www.DukeEmployees.com - Duke Energy Employee Advocate
Deregulation - Page 3 - 2003
Bush, Committee Betray ConsumersPublic Citizen www.Citizen.org March 13, 2003
(3/12/03) - WASHINGTON, D.C. - Today's vote by Senate lawmakers to appoint a top Energy Department analyst to the Federal Energy Regulatory Commission (FERC) only further stacks the deck against state efforts to protect consumers, Public Citizen said today.
The Senate Committee on Energy and Natural Resources approved the appointment of Joseph T. Kelliher, a Republican, to the five-member commission, which will have one vacancy after Kelliher takes the seat. (The full Senate still must vote on his appointment, but it likely will approve him.) To appease Democrats, Bush has nominated Democrat Suedeen Kelly to fill that vacancy. But Kelly, like Kelliher and the three sitting FERC commissioners, supports the acceleration of electricity deregulation, which will force states to cede rights they have held for a century.
"President Bush and top Senate energy committee members from both parties have sold out consumers by backing two individuals who will not represent their interests," said Public Citizen President Joan Claybrook. "Kelly is an individual that labor and consumer groups have rejected as inadequate. Bush's FERC nominees guarantee that states and consumers won't get a fair hearing at FERC."
Members of the Senate Energy and Natural Resources committee have taken more than $3.1 million from the electric and natural gas industries since 1995. Sen. Don Nickles (R-Okla.) topped the list, receiving more than $340,000. Ranking minority member Jeff Bingaman (D-N.M.) was second, with more than $290,000. Sen. Conrad Burns (R-Mont.) took more than $285,000, while Sen. Jim Bunning (R-Ky.) received more than $235,000 and Committee Chair Pete Domenici (R-N.M.) took more than $215,000.
While both Kelly - a former state utilities regulator in New Mexico who now lobbies for the energy industry - and Kelliher share an interest in advocating increased deregulation, Kelliher, who served as the Energy Department's liaison to Vice President Dick Cheney's energy task force, is unique for his ties to Enron.
Kelliher played a central role in soliciting advice from the energy industry for inclusion in Cheney's task force report, Public Citizen revealed last month in a letter to the Energy Committee. A lobbyist representing Enron wrote Kelliher about his client's "dream list," and many items on that list - including obtaining the administration's commitment to market-based emissions trading - were adopted as part of the administration's national energy policy. In addition, lobbyists for the oil and gas industry drafted proposed executive orders that Kelliher passed on the White House. Two months later, the president issued executive orders nearly identical to those the lobbyists sent to Kelliher, public records show.
Enron's influence extends to Congress. Members of the Senate committee that voted on Kelliher's appointment have received more than $158,000 in campaign contributions from Enron since 1989. Charles Schumer (D-N.Y.) took more than $30,000 from Enron. Burns received more than $23,000. Gordon Smith (R-Ore.) was third, receiving $18,500. Bingaman was fourth, taking more than $14,000, while Domenici took $14,000.
The term on Kelliher's seat is to expire in June 2007; Kelly's seat is up in June 2004.
"Both Democrats and Republicans have been compromised by accepting so many cash handouts from the fraudulent company," said Tyson Slocum, research director of Public Citizen's Critical Mass Energy and Environment Program. "Given the financial support that Enron and the energy industry have given lawmakers, it is no surprise that these committee members are unwilling to challenge a Bush nominee who did favors for an Enron lobbyist."
More Price-Gouging ClaimsReuters by Chris Baltimore - March 12, 2003
WASHINGTON, March 11 (Reuters) - U.S. regulators have agreed to hold hearings on demands by the city of Burbank, California, and Kroger supermarkets to pare the costs of long-term electricity contracts they signed during the state's power crisis of 2000-01, but ordered both buyers to hold settlement talks with suppliers first.
"Unusual circumstances" justify setting hearings on the complaints, three commissioners of the Federal Energy Regulatory Commission (FERC) said. In their order issued Monday, they said the agency rarely deviated from its policy of upholding "the sanctity of contracts."
Burbank and Kroger Co. argue that skyrocketing electricity prices and market manipulation during California's crisis unfairly boosted the prices in the long-term contracts.
Burbank wants to modify five-year wholesale electricity contracts it signed with Calpine Corp., Duke Energy Corp. and El Paso Corp., alleging $28 million in overcharges.
Kroger wants to cancel contracts it signed with Dynegy Inc. and AES Corp. for April 2001 through December 2006. Kroger has not said how much it was allegedly overcharged.
FERC is already overseeing a half-dozen similar cases, in which Western power buyers accused suppliers of price-gouging in long-term contracts signed when California was hit by rolling blackouts and a tenfold jump in prices.
FERC urged Burbank and Kroger to first hold settlement talks to avoid years of costly litigation. A FERC judge was ordered to report on the progress of talks within 60 days. In a partial dissent, FERC Chairman Pat Wood said he opposed delaying a formal hearing pending settlement talks.
If no settlement can be reached, FERC said an agency judge would allow Burbank and Kroger to submit evidence in a formal hearing, and would issue an initial decision eight months after the hearing starts. FERC commissioners could then accept, reject or modify the judge's initial finding.
