Nevada Power cites market manipulation

Thursday, April 24, 2003 | 11:13 a.m.

SUN STAFF AND WIRE REPORTS

WASHINGTON -- Citing new evidence of market manipulation, Nevada Power Co. and its parent company, Sierra Pacific Resources, on Wednesday urged the Federal Energy Regulatory Commission to throw out $300 million in expensive long-term power contracts.

Also seeking to have long-term deals terminated Wednesday were the Southern California Water Co. and a public utility serving Snohomish County, Wash.

Nevada Power expected a decision on March 26. But after releasing a 300-page report outlining manipulation in the market, commissioners delayed action on the complaints.

Nevada Power officials said the report, compiled by FERC staff after a 13-month investigation, backed up claims that the long-term deals should be terminated because of market turmoil.

Consistent with Nevada Power's charges, the report said, "Market dysfunction in California short-term markets affected long-term contracts."

In the March hearing, however, two of the three commissioners and FERC's legal staff indicated that the contracts should be upheld. The commissioners argued that the public interest in the sanctity of contracts outweighed the company's claims. FERC administrative law judge Carmen Cintron issued a similar ruling in December. Cintron upheld the contracts, saying Nevada Power failed to prove an excessive burden on consumers.

Even if the commission were to apply the the public-interest standard, "certainly respondents' massive market manipulation and other improper behavior are critical considerations in determining whether that standard has been met," Philip Nowak, an attorney representing Sierra Pacific, said Wednesday.

The commission has not set a date for a final decision on the matter.

Nevada Power on Monday expanded its legal battles over market manipulation when it filed a federal lawsuit against several natural gas suppliers. The $600 million lawsuit claims El Paso Corp., Sempra Energy and Dynegy Holdings conspired to inflate power prices in the Western market.

The suit claims "the defendants ... planned and executed schemes designed to reduce or control supplies, drive up or control prices and defraud customers in the product market for delivered natural gas."

Two California state agencies cited the March report on price manipulation in making a similar request for consideration of new evidence in a filing Tuesday. The California Public Utilities Commission and Electricity Oversight Board want to renegotiate long-term power contracts signed with Dynegy Inc., El Paso Corp., Morgan Stanley Capital Group Inc. and Sempra Energy during the energy crisis.

Sierra Pacific signed long-term contracts with American Electric Power Co., Enron Corp. and El Paso. Southern California Water Company has a long-term contract with Mirant Corp. Snohomish County's contract is with Morgan Stanley.

Commissioner William Massey, who has signaled a willingness to reopen the contracts, asked power sellers attending the hearing why the findings of the March report shouldn't be considered.

"The short answer is there is no reason to keep the record open and include the contents of the report," said Jared Johnson, representing Mirant.