader was not influenced by the state Department of Water Resources, the state’s primary electricity buyer, which was trading on the Cal-ISO floor at the time.

DWR has been accused of manipulating state energy supplies to reduce the loss the state has incurred because it bought too much power through long-term contracts--charges the state agency has denied.

DWR traders were evicted from the Cal-ISO trading floor in September out of concern that the state traders might have access to secret bids into markets run by Cal-ISO for power needed the next day or the next hour.

“This incident shows the dangers of an electricity market where the state controls both the power switch and is the largest single purchaser of power,” Ose said in a statement.

A Federal Energy Regulatory Commission spokeswoman said Ose’s request is under review.

Cal-ISO revealed the ethical breach on April 9 and said that it fired the unidentified employee.

The trader told Cal-ISO officials that he was attempting to bring down overall electricity prices by soliciting a bid from Enron of $91.86 per megawatt-hour for a type of backup electricity known as standby power. It is a payment to a generator to produce a certain amount of electricity on one hour’s notice.

The trader said he was trying to mitigate an apparently legal practice by power sellers of reaping profits by playing Cal-ISO’s hour-ahead market off its day-ahead market.

On July 3, the Cal-ISO trader revealed secret bidding information by telling an Enron trader that four sellers were trying to buy excess standby power in the hour-ahead market for 1 cent per megawatt-hour, according to the transcript released Monday.

Those same sellers had sold the standby electricity to Cal-ISO the day before for more than $90 a megawatt-hour, according to the transcript uncovered by state Sen. Joseph Dunn (D-Garden Grove) as part of his investigation into market manipulation.

The Cal-ISO trader asked Enron trader Ryan Slinger to extend a $91.86-per-megawatt-hour bid that the company had made earlier in the day so that competing bidders for the reserve power would be forced to pay at least that much to buy back their standby power, according to the transcript. When Enron did not make the bid, the Cal-ISO trader called to press the matter again.

Slinger was reluctant to go along with the plan. Enron ended up submitting a $91.86-per-megawatt-hour bid for one hour.