Calpine, Duke and El Paso Corp. say they did not (sic) nothing wrong, and that the prices in their contract with Burbank reflected market conditions.
Commissioner Nora Brownell said separately that FERC should not act on the Burbank and Kroger complaints until it rules on similar complaints brought by Nevada Power Co. Brownell said that ruling should come "within a few short weeks."
In December, a FERC judge dismissed Nevada utilities' claims that Enron Corp. and others manipulated power contract prices. Sierra Pacific Resources Corp. and its utility Nevada Power, and two municipal utilities in Washington state and California, failed to show that their long-term contracts were unfair and should be set aside.
FERC must still rule on whether $43 billion worth of long-term contracts signed by California utilities should be canceled. The agency commissioners are also mulling whether to uphold an agency judge's finding last month that Scottish Power Plc. unit PacifiCorp is not entitled to renegotiate $66.9 million worth of contracts with four energy firms.
The Burbank complaint is before FERC in docket EL02-117 and the Kroger complaint is in docket EL02-119.
Utilities Retreating From Energy TradingReuters March 8, 2003
NEW YORK, March 7 (Reuters) - Reliant Resources Inc. on Friday became the latest U.S. power company to announce plans to exit the energy trading market in the wake of energy trader Enron Corp.'s collapse.
The Houston company said in a statement it incurred a trading loss of $80 million before taxes for closing gas trading positions hurt by volatile natural gas prices. Several U.S. power companies followed high-flying Enron into the energy trading business, borrowing billions of dollars in the process.
But since Enron's bankruptcy in late 2001, credit has dried up for the sector and trading volumes have disintegrated, prompting many power companies to scale back their trading operations or exit the business entirely.
FERC to Make Secret Data PublicDow Jones Business News by Andrew Dowell - March 7, 2003
(3/6/03) - NEW YORK -- The Federal Energy Regulatory Commission said Thursday that it intends to make public all documents submitted by California officials and energy companies regarding allegations of market manipulations during the West's power crisis.
FERC has been under political pressure to release the documents, which involve evidence submitted by California to bolster its case for billions of dollars in refunds and energy companies' replies to those allegations. Those documents have been under a protective order imposed by an FERC judge to protect commercially sensitive information.
FERC will release all documents submitted under California's original refund case and supplementary filings later submitted to establish or refute allegations of market manipulation, except for documents obtained from other federal agencies.
Parties seeking to keep specific documents confidential have seven days to file with FERC explaining their position, but the commission indicated it would set a high bar for keeping documents under wraps.
California officials filed more than 3,000 pages with the commission Monday alleging that dozens of energy firms and municipal utilities withheld power, used questionable trading tactics, and shared nonpublic information in order to inflate power prices during the state's 2000-2001 energy crisis.
The state claims the evidence justifies $7.5 billion in refunds from energy companies for overcharging, far more than the $1.8 billion recommended last year by a FERC judge.
Companies and municipal utilities accused of market manipulation by the state include Duke Energy Corp., Mirant Corp., Williams Cos., Reliant Resources Inc., Dynegy Inc., BC Hydro unit Powerex, Sempra Energy , Royal Dutch/Shell Cos. affiliate Coral Energy and the Los Angeles Department of Water and Power.
The energy companies and utilities have denied the accusations, saying they followed market rules. Energy companies have said that the crisis was the result of a poorly designed deregulation scheme and a genuine supply shortage.
FERC's decision means there are likely to be further embarrassing disclosures ahead for energy companies, which have seen their credibility hurt after conversations in which traders discussed shutting down power plants to boost prices were made public. Transcripts have showed such activity by Williams and Reliant, both of which have settled with FERC over the incidents.
The evidence submitted by California this week includes tapes of energy traders' conversations, transcripts from depositions by energy company employees and e-mails, according to a summary of the filing released by the state Monday.
California Gov. Gray Davis, state Attorney General Bill Lockyer, U.S. Sen. Dianne Feinstein (D., Calif.) and other officials repeatedly called on FERC this week to release the documents. The state also filed a request with FERC on Monday to lift the protective order.
FERC staff consulted with the U.S. Department of Justice and the Commodities Futures Trading Commission about the order, which is meant to protect commercially sensitive information, a FERC spokesman said earlier this week. Both of those federal agencies have investigations under way into alleged energy market manipulation.
A FERC judge has said the state should receive $1.8 billion in refunds for October 2000 through June 2001 power purchases, though his recommendation didn't consider market manipulation evidence. The state still owes energy firms $3 billion for crisis-era transactions.
The final decision on refunds rests with the commission, which has said it wants to issue an order by the end of March.
A federal appeals court last year forced FERC to grant California a 100-day discovery period, which ended Monday, that allowed the state to present evidence of market manipulation to the commission.
Enron and AccomplicesAssociated Press March 7, 2003
HOUSTON (AP) - Executives of failed energy merchant Enron Corp. reported huge profits and kept debt off balance sheets with the help of willing lawyers, banks and auditors even as the company slipped deeper into the red, according to a bankruptcy examiner.
