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Evidence of manipulation of energy prices.

Discussion in 'Issues Around the World' started by -Ken, Nov 16, 2002.

  1. -Ken

    -Ken Guest

    I remember a time when we discussed how shortsighted
    California was in its policy to deregulate energy.

    George Bush was running for president and telling people
    that without the immediate change in our energy policy we
    would be seeing more of these "rolling blackouts" across our
    country and that America was in danger of losing its edge as we
    lost control of our energy prices.

    What a line of crap!

    While our energy policy is in need of reworking, the evidence
    presented showing why we needed to build more Nuclear reactors
    and how critical it is for us to start drilling in the Arctic Wilderness
    looks ridiculous in hindsight.

    So, should we just forget these companies which caused such turmoil
    in California? I know they have agreed to pay a steep fine but shouldn't
    someone who "engineered" this disasters be sent to jail? Didn't these
    individuals cause society more harm than, say a marijuana trafficker
    or a car thief?

    Is it because they are rich and well connected? Or is it that we really do
    have two standards of justice in this country.

    And, why isn't the president and the conservatives screaming for justice?
    Personally, I find this to be much more in need of a full congressional
    investigation than whether or not Bill Clinton got any and lied about it.

    The article is here.
  2. Coot

    Coot Passed Away January 7, 2010

    Ken, there are already people going to jail over this. Former Enron execs, including the guy that ran the 'Get Shorty' and 'Ricochet' schemes are awaiting sentencing. Oddly, Enron didn't have as much to do with this as might on the surface be believed. They did however engineer the models that other traders who did far worse damage followed.

    Most of the energy producers and the energy sector in general aren't doing well at all. Their stock values are in the crapper due to litigation, contract renegotiation and fallout from Enron.

    What Williams, AES, Dynegy and Duke did, while illegal were comparatively small potatoes and this is being addressed on several fronts. The one to keep your eye on if you want examples of malfeasance on a grand scale is the proceedings against El Paso Gas and El Paso Merchant.

    These 2 gas giants (pun intended) set the stage for the rest of lion's share of the debacle. By manipulating natural gas deliveries via control of the pipeline, they in truth had the most impact on creating electricity shortages. What you won't find in print is what did the most damage here on the left coast...natural gas prices during this so high that several power plants were shut down because the generators found it more profitable to sell their own natural gas deliveries required to fuel the plants. FERC won't touch it because it shoots big holes in their bigger agenda of complete market based rates for the entire energy sector.

    The news is peppered with stories like the one you linked to that have little to do with the total picture and provide IMHO a slanted and incomplete picture of what the real issues in this are. If you are really interested in the issue(s) of the politics of energy, a more complete source can be found here and here. The latter has a daily email newsletter that is the first thing I read each morning when I get to work, While all of the information takes some time to digest and research, the bigger picture is invaluable.
  3. -Ken

    -Ken Guest


    Thanks for the great links. I can see I have my
    reading cut out for me.

    What would you suggest for this mess? I'm sure
    neither of us are happy some bastard who did this
    to us is going to walk away with a few million for
    our trouble.

    I am not one for the system of oversight we had in
    place before but if energy turns totally for profit, I
    am afraid we will all pay unless there are some
    safeguards put into place.

    Your thoughts please?

    Excuse me, I have some reading to catch up on...
  4. Coot

    Coot Passed Away January 7, 2010

    As far as electricity goes, the DOE has been pushing a model that the FERC, the states and the Investor Owned Utilities are loathe to endorse or even do much about moving on....Distributed Generation. The concept is that rather than large more centrally located power plants, that smaller plants in more places is a much more viable solution. It virtually eliminates the need to build more 500 KV transmission systems criss crossing large expanses. The existing infrastructute would then be sufficient to move power from one region to another on an emergency basis for the forseeable future.

    Utilities and so forth would be building a number of these, but large energy using industries would be providing a substantial number as well, and that is what the utilities, the states and FERC are dead set against. What they fear, at least privately, is that the manufacturing sector would be far more efficient at doing this than the energy sector, with a vested interest in seeing that the plants run.

    Here in California, large industry is tied into a time of use rate. A large user like my company pays an average of 11 cents per kilowatt for power plus a demand charge equal to $9.00 per kw for the peak amount of energy consumed during peak hours in the previous 12 months. We on average are an 8 megawatt load to the utility. We are capable of producing our own power for 5.5 cents a kilowatt and shedding the demand charge. The power generators, the utiliities and PUC are dead set against giving up their cash cow.

    In order to produce enough power for our own use effectively, we need to have the capacity to produce about double what we need as we have large loads starting and stopping. If we were to island ourselves, the cost of production goes to about 9.5 cents per kilowatt. If however, we were tied into the grid and could sell the excess at a small profit, our cost for ourselves goes down to around 4.5 cents. The state and the utilities have rigged the game such that they will only pay 4 cents/kwh we put back on the grid.

