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Gorton Wants to Know If Power Market Manipulated by Les Blumenthal The News Tribune, July 13, 2000

Senator asks for probe into California suppliers' actions

WASHINGTON - U.S. Sen. Slade Gorton has asked for a federal investigation into whether California power suppliers last month manipulated the energy market to dramatically drive up wholesale electricity prices in the Northwest.

The price spikes resulted in thousands of temporary layoffs and raised concerns about future blackouts.

Gorton requested the probe in a letter Wednesday to Energy Secretary Bill Richardson and an earlier letter to the chairman of the Federal Energy Regulatory Commission, James Hoecker.

The Bellevue Republican said there are plenty of reasons why wholesale electric rates rose sharply, in some cases by 50-fold, in late June, including hot temperatures, a slower than expected runoff in streams and rivers that power hydroelectric dams, and planned and unplanned outages at some of the region's major generating plants.

"But these factors alone do not explain the unprecedented levels of price spikes," Gorton wrote. He said deregulation of the California energy market has "created a situation that encourages suppliers and in some cases large users to 'game' the market.

"I have heard that certain generating plants were held back from the market ... in order to sell (electricity) at astronomical levels on the short-term spot market," he wrote.

Electricity regularly flows back and forth between the Northwest and California over a series of transmission "interties" as demand in one region or the other rises and falls.

In June, however, demand in both regions was extremely high, and wholesale power rates in the Northwest rocketed from between $20 to $50 per megawatt-hour to up to $1,000 a megawatt-hour.

"Something is seriously wrong with this market, and consumers and workers are going to suffer from this situation," Gorton said. "This situation stymies the function of the marketplace and encourages certain entities to gain tremendous financial windfalls from creating potentially artificial shortages."

While residential users didn't feel the impact, the price spikes forced some industrial plants, including several in Tacoma, to close down or cut back their production.

But Gorton and others warned it may be only a matter of time before residential rates also climb.

"Consumers throughout the West will eventually see rate increases from this situation, workers are jobless due to these actions and the reliability of the entire West Coast bulk-power grid is thereby endangered," Gorton said.

Gorton has yet to hear back from energy commission, though he asked that the investigation be completed by the end of July. A commission spokeswoman would only say the commission had received the senator's request and would respond. The commission also has received a similar letter from Sen. Conrad Burns (R-Mont.).

In his letter to Richardson, Gorton asked the secretary to direct the Department of Energy either to launch its own investigation or assist the energy commission.

Gorton also has asked the chairman of the Senate Energy and Natural Resources Committee, Sen. Frank Murkowski (R-Alaska), to call hearings. Gorton, along with five other senators from the Northwest, is a member of the committee.

Northwest utilities welcomed Gorton's call for an investigation.

"What he is requesting is reasonable and appropriate," said Steve Klein, power superintendent of Tacoma Power. "It needs to be investigated."

Klein said it was "pretty clear" that in late June there were additional generating units in California and elsewhere that could have been running.

"We are playing by California rules even though we (Washington state) haven't deregulated," Klein said.

Ed Mosey, a spokesman for the Bonneville Power Administration in Portland, said it's clear that when prices are high in California and electricity is needed in the Northwest, it's going to cost a lot.

"Gorton is not the only one concerned," Mosey said. "His concern is widely shared."

BPA markets the low-cost hydropower generated at federal dams in the Northwest and sells almost half of the wholesale electricity in the region. It also got caught in late June when the supply of electricity in the Northwest shrank dramatically, and the region's utilities had to buy on the expensive California market.

Mosey said those unexpected purchases cost BPA about $20 million.

As to what caused the huge run-up in prices, Mosey said there was no evidence anyone was "gaming," or manipulating, the market.

"Everyone is playing by the rules," he said. "But people are optimizing their opportunities."

The Senate recently passed legislation, authored by Gorton, aimed at ensuring there would be a reliable source of electricity nationwide. While much of the measure deals with the technicalities of transmitting electricity, it also would establish a national oversight agency for the power markets.

Gorton has compared the new agency to the Securities and Exchange Commission. Though the stock markets are deregulated, the SEC still acts as a watchdog, and Gorton said that's what is needed as the energy market deregulates.

High gasoline prices also are coming under scrutiny.

Higher prices have meant sharply higher profits for producers and refiners. Major oil companies are expected to post average earnings growth of 121 percent for the three months that ended in June, compared with the corresponding period last year, according to analysts at First Call/Thomson Financial. And oil exploration and production companies are expected to report average increases of 371 percent.

With a host of politicians, including Vice President Al Gore, demanding an investigation of "price gouging," the Federal Trade Commission already has started an inquiry into possible industry collusion.

But industry analysts do not expect the commission's investigation to turn up evidence of illegal behavior in the United States, largely because the huge profits can be explained by market forces.

The New York Times contributed to this report.