Neil Batson, in his report Wednesday to the court overseeing what was once the largest corporate bankruptcy in U.S. history, said that Enron reported net income of $979 million in the year 2000 while actually earning only $42 million. Cash flow, instead of the reported $3 billion, was a negative $154 million.
Several times, the bankruptcy examiner stated that Enron broke Securities and Exchange Commission rules and, in the case of special purpose vehicle and prepay transactions, materially misrepresented its financial condition.
``I think the fact that he used the word `materially' is important. It expresses his belief that there is a substantive violation of criminal law,'' Jacob Frenkel, a former federal prosecutor and SEC lawyer in Washington, D.C., told the Houston Chronicle in Thursday's editions.
Frenkel said he reads Batson's statements to be asking, ``Why is it taking the feds so long to figure this out?''
Enron's former chief financial officer Andrew Fastow, who allegedly masterminded financial schemes that brought down the Houston-based company, has been charged with fraud, money laundering and conspiracy. He is free on $5 million bail while he awaits trial.
In a 2,000-plus page report to the bankruptcy court, Batson described how Enron used special purpose entities and various accounting techniques to conceal its poor performance.
``There is nothing improper about the use of structured finance and SPEs to achieve and report business results,'' Batson stated. ``Enron, however, used structured finance to report results it had not achieved.''
Legal experts said the report is likely to bolster the case of shareholders who are suing the company. It stated that because many transactions were improper and possibly illegal, as much as $5 billion in cash and assets could be recovered by the bankrupt company and its unsecured creditors.
Enron's two biggest creditors, Citibank and J.P. Morgan Chase & Co., knowingly facilitated the company's improper financial practices, Batson repeatedly suggests. Arthur Andersen LLP, the company's auditor, and unnamed lawyers are repeatedly cited as blessing the maneuvers. Some experts believe other banks also participated in the deception.
Many Enron documents were later shredded. David Duncan, a former Andersen partner in charge of Enron's account, was fired in January last year and pleaded guilty to obstruction of justice in April.
The report on Enron described a company so desperate for positive financial statements that it first determined the amount of profit or cash it needed, then used questionable financial vehicles to generate the necessary number before its collapse in late 2001.
``It is a really nice explanation of some of the madness that went in on Enron's accounting department,'' said Nancy Rapoport, University of Houston Law School dean and a bankruptcy expert. ``But I think the third interim report is where the fur is really going to fly.''
The third report by Batson is due in late June.
``Enron failed in several key respects to provide adequate disclosure to the marketplace of facts and circumstances that were critical to an understanding of its financial condition, operating results and cash flows,'' the report states.
``He says he comes to no legal conclusion, but everything you need for securities fraud is there,'' one lawyer knowledgeable about the litigation who spoke on condition of anonymity told the newspaper.
``What's amazing reading this is the chutzpah of it, the dollar amounts and how Enron could be the seventh-largest company in America and have no real cash, no real substance.''
It is against federal criminal law for executives to knowingly make false material representations about a company's financial condition to the public.
Evidence Submitted Against DukeL. A. Times - by Jonathan Peterson, Nancy Rivera Brooks March 4, 2003
(3/3/03) - WASHINGTON -- New evidence being submitted by California officials to federal regulators today will show that more than a dozen public utilities and energy generators, including the Los Angeles Department of Water and Power, Sempra Energy, Mirant Corp. and Duke Energy Corp., participated in schemes to push up prices during the California energy crisis, officials said Sunday.
The details are part of a sealed, 1,000-page filing that is intended to show that the exploitation of California's deregulated energy market in 2000 and 2001 was far more pervasive than has been proved to date and involved more participants than the few that have previously been named.
The filing will be submitted to the Federal Energy Regulatory Commission by a coalition of state government agencies and the state's two largest electric utilities, Southern California Edison and Pacific Gas & Electric. The coalition wants federal regulators to order $9 billion in refunds for overcharges during the energy crisis.
Although the findings are covered by an order of confidentiality, a group of California officials Sunday directly accused companies and municipal utilities by name of exploiting the state's energy marketplace and complained that federal regulators have taken too long to compensate the state for the unfair practices.
"The massive cover-up by generators is unraveling," Gov. Gray Davis said in a statement. "The evidence of manipulation unearthed is so overwhelming even FERC can't hide from it."
He added: "To date, FERC has not returned a single dollar in refunds from the generators. It has a moral and legal responsibility to correct this outrage."
The accusations including the withholding of power when it was desperately needed by California were denied Sunday by power sellers contacted by The Times, including Sempra Energy, Mirant, Duke Energy and the Los Angeles, Glendale, Pasadena and Anaheim municipal utilities. Several said they looked forward to reviewing the state's evidence after two years of bitter fighting over the causes of the energy crisis.
But the filing by the coalition, which also includes the state attorney general, Public Utilities Commission and Electricity Oversight Board, describes a broad range of manipulative market behavior by power providers, traders and municipal utilities.
It accuses such power suppliers as Reliant Resources Inc., Williams Cos., Dynegy Inc., Mirant and Duke of withholding power to push up prices. It also accuses a range of companies of executing strategies to boost profits by misleading the marketplace.