    To show that they are trying to play ball, they've enable a few companies to do it under the Qualifying Facility Clause. It's just that the QF game is rigged such that almost no one can meet the requirements.

    Natural Gas, while completely intertwined with electricity production is a whole other arena with global players and lots of dirty yet legal chicanery. The crux of that issue revolves around one question...what's the different between an oil well and a natural gas well? Nothing, other than what you hit the most of when you drill.

    Like it or not, in the next 10 to 15 years, gas reserves will start being depleted. Opening up ANWR and building a separate gas pipeline from Alaska may well be an imperative.
  5. -Ken

    -Ken Guest

    Thanks Coot, I appreciate the education.

    Let me ask you directly, are you for the concept of Distributed Generation?
    There is an enormous push to bring wind generation and hydro generation
    in medium to small facilities here. I don't know if it will catch on.

    I went to a local meeting last week where one of the issues discussed was the
    progress of bringing the "old hydro-electric generating plant in the next town
    over back to life. While the dam is grandfathered and the plant is basically
    operational, there is a question regarding its viability due to a mandated
    minimum water flow past the dam to insure fish habitat. In a spring and
    summer as we had last year (drought) the plant would have operated at
    a loss.

    One thing I can say for the Distributed Generation idea is it would make
    our energy production more de-centralized. This could be a very good
    strategy in these terrorist driven times.
  6. Coot

    Coot Passed Away January 7, 2010

    Absolutely in favor of it. There are a number of technologies out there that are for the most part being developed and are shamefully under utilized...right down to highly efficient and clean power sources for the home.

    It makes far greater sense to produce what you need where you need it than ship it several thousand miles. There are some engineering concerns...like synchronization, what's running and when, but those are not terribly difficult to overcome. It's good for the consumer and it's good for businesses. It's a severe blow to energy companies and, oddly, to the government. Regulators end up with less to regulate, elected officials end up with less money as they get tons of it donated from these companies.

    Those of us watching what was happening off the front pages in the Spring and Summer leading up to the winter blackouts saw it coming...in spades. We also saw the california governor doing absolutely nothing about it, including leashing his appointed PUC. Of course, he was receiving unprecedented campaign contributions from energy producers and energy traders.
  7. Coot

    Coot Passed Away January 7, 2010

    Here's more info on El Paso Gas. They're being sued over illegal trading or 'roundtripping' to inflate prices. This is just a lawsuit and not a conviction, but this is one of several that is pending for the same actions. Do I think they did it? Absolutely. Part of the evidence...the border prices at the hubs while demand was down due to mild weather and high storage reserves which would have brought prices down track this meticulously. I'll post the article as it is from my subscription rather than a free news source. I'll delete it tomorrow.

  8. EMIG

    EMIG Yup

    Does distributed generation necessarily require deregulation?
  9. fritzmp

    fritzmp Fire Fire For Effect

    I smell the Celestine Prophecy here. :)

    Send your $29 bucks to Redbone or what ever his name is.
  10. Coot

    Coot Passed Away January 7, 2010

    Actually no, but there are a number of rather sticky rules in place that make it a bit difficult for smaller entities to generate for themselves. Deregulation, had it been done right, would have made those rules irrelevant.

    As it stands now, with the state in the middle of it and requring their take, makes it marginably profitable and extremely difficult to do. The PUC is going after companies that bailed on the utilities and bought cheap power elsewhere when it was permissable under deregulation. Joe Davis' handpicked PUC is trying valiantly to keep the larger charges off the backs of consumers and attempting to force businesses to pay the lion's share of the government's clusterfuck.

    The state of california will most likely win $7B of the $8.9B it is seeking in refunds. That leaves roughly a $14B shortfall in the present budget. The state is trying to double dip this for more cash. They want the cash from the bond sale, they also want the additional cash from the curent excess billing as the service of the bond debt will appear on your bill as a surcharge. Joe Davis would have us believe that the refunds from the power producers is the magic bullet, when in truth, he's added 46,000 state jobs and icreased state spending by37%.

    The 'power crisis' will be with us for at least the next 4 years, and probably longer as the governor and the legislature would like nothing more than to use this as a method to shore up thier fiscal blunderings. Car registration fees will treble in January to cover the budget shortfall, and look to Davis to blame it on 'out of state' power producers.
  11. EMIG

    EMIG Yup

    Won't this just push more businesses to move out of state? Which in turn will mean fewer jobs, which will mean less tax revenue...

