Drop in power prices after Enron fall raises questions

Wednesday, January 30, 2002

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.

"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.

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 causes possible

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 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 in an interview, 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.

Declining long before fall

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.

"There was a lot of chaos going on at the time of Enron's bankruptcy," which also may have been a factor as opposed to market manipulation, Wilczek said in an interview.

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."

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