The strategies are similar to tactics that Enron Corp., now under bankruptcy protection, employed, according to confidential memos released last year. Those memos suggested that other companies also were gaming the market, but provided no details
"This evidence should force FERC to recognize, at long last, just how egregiously and extensively California was plundered, defrauded and ripped off by the energy pirates," said Atty. Gen. Bill Lockyer, whose office coordinated the investigation. "FERC can no longer avoid providing California the long-overdue justice it deserves."
People familiar with the filing said that a few firms also allegedly engaged in a practice that Enron traders dubbed "Death Star," in which companies would create false congestion on the power grid and then get paid a premium for easing the problem. Companies in this group included Coral Power, Sempra, Mirant, Powerex and Duke, as well as the Modesto municipal utility.
Most details remained secret Sunday because of the broad order of confidentiality imposed by FERC. But the people familiar with the state's case said they had been legally advised that they could disclose the names of firms discussed in the filing. They said the firms and utilities whose names they released had knowingly engaged in practices that distorted the market and fueled skyrocketing electricity prices
Duke Energy spokesman Patrick Mullen said the company looked forward to seeing the state's evidence.
"For two years now, Duke Energy has had to face these types of allegations regarding operations in California, and they have repeatedly been proven short on facts and legally baseless," Mullen said. "We have operated appropriately and with integrity."
The stakes are high because evidence of price manipulation would entitle the state and the major utilities to a significantly larger refund than the $1.8 billion that a FERC judge previously approved.
FERC, the nation's power watchdog, has the authority to change the judge's order and mandate a bigger refund.
In the fall, FERC approved a 100-day discovery period, later expanded to 103 days.
The California parties Sunday maintained that although they had found a great deal of evidence, the effort had been hindered by companies that responded slowly to their requests and indications that evidence had been destroyed.
Vickie Whitney, a deputy state attorney general, said that three Enron employees and one Mirant employee invoked their constitutional right to refuse to testify, frustrating the efforts of investigators. They held "several keys that we could not get through to open up other doors to this," she said.
In a statement, Davis said that in addition to withholding power, generators shared non-public outage information with the help of a subscription service that gave them the data. Additionally, he said, the California parties uncovered profit-sharing agreements between traders and public power entities to sell nonexistent services.
State officials Sunday said they hoped the new filing would force firms that have paid little price for the energy woes to come up with billions in refunds.
Until now, federal regulators in effect have told the energy companies, "You can keep the money you stole; just don't steal anymore," Davis said Sunday.
Peterson reported from Washington and Rivera Brooks from Los Angeles. Times staff writers Richard Winton and David Reyes contributed.
Duke May Sell Unregulated PlantsPittsburgh Tribune-Review - by Lou Ransom March 2, 2003
(3/1/03) - Houston-based Duke Energy, the second-largest U.S. utility owner, said it will consider selling some of its unregulated power plants this year, including a 630-megawatt plant under construction in Fayette County.
"We may look at selling some merchant power plants, and that would be outside the $600 million in (previously announced) planned asset sales," said David Hauser, the company's treasurer.
Duke, which owns 20 unregulated power plants and has interests in eight others in North American, also had said it would sell another $500 million in real estate assets to pay off debt.
"We're constantly evaluating our portfolio," said Duke spokeswoman Lea Gibson. "Buying and selling and owning and operating facilities is part of our very active portfolio management. Any of our assets could be for sale, but it is too early to speculate on specific assets. We are going to be very strategic in our approach to this."
The Fayette County power plant, a natural gas-fired electricity generation plant being built near Masontown on the Monongahela River, is scheduled to go online this summer. It was slated to provide 400 construction jobs and 25 permanent jobs.
Gibson could not say what effect, if any, a sale would have on that facility.
Duke also had proposed building a $250 million electric generating facility in Sewickley Township. However, residents near that proposed plant voiced their concerns about the impact the plant would have on their health, property values and the environment. Gibson said she could not comment on plans for that plant.
Revamping Energy Indexes Seen Falling ShortReuters by Matt Daily - February 28, 2003
HOUSTON, Feb 27 (Reuters) - Long-awaited industry plans to reform power and gas price reporting will likely fail to restore confidence in a sector hit by fraud and federal investigations since they only recycle principles and offer no binding initiatives, energy experts said.
A blueprint released on Thursday by the Committee of Chief Risk Officers (CCRO), a 31-member group from the merchant energy sector, urged traders to submit internally audited records of their over-the-counter deals, including counterparties, to anyone compiling trade-weighted price indices.
In a fully functioning market, such indices are crucial to calculating the value of gas and electricity contracts.
But industry analysts said the report offered little more than a reiteration of principles already widely acknowledged by the shrinking number of trading companies as key to restoring the indices' credibility.
"There's no real roadmap as to how we're going to get the industry to participate," said Craig Pirrong, director of energy markets studies at the University of Houston's Bauer College.
The CCRO proposals, which the industry could adopt on a voluntary basis, specify methods for submitting transaction data to index makers, but offer little guidance on who should compile the indices: government regulators, industry publishers or neutral groups such as academic institutions.
The voluntary nature of the rules could prove problematic, since any price index reporting system will only be seen as valid if it becomes a widely used industry standard.
