March 17, 2001

Allegations of Price Manipulation to be Investigated in California

An Oklahoma-based company and its partner have denied they deliberately shut down two electric generating plants in California to increase by 10 times the price for electricity generated by their other plants.

The Federal Energy Regulatory Commission says its preliminary investigation raised serious questions about the actions of Williams Energy Marketing and Trading, a subsidiary of Williams Cos. of Tulsa, and AES Southland Inc. of California.

The commission has given the two companies 20 days to explain why they should not refund $10.86 million to California utilities.

The commission issued a show-cause order Wednesday saying that "Williams had a financial incentive to prolong any outages" of two AES-owned plants last April and May. Williams had a contract to market all of the power generated by AES plants.

"Williams received more revenues as a result of the respective outages," the commission said.

Instead of receiving about $63 per megawatt-hour if the two plants had been operational, Williams received about $750 per megawatt-hour by selling electricity from other AES plants, federal officials reported.

Bill Hobbs, president of Williams Energy Marketing and Trading, said in a statement that the company was reviewing the commission's order and was unable to comment in any detail because of its length.

Hobbs said that "once all the facts are on the table, we are confident it will be clear that Williams conducts business legally, within the terms of our contracts and tariff obligations."

"We plan to continue being part of the solution to restoring health to California's power markets."

Ellen Averill, Williams' U.S. public relations manager, said Thursday that the company had nothing to add to Hobbs' comments.

AES said the plants were taken off line for repairs and that it did not share in market revenues from sales of power from the plants.

The Washington Post reported Tuesday that AES Pacific Group vice president Stu Ryan said that as long as the plants are in operating condition, Williams decides when they will run and what it will charge for their power.

The commission's preliminary probe was prompted by a request from the California Independent System Operator (ISO), which manages the state's power grid.

The investigation centered on the unavailability of certain so-called "must run" generating plants in the Los Angeles area and owned by AES Southland.

A "must run" plant is a generating facility that the system operator can call upon "when necessary to provide energy and ancillary service essential to the reliability of the California transmission network," the commission said.

The California system pays a "must run" plant owner or agent a fixed payment to compensate for the plant's availability and another payment if the plant is not otherwise participating in the market.

As a result of the unavailability of the two "must run" AES plants, the state's ISO had to obtain power from other plants, also owned by AES, where the power was much more expensive and the companies made much larger profits.

The commission said its investigation indicated that AES and Williams refused to make the two "must run" plants available "for reasons that were not directly related to the necessary and timely maintenance" of the plant.

Information obtained in the investigation "suggests that Williams took action to extend the outage" at one of the plants and to make the other "must run" plant "unavailable for pretextual reasons," the commission said.

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