    Looks like the Socialist Death Spiral to me.
  12. Coot

    Coot Passed Away January 7, 2010

    It's likely to happen...it's happening already, at least to the extent that new industry isn't considering California as a viable option. There are also a couple of steel producers here in the LA area that are moving to Mexico.
  13. Coot

    Coot Passed Away January 7, 2010

    This article sheds a little light on how natural gas pricing has been manipulated for years (if the link doesn't get you to the article, I can post it). Platts various energy indices have been the defacto source in use to determine what the 'real' energy costs, reserves and supply are. It is used extensively by the various public utility commissions throughout the country, by the FERC and virtually every wholesale energy buyer and seller in the country. It is in fact the definitive source for ratesetting. Platts has also been a knowing participant in the manipulation of its indices.

    The article plays down any large scale adjustments or refunds based on deals cut with faulty data, even if the one hand cutting the deal is the guy that manipulated the data.

    What the article doesn't address...at least not directly is that in locales which rely extensively on natural gas as the fuel source for electricity generation use these indices to set electricity rates, and they are used in part to calculate the wholesale market value of electricity. The FERC's willingness of late to investigate gas market manipulation is solely due to the shenanigans that fostered the western power crisis in 2000-2001.

    People are angry, and that creates the political will to go after this. What it portends for the energy sector is more bankruptcies as the other shoe drops. The electric power producers rely on forward long term contracts to finance new plants. There is going to be a spate of lawsuits and the undoing of a number of these power contracts. This should further lead to real natural gas shortages in the next decade as flat confidence in the industry dissuades investors and that in turn means less drilling and pipline capacity additions. End result is higher prices all around. I fully expect the FERC to limit the damage to the large gas companies to prevent substantial long term shortages. The power producers on the other hand will most likely end up being the goats, as they are a technology and not a resource per se.

    Based on this view, yeah....Distributed Generation makes a lot of sense, and probably the best means of mitigating what's about to come.
  14. ethics

    ethics Pomp-Dumpster Staff Member

    Coot, this is all very very very disturbing. If this is all true, we are in a lot of trouble not only short term but long term.
  15. Coot

    Coot Passed Away January 7, 2010

    Here's some more muck coming to the surface. We've got the energy sector falling all over themselves to offer up executives for slaughter at the alter of stock values.

    El Paso, who has recently seen their stock devalued to junk status is throwing Regulators a bone.

    Meanwhile Platts is jumping through its ass to claim that they never actually used the data.
    Not bloody likely, as Platts has been notorious for seldom checking the veracity of its sources.

    FERC will likely accept this 'offering' from El Paso and make subtle moves to shore up confidence in the company and ultimately save it from the fate it most likely has planned for the likes of Dynegy, Duke and AES. Energy is a dirty business...probably on par with politics.
  16. -Ken

    -Ken Guest


    At the risk on putting on the spot, how do you feel about the Bush Administrations policy on the Energy Industry?

    I realize this is a problem which goes back decades but the President Bush's campaign promises about fixing our energy problems just seem to be that, campaign promises and nothing more.

    Am I missing something?
  17. Coot

    Coot Passed Away January 7, 2010

    As to policy with respect to the energy industry, I don't see much of one, other than the agenda stated during the campaign.

    FERC is running amok and, from the looks of things, still trying to establish the kind of electricity market that Ken Lay had envisioned. No surprise there as FERC Chairman Pat Wood, former Texas PUC Chair and notorious Ken Lay lackey hasn't come up with a better idea.

    While I recognize, at least in principle, the idea that Cheney's energy task force documents and sources shouldn't be forced into the public arena, I would have hoped, given the debacle in the energy sector in the last year, that the Whitehouse would have done so anyway to remove the perception that the task force was nothing more than a free pass allowing the energy sector itself to establish an energy policy.

    Idealistically, I am opposed to the opening up of ANWR, however, I don't see a practical way around it. This administration isn't going to fix the energy situation. It will move to mitigate many of the problems anticipated in the next 40 or so years.

    They are quietly pushing for Natural Gas fuel cells, when the optimum plan would be to put hydrogen PEM fuel cells on the fast track for implementation.

    Hydrogen fuel cell technology is probably 30 years away from full maturity, with full maturity being defined as cheaply manufactured and in large scale use. To cut that time frame, down to 15 or 20 years, investment in hydrogen infrastructure should be starting now. Venture capital isn't a big enough economic impetus. Government should be letting more contracts for the purchase of the technology for use in its various applications.
  18. Coot

    Coot Passed Away January 7, 2010

    As predicted, it appears that FERC and federal prosecutors are going after the electricity producers and traders while trying to downplay the rather nastier acts of collusion practiced by the 800 lb. gorillas in the natural gas industry.

    Also of some interest is that Enron was told in October of 2000 by an independent legal firm that their actions were illegal, and they continued the illegal trading practices into May of 2001.
    I'm thinking the illegal portion might be as high as 20-30% of the total. Not very much really considering the total dollar amount of the fraud. When your name is Enron though, it makes for a very convenient fall guy for the whole industry.

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