Platt's, a unit of McGraw-Hill Cos. Inc., is one of several news organizations reporting on the natural and power industry. Reuters Group Plc also publishes news and spot market data about the industry.
The CCRO principles included gathering data on all the transactions completed, reporting the counterparty names on a confidential basis to the index compiler, requiring trades be verified by back- or mid-office departments and the possible establishment of third-party monitor for the prices.
Platt's proposed its own, even stricter rules earlier this month to help rebuild industry confidence in its energy indices, which it estimates are used as the basis for calculating about $10 billion daily in contracts.
Those new rules included verifying trades with counterparties' information, requiring more detailed information on terms of each trade, and asking company officers to certify their accuracy.
Some companies have suggested the Federal Energy Regulatory Commission (FERC) should compile and publish power and gas indices, but many in the industry are wary of increasing the regulator's role. FERC has also been cool to the idea.
"FERC has signalled it doesn't want that role," Pirrong said.
PASSING THE BUCK
FERC has largely left the issue of indices to the private sector, preferring to let the market participants figure out what works best. The industry, wary of setting itself too strict a regime but also fearful its fledgling market could be crimped by government rules, has offered few new ideas.
"It's a big game of passing the buck here," said Ed Bell, a member of PA Consulting Group's management group, said. "They're kind of frozen like a deer in the headlights," he said, referring to the credit risk officers.
In addition to the CCRO, whose members claim to represent more than half the volume of power and gas traded in the United States, the industry umbrella group the National Energy Marketers Association (NEMA) is expected to come with its own ideas.
"I think it's inevitable that FERC's going to have a technical conference to debate all these various things. This is clearly a case where FERC could provide some gentle leadership," Bell said.
"This industry needs a solution and it needs it now," he added, pointing to an industry that has seen its trade volume plunge by about 70 percent in less than two years.
Gas traders expressed skepticism that CCRO proposals would prove a boon to the industry, and could face resistance by companies reluctant to put their names on their trades, despite assurances offered by confidentiality agreements.
"If you can get permission from both sides to reveal this information, then it's fine, this can work. But some companies just refuse to give out their numbers with their names to (Platt's) Gas Daily and the other publications," one Texas-based natural gas trader said.
Worthless Power Plants?Reuters - February 26, 2003
(1/28/03) - HOUSTON - Do not expect a recovery in the North American trading business until a fair value can be found for the fleet of power plants built over the past few years to cash in on the deregulated power market, a Duke Energy executive warned on Tuesday.
"How will we know if we're really recovering? ... I think we need to see the point at which power plants end up viewed as totally worthless," Richard Osborne, Duke's chief risk officer told an energy conference here.
Energy companies have leveraged their power plants to cover the surge in trading and margin costs in the wake of the market meltdown and deterioration in their credit ratings.
"I think that (rebound) will come when people are interested in buying them instead of turning the keys over to bankers."
Analysts predict massive asset sales as the industry struggles under the weight of an estimated $30 billion in debt set to come due in 2003.
Overcapacity in power generation stems from a boom in plant construction in recent years, a move by merchant generators aimed at capturing a share of the newly deregulated market.
The strategy backfired for many players, however, with a flood of megawatts from highly efficient plants pressuring electricity prices and driving down power plant values.
The collapse of Enron Corp. in late 2001, scandals around power and gas deals and withdrawal of many companies from the field have also taken a heavy toll on the industry, knocking trading volumes to about a third of the levels seen two years ago.
That lack of liquidity has made trading far more expensive for the small number of players struggling to survive in the market, with the worst likely yet to come, Osborne warned.
Plant values will not rebound without strong rebound in electricity prices, he said.
"You're going to have to get some premium back into the market, and the premium will only come into the electricity market with fear -- fear of failure to deliver," he added.
"Fear can come through weather, that's the easiest way. It can also come through some sort of disruption of supply, and I suspect that will be necessary before we see this bottom out."
Electricity trading has also become much more expensive since the disappearance of Enron, which facilitated liquidity through its willingness to take either side of a deal.
Traders and analysts have said the industry needs to establish a market clearing system to reduce credit risk in trading in the off-exchange over-the-counter market.
"There's enormous savings to be had here. There's billions and billions of dollars in collateral posted because of the illiquid and fragmented markets," Osborne said.
Osborne said the clearing systems now being touted by companies such as InterContinental Exchange (ICE), the New York Mercantile Exchange (NYMEX) and others would likely be in place in the next two years.
"We are really optimistic that there will be a dramatic savings opportunity for the entire industry and for the customers, who are consumers, because of improvements on this," he said.
Keeping a Lid on the EvidenceDow Jones - February 26, 2003
(2/24/03) - WASHINGTON (Dow Jones) -- California authorities and Washington-state municipalities have three extra days to file evidence about alleged manipulation of Western energy markets, U.S. federal regulators announced Monday.
The Federal Energy Regulatory Commission moved the deadline for evidentiary filing to Monday, March 3, from Friday, Feb. 28, after California and Pacific Northwest parties said last week's East Coast blizzard slowed their efforts to collect relevant material.
