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Energy Trader To Pay Oregon $15 Million To Settle Lawsuit

Nov 12, 2002 | The Oregonian Williams Cos. has agreed to pay Oregon $15 million to settle claims of price manipulation during the energy crisis of 2000-01, state Attorney General Hardy Myers announced Monday.

The settlement snags Oregon its first cash payment in a complex, long-running investigation into the causes behind the huge wholesale electricity price increases that hit the West Coast in May 2000 and continued until June 2001.

"We are committed to uncovering the complex schemes used to manipulate the market, and taking steps to ensure that such actions never occur again," Myers said.

Myers hasn't decided whether the money will be distributed directly to electricity ratepayers or be used for energy-related programs. He plans to appoint a task force to review the options.

The deal with the Tulsa, Okla.-based Williams is part of a broad, three-state settlement involving Oregon, Washington and California.

Williams will pay California $147 million in cash and $270 million in other concessions, including the renegotiation of expensive long-term contracts. Washington, like Oregon, will receive $15 million over three years.

California initiated the lawsuits against Williams and other companies that traded electricity in the West during the energy crisis.

Williams was a relatively small player in Oregon, said Kevin Neely, a spokesman for the attorney general's office. Future settlements with other companies could involve more money.

The three states launched an investigation into the energy crisis in January 2001, focusing their inquiry on whether power traders illegally manipulated wholesale gas and electricity markets to drive up prices and reap excessive profits.

State investigators have pored through boxloads of documents, many from Enron, the bankrupt energy trader that gamed California energy markets with flashy sounding schemes such as Death Star, Fat Boy and Get Shorty.

The energy crisis peaked in late 2000 and early 2001, with power shortages in California and wholesale prices that topped $1,000 a megawatt hour. High wholesale prices have subsided, but retail rates for households and businesses throughout the West remain high.

Portland General Electric, for example, raised rates last year by an average of 32 percent for households and 50 percent for businesses, citing astronomical wholesale prices. It expects to lower residential rates by 2 percent next year. Business rates will drop by an estimated 8 percent to 15 percent.

PGE, a subsidiary of Enron, is Oregon's largest utility. It serves 740,000 customers in the northern Willamette Valley.

PGE's corporate affiliation to Enron has pulled it into state and federal investigations, although utility executives vociferously maintain that the company has never knowingly been involved in any illegal trading schemes and buys and sells electricity in the best interests of its customers.

The utility is among those being investigated by both federal and state authorities.

"We're looking everywhere and at everyone, including PGE," Neely said, emphasizing that the three-state investigation is continuing and that other settlements may be forthcoming.

Neely would not release the names of companies that may be in investigators' sights, but controversial market players include Duke Energy of Charlotte, N.C.; Mirant Corp. of Atlanta; Reliant Resources of Houston; and Dynegy Inc. of Houston.

"We hope this opens the door for other companies to come forward and do the right thing," he said.

Last week, Duke, Williams and Reliant were among companies to receive subpoenas from federal prosecutors in a grand jury investigation into the alleged manipulation of electricity prices in California.

As part of the settlement, Williams has agreed to aid the three states in their investigation.

Williams said in July when it announced a tentative settlement, that it wanted to put all litigation behind it and begin strengthening its financial condition. It has not admitted any wrongdoing.

"From a practical standpoint, the settlement ends numerous legal entanglements," Williams Chief Executive Officer Steve Malcolm said in a news release issued Monday.

Other energy companies may not be equally motivated to strike deals, said Roy Hemmingway, chairman of the Oregon Public Utility Commission, the agency that regulates electricity and gas utilities.

Hemmingway said his agency, along with the Oregon Office of Energy, has recommended that the bulk of the $15 million from Williams go directly to ratepayers.

"They're the ones who suffered," he said.

Yet, $15 million spread over three years wouldn't make much of a dent in ratepayers' monthly bills --possibly 10 cents a month, Neely noted.

"Reimbursement's on the table, but it's not a sure thing," he said.

In California, the $147 million in cash from Williams, to be paid over eight years, will be used primarily for energy efficiency projects at schools and other public buildings, Attorney General Bill Lockyer said.

Also in the California agreement, Williams will reduce its long-term contract by $180 million, and it will give San Francisco and San Diego six generating turbines worth $90 million.

Washington Attorney General Christine Gregoire said the state's settlement money will go into an interest-bearing account until all of the investigations and possible settlements are complete.

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