Spokane Journal of Business

Avista: ‘Enron used us’

Spokane company says it learned from testimony in California that its trades involved ‘Death Star’

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After first claiming that it had no record of involvement in suspect power-trading schemes, Avista Corp. has told the U.S. government that it was used by Enron Corp. in the Death Star power-trading strategy in April, May, and June 2000.

Avista made the assertion in its June 14 response to an order from the Federal Energy Regulatory Commission (FERC) to show why the power-trading license of its Avista Utilities subsidiary shouldnt be revoked for failure to comply with an earlier demand for information.

Referring to 17 trades FERC had questioned, Avista said, To the extent that any company engaged in a trading strategy behind the specified transactions, that company was Enron, engaging in the practice identified (by FERC) as Death Star.

FERC, in its request for information, had defined the Death Star trading strategy as scheduling electricity transmissions in the opposite direction of congestion, but no energy is actually put onto the grid or taken off the grid. This allows the company to receive congestion payments from the Cal ISO, or California Independent System Operator, which manages the electricity supply for much of California.

Avista traders, in recorded telephone conversations with Enron traders, asked repeatedly whether they needed to arrange transmission of power Enron wanted Avista to buy and then resell to Portland General Electric, an Enron subsidiary, Avistas response to FERC says.

Avista maintains that Avista Utilities, which handled the trades, was unaware of Enrons intent to use the Death Star strategy and did not participate in the Cal ISO congestion markets.

Meanwhile, last Friday Avista Corp. said it had received a subpoena from another federal agency, the U.S. Commodity Futures Trading Commission, seeking, among other things, records related to any roundtrip, or wash, trading practices, in which a company both buys and sells power at the same time for the same price, inflating its trading activity and revenue. Avista said it will cooperate, but doesnt engage in such trading.

Avista spokesman Hugh Imhof says Avista made its June 14 response to FERC after it conducted exhaustive scrutiny of trading logs, listened to and transcribed hundreds of hours of audiotapes of trades, and had the Washington, D.C., law firm of Van Ness Feldman, which specializes in FERC issues, go over the information.

Avistas response, signed by a Van Ness Feldman attorney, says, The exhaustive investigation shows that Avista Utilities was used by Enron and was no more a participant in Enrons trading than was the Cal ISO itself.

In a June 4 order in which it threatened to revoke power-trading licenses, FERC jolted Avista, Portland-based Portland General Electric (PGE), which is an Enron subsidiary; El Paso Electric Co., of El Paso, Texas; and Williams Energy Marketing & Trading Co., of Tulsa, Okla.

Avista had told FERC on May 22 that it didnt have information pertaining to Enrons ricochet trading strategy, but FERCs June 4 order said transcripts provided by PGE reveal that Avista personnel were indeed actively involved in such transactions with Enron as well as Portland. Through ricochet trading, price-controlled power was sold out of California to buyers who would sell it back to the original sellers, which would then sell the power in California at a higher profit after it was no longer subject to price caps.

Avista says it received a letter from PGE on May 17, five days before it made its first response to FERC, advising Avista Utilities that PGE intended to disclose documents indicating that Avista Utilities may have been involved in ricochet trading. Avista says PGEs letter prompted it to step up its efforts to find material relevant to the Enron trading strategies, but it turned up no evidence.

Avista also denied in its May 22 response that it had information related to the Death Star strategy. Then, in its June 14 response to FERC, Avista said that until June 5, when it received trading transcripts from PGE, it couldnt determine what transactions PGE was referring to in its May 17 letter.

Even with those transcripts, the Enron scheme was not clear, Avista says.

Finally, Avista says, something else cleared things up. On June 5, testimony before the California State Senate Select Committee to Investigate Price Manipulation of the Wholesale Energy Market included documents that Avista Utilities had never seen before that enabled Avista Utilities to determine what Enron had been doing, Avista says.

That testimony, Avista says, included an internal Enron e-mail regarding THE FINAL PROCEDURES FOR DEATH STAR, disregard the other 2 e-mails.

Says Avista, The e-mail describes a scheme in which Washington Water Power (Avistas former name) is placed in the middle, through a buy-sell between Enron and PGE. Avista Utilities is used in one step of the six-step Death Star strategy to buy from Enron and resell to PGE. Only after reviewing that memo was Avista Utilities able to fully ascertain how Enron had used Avista. Thus, PGE was wrong when it identified the trades as ricochets in the May 17 letter to Avista.

Its own trading transcripts plainly demonstrate that the Avista Utilities traders that consummated the transactions simply believed that they were helping accommodate a transaction between Enron and PGE, a standard industry practice known as a sleeve, Avista told FERC. Finally, and perhaps most importantly, the transcripts show conclusively that there was no awareness on the part of Avista Utilities traders about what, if any, strategy Enron was engaged in.

Confusing conversations

In recorded conversations of the trades, Avista traders ask Enron traders whether they need to acquire transmission capacity to move power that Enron traders want Avista to buy and resell to PGE.

On April 15, 2000, Enron trader John Forney called WWP trader Ron Loomis and said we (Enron) developed a deal with your pre-schedulers not too long ago and it was kind of a sleeve deal where we give energy to Water Power, and Water Power gives it to Portland General.

Avista says in its response to FERC that because Enron and PGE had been authorized by FERC to buy and sell power at market prices, they didnt have to have a sleeve between them. Avista Utilities has no information on why Enron and PGE needed to insert an intermediary into an otherwise lawful transactionand when one of its traders asked that question, Enron evaded it, Avista says.

As Forney and Loomis worked out the terms of the deal, Loomis was still uncertain about whether he needed transmission capacity, or needed to bring the power into Avista Utilities system first, in order to then resell it to PGE, Avistas response to FERC says. Mr. Forney asked Mr. Loomis why he needed to get it to your system before you give it to Portland.

Ultimately, Loomis also called a PGE trader to ask about the availability of transmission capacity and discussed why Enron wanted to engage in the deal, Avistas response says. At one point, the PGE trader told Mr. Loomis that she told them (Enron) that I would rather not be involved in it, and he said he was going to call my boss.

Before a trade on April 23, 2000, an Enron trader explained to the Avista Corp. trader, Lee Walth, that weve been doing that deal where I hand it off to you at Malin (a substation on the Oregon-California border) and then you hand it off to Portland General and then Portland General gives it back to me . Mr. Walth stated that he would like to help Enron, but that I dont have any way to get it from Malin to Portland General. The Enron trader clarified that Avista Utilities did not require transmission to complete the deal, stating that I have the they (Portland General) have the transmission. Mr. Walth continued to be confused about whether he needed transmission capacity to effect the deal.

In another transaction, on May 9, 2000, Avista Utilities trader Bill Abt grew agitated with an Enron traders uncertainty about where power was to be delivered and received asked whether everybody knows what the hell is going on here. He further stated that there seems to be a mass confusion here.

The confusion in the conversations was followed by confusion in billing, Avista says. It says that because of billing disputes, Avista and billing representatives from PGE and Enron decided to settle all of the transactions in question after April 16 by having the billing information reflect a sale by PGE to Avista Utilities, and then a resale by Avista Utilities back to PGEeven when Enron arranged the transactions.

Imhof says, The bookkeeper was just trying to reconcile it from a bookkeeping standpoint.

  • Richard Ripley

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