Power generators supplying California - including units of Duke Energy Corp., Dynegy Inc., Mirant Corp., Reliant Resources Inc. and Williams Cos. - had opposed the request for an extension of the evidentiary period, which was originally scheduled to run for the 100 days ending this Friday.
The California parties are trying to show that natural gas and power suppliers manipulated the Western market during upward price spikes in late 2000 and the first half of 2001. The parties say federal regulators should refund billions of dollars in power purchases and abrogate long-term purchase agreements signed at the time.
FERC said Monday that, in the interest of fairness, it would also extend the deadline for reply comments by three days to March 20.
Ending California DeregulationEmployee Advocate DukeEmployees.com February 25, 2003
A bill has been introduced in the California state senate to repeal the states infamous electricity deregulation law, according to Dow Jones.
Merchant energy firms are now undergoing federal and state investigations concerning manipulative trading tactics.
Some of the energy companies have already made settlements with federal regulators over Market misconduct charges.
Ending High Priced ContractsEmployee Advocate DukeEmployees.com February 25, 2003
Las Vegas Review-Journal reports that two government agencies will spend up to $98 million to end wholesale power contracts signed in 2000 and 2001, at astronomical rates.
The companies that sold these high-priced contracts were Enron Corp., Duke Energy Corp., American Electric Power, Williams Cos., El Paso Corp., Mirant Corp., and Constellation Energy Group.
Riding Deregulation to DisasterWall Street Journal by Robert Frank, Rebecca Smith February 25, 2003
(2/21/03) - TOPEKA, Kan. -- When David Wittig came back to this quiet, farm-belt city after 16 years on Wall Street, he was hailed as a hometown hero.
Tall and movie-star handsome, Mr. Wittig made the cover of Fortune magazine as an investment banker before returning in 1995 to run the state's biggest utility, Western Resources Inc. In a string of blockbuster deals, he turned the little-known electric company into one of the most active acquirers in the utility industry.
With his pinstripe suits, Ferrari and perpetual tan, Mr. Wittig made a big splash in his home state. He flew in friends such as actor Kevin Kline and darted around the world on corporate jets. He bought the biggest house in town, a 17,000-square-foot mansion built by former governor Alf Landon, and hired a New York decorator to renovate it.
"Seeing that bright, talented young guy up there gave us all a lot of confidence," said Richard D. Rogers, a federal judge in Topeka and a Western shareholder.
Today that confidence is gone and in its place is a Wall Street-style scandal with Mr. Wittig at its center. With the company plagued by a series of disappointing acquisitions, Westar's stock has fallen more than 70% during the past two years and its debt has ballooned to $3.6 billion. Mr. Wittig's extravagant spending, on himself and the company, has triggered two investigations into whether the company picked up the tab for part of his highflying personal life.
Mr. Wittig resigned as chief executive of Westar Energy Inc., as the company is now known, in November after a federal grand jury in Topeka charged him and a prominent local banker with multiple counts of fraud. The case, which has no connection to Westar, involved a real-estate deal in Arizona. Both Mr. Wittig, 47 years old, and the banker have pleaded not guilty.
Meanwhile, the U.S. Attorney's office in Topeka and an independent committee of the company's board are looking into whether Westar paid for Mr. Wittig, his wife, two sons and his dog, Coco, to travel on company jets to their vacation home in the tony beach community of Southampton, N.Y. They are also scrutinizing transactions between Mr. Wittig and interior decorator Marc Charbonnet. The decorator renovated Mr. Wittig's mansion at about the time he handled the $6 million renovations of Westar's jet hangar and its lavish new executive quarters. Federal prosecutors have interviewed dozens of former and current Westar officials.
Mary Jo White, the former federal prosecutor from New York who is spearheading the company's own investigation, is questioning whether Westar's board was kept in the dark about the full extent of Mr. Wittig's compensation and benefits, according to people close to the company. Director Jane Dresner Sadaka, a former investment manager, resigned from the Westar board in 2001 complaining of "huge rewards" to Mr. Wittig despite Westar's falling stock price. She also said that the board could not get sufficient information about compensation. Mr. Wittig later told regulators that Ms. Sadaka was forced to step down because of poor performance. Ms. Sadaka declined to comment.
Aside from the Arizona real-estate case, Mr. Wittig has not been charged with wrongdoing. Mr. Wittig and his attorneys declined to comment. A spokeswoman for the U.S. Attorney declined to comment, as did a spokeswoman for Debevoise & Plimpton, Ms. White's New York law firm.
The scandal is painful for the people of this tightly knit, conservative state capital because it involves the local utility, a longtime pillar of the community that is regarded by many as a sacred public trust. About 2,000 Kansans work for Westar, making it one of the biggest employers in the state. Last week Westar announced it is slashing its dividend, which many Kansas retirees rely on for income.
When local television stations reported that Mr. Wittig had resigned, cheers went up at a Chili's restaurant. Newspapers in Kansas are still printing letters criticizing Mr. Wittig and his Wall Street ways. Democratic congressional candidate Dan Lykins recently campaigned -- unsuccessfully -- on an anti-Wittig platform. He put up six billboards fashioned after the "Got Milk" campaign that read: "Westar Resources milked millions from Kansans."
