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Ominous turn

Oregon editors say

The federal probe of West Coast power trading could affect rates

The Oregonian

The investigation of West Coast energy markets and manipulative trading took a sharp turn down a dark, dangerous alley this week. The expanded probe adds uncertainty to the local market for electric power. The possible outcome could completely change the way power is bought, sold and generated in the Northwest.

The Federal Energy Regulatory Commission is looking into whether Portland General Electric engaged in unlawful trading using a third-party company, Avista, as a middle-man. In TV crime-drama parlance: Avista flipped and gave up PGE.

The allegations are supported by taped telephone conversations between PGE traders and others. What's more, PGE doesn't deny the practice. The company argues that the third-party trades are legal, although they're at odds with any commonsense definition of a fair and open marketplace.

If PGE is wrong, and the trades were improper, the company could be forced to return profits to anyone harmed. It could also have its trading authority restricted, which isn't necessarily in its customers' best interests. The commission's probe of PGE is just one piece of its investigation of whether energy traders manipulated prices during the West Coast energy crisis.

Last spring FERC launched an initial review of trading by 125 energy companies. Tuesday's announcement by the commission narrowed the inquiry down to six, including PGE. While this process isn't a finding of wrongdoing, it keeps PGE under a cloud until the final investigation is concluded, which could take months.

The consequences could be grave. Under the Federal Power Act, Section 206 investigations can conclude with determinations of penalties. Such penalties could include confiscation of earnings and being barred from trading in energy markets for profit. The remedies wouldn't keep PGE from buying power to meet its customers needs. But a curb on market trading would eliminate its ability to sell power to offset its costs.

Consumer groups agree that such trades often help a utility keep costs down. In addition, a curb on trading would damage the company's credit rating, making it harder to borrow to build new generation or to buy additional power to meet demand.

Being the target of a federal investigation doesn't do PGE's image much good, either. As the chief surviving asset of the bankrupt Enron, a well-run PGE would be the centerpiece of Enron's hopes to emerge as an intact company.

PGE has also been creditors' best hope of getting paid back. Earlier in the year, Northwest Natural sought to buy PGE from Enron. A local private-public partnership, known as Willamette Valley Power, also is interested in acquiring PGE's assets ' not the entire company, and certainly not its baggage. All options are complicated by an extended investigation. The commission staff report paints a sharply critical picture of an energy trading culture without scruples. It describes trading strategies that involved deceit. It's not a flattering portrait, but it may have gotten the shading just right.