Raised in the middle-class Kansas City suburb of Prairie Village, Mr. Wittig showed an early talent for complicated mathematics and won a scholarship to the University of Kansas. He became fascinated by the stock market and after graduation went to work as a broker for a Kansas firm, H.O. Peet & Co.
When Peet was acquired by Kidder Peabody & Co. in 1978, Mr. Wittig quickly won the attention of company executives in New York, including Martin A. Siegel, Kidder's star investment banker. Mr. Siegel, who commuted to Manhattan by helicopter from his Connecticut estate, took Mr. Wittig under his wing and trained him in the arts of Wall Street, from corporate valuations and merger advice to the finer points of Italian suits and interior design. Mr. Siegel later moved on to Drexel Burnham Lambert Inc., where he became embroiled in the Ivan Boesky insider-trading scandal and in 1987 pleaded guilty to two felonies.
Mr. Wittig stayed at Kidder and soon made headlines of his own. In one of Wall Street's most notorious public-relations gaffes, Mr. Wittig in 1986 appeared on the cover of Fortune magazine, holding a fat cigar, under the headline, "Wall Street's Overpaid Young Stars." The article described tougher times for Wall Street's yuppie class, and featured Mr. Wittig, then 31 years old, bragging about his $500,000 salary and plans to retire by the age of 40. "I try not to let the business go to my head," he said. "Doing a Wittig" became banker-speak for flaunting your wealth to the media.
Mr. Wittig's deal making never quite matched his bravado. Though he took credit for more than 140 deals while on Wall Street, his former colleagues have a hard time remembering more than a few. They say his most memorable deal as a lead banker was defending a unit of Pinnacle West, an Arizona-based utility, against a $1.8 billion hostile bid from PacifiCorp. He did, however, carve out a niche doing medium-size deals in the newly deregulated utility business, forging close relationships with executives in his native Mid-West. In 1989 he joined Salomon Bros. and soon after became co-head of mergers and acquisitions, making more than $1 million a year. He bought a Ferrari, a sprawling apartment on Manhattan's Fifth Avenue and a beach house in New Jersey.
In 1995, Mr. Wittig was lured to Westar by then-Chief Executive John Hayes to help develop the company's acquisition strategy. Energy-industry deregulation was creating aggressive players such as Enron Corp., and Mr. Hayes worried that Westar might be swamped by competition. His plan was to expand into deregulated businesses including home-security alarms, which Westar could sell to its customers and others.
Mr. Wittig went into a frenzy of deal making. He made a hostile takeover bid in 1996 for Kansas City Power & Light. He orchestrated an elaborate, $660 million assets-for-stock swap with ONEOK Inc., another energy firm. During one week in December 1996, he bought Westinghouse Security Systems for $368 million and launched a hostile $2.6 billion bid for ADT, the nation's biggest home-protection company.
Although another serial deal maker, Tyco International, ended up owning ADT, Westar made $864 million, pretax, from the sale of a block of ADT shares it had purchased before the deal. At the time, Westar had revenue of $2 billion, and the windfall helped make Mr. Wittig a corporate star.
He became Westar's CEO in 1998, and quickly cut his biggest deal yet -- buying 85% of the nation's second-biggest security company, Protection One Inc., for more than $1 billion. His ambitions shifted from running a utility to overseeing a new group of fast-growth businesses that would be free of the utility industry's regulatory control and limited returns. He made plans to sell Westar's electric-power assets to Public Service of New Mexico for about $1.5 billion and when that plan failed, laid the groundwork for separating the regulated and unregulated businesses into two companies. The gambit, which regulators soon blocked, would have saddled the utility with at least $1 billion in debt that rightfully belonged to the other unregulated businesses.
As Westar's stock shot to over $40 a share by the end of 1998 from $28 in 1996, Mr. Wittig was richly rewarded. His compensation doubled to about $2.5 million in 1998 and soared to $8 million in 1999, including a $5.4 million payment Westar had agreed to pay him for lost compensation as a result of his leaving Salomon Bros. and taking a pay cut.
After becoming CEO, Mr. Wittig got rid of Westar's turboprop plane and replaced it with two leased luxury Citation jets and a full-time aviation staff. The Wittigs summered in a rented Victorian house in Southampton. They used company jets to fly back and forth, according to people familiar with the investigations. Former employees say the family also used the jets for shopping jaunts to Europe. For investigators, the question is whether the plane trips were properly accounted for and disclosed. In Topeka, Mr. Wittig mostly avoided the social and charity scene, refusing to join the city's chief executive lunch group, known as the Fat Wednesday Club, or socialize at the Topeka Country Club. Jack Brier, a Topeka real-estate developer, says that Mr. Wittig's absence was seen by many as a slight against the business community.
But Mr. Wittig made his mark in other ways. In 1998, he bought Topeka's most famous mansion, which Alf Landon had passed down to his daughter, former Sen. Nancy Kassebaum. Mr. Wittig hired Mr. Charbonnet, who has decorated homes for actor Michael J. Fox and other stars. The house featured Venetian stucco walls, 19th-century French gilt-bronze fireplace screens and a reception room modeled on the Apsley House in London, home of Napoleon's vanquisher, the Duke of Wellington. Mr. Wittig added a theater, bar, game room, and gym, complete with locker room, showers and a basketball court, according to Mr. Charbonnet's Web site.
The new offices designed by Mr. Charbonnet for Mr. Wittig and his top deputies were equipped with a full chef's kitchen, dining room and multimedia room. Mr. Wittig's office had its own anteroom, a sprawling chrome desk, luxury shower room and dressing area.
People close to Westar say that investigators have talked to Mr. Charbonnet and are looking into whether he gave favorable terms to Mr. Wittig because of the Westar project. They are examining whether Westar paid the designer's travel expenses while he was working on the mansion. Mr. Charbonnet declined to be interviewed.
Investigators are also looking into Westar's investment in QuVIS Corp., a privately held Topeka technology company. Westar invested close to $1 million in QuVIS, say people close to the utility. Wittig family members are major shareholders of QuVIS, and Mr. Wittig's wife, Beth, who had also worked on Wall Street, served on the board until December, according to these people. Ms. Wittig couldn't be reached for comment. Investigators want to know whether Westar's investment was properly disclosed to the board and other company officials. A QuVIS spokeswoman declined to comment.
The first cracks in the Wittig deal making machine appeared in 1999. Mr. Wittig's bid to buy Kansas City Power & Light collapsed after he stalled to get a better price.
His and Westar's biggest problem, however, was Protection One. Shortly after it was acquired, the Securities and Exchange Commission challenged the company's accounting. Protection One restated earnings for 2001, and the years going back to 1997. In mid 2002, after losing Arthur Andersen as its auditor, Protection One again restated earnings, taking a $106 million charge.
Protection One also suffered from defections of many customers complaining about service. Colleagues say Mr. Wittig was more interested in buying businesses than managing them, and in the early days he tended to appoint executives who didn't know much about the business. Protection One stock, which Westar bought for $17.25 a share, now fetches about $1.50 a share. In the past two years, Protection One's problems have resulted in write-downs and losses to Westar of more than $1 billion.
Investigators are looking at a series of transactions between Westar and Protection One, according to people familiar with their questions. Even as the home-security outfit was relying on a $215 million loan from Westar to shore up its finances, it was buying assets from its parent that appeared to have little purpose except to bolster Westar's fortunes. The purchases included a building in Wichita, the aviation business that managed the leased jets and owned the hangar, and 850,000 shares of Westar stock plus $2 million of preferred shares.
Mr. Wittig's own troubles came to a head last fall, around the time Westar disclosed to the SEC that it had received subpoenas from a Kansas grand jury seeking information related to Mr. Wittig, corporate-aircraft use and "the company generally."
In November Mr. Wittig and a local bank executive were indicted on bank-fraud, conspiracy and money-laundering charges for allegedly hiding the purpose of a bank loan. Mr. Wittig was placed on leave and resigned shortly afterward. Prosecutors say Mr. Wittig borrowed $1.5 million from Capital City Bank, with approval of the bank's president, Clinton Odell Weidner II. Mr. Wittig then lent the money back to Mr. Weidner so that he could invest it in a luxury-home development near Scottsdale, Ariz.
According to the indictment, Mr. Wittig agreed to lend Mr. Weidner the money with the understanding that the bank president would increase Mr. Wittig's $3.5 million credit line by $1.5 million. The bank says it has been repaid. Mr. Wittig and Mr. Weidner recently filed court motions to dismiss the case. "There's no evidence of any intent to harm anyone," says Robert Eye, Mr. Weidner's attorney. He says his client paid Mr. Wittig a "substantial sum" for the use of the money.
Friends and neighbors say Mr. Wittig is spending most of his time in New York and Topeka with attorneys and family. Westar hasn't paid Mr. Wittig severance. Records show he received $3.58 million in pay and benefits last year, including $2 million from an insurance policy.
In Topeka, Westar's new leadership is busy trying to turn the clock back to the time when Westar was "a good Kansas utility," in the words of chief financial officer Mark Ruelle. Mr. Wittig's acquisitions have sharply declined in value as Westar's debt has climbed to $3.6 billion, making the company one of the most leveraged in its industry.
Citing Westar as an example, federal regulators yesterday moved to set new controls on borrowing by utilities. The Federal Energy Regulatory Commission said it now wants proof that utility borrowings actually go for utility projects, rather than for highflying unregulated businesses.
Westar's one bright financial spot is a stake Mr. Wittig bought in ONEOK, an Oklahoma gas-distribution utility. Westar's sales of ONEOK stock last month fetched a much needed $300 million and the company could net as much as $600 million from additional sales.
James S. Haines Jr., Westar's affable new chief executive, has put Protection One up for sale and plans to sell all other noncore assets, including power plants in Turkey and China. Mr. Haines, who answers his own phone and drives a Jeep, has set up shop in the company's old, wood-paneled executive suite. He refuses to work in the luxurious office built by Mr. Wittig.
That office remains empty, except for two items its former occupant left behind -- a bronze statue of a fighting mountain ram and a Shredmaster Deluxe paper shredder.