Morgan Stanley settles FERC charges

Friday, Sept. 5, 2003 | 11:09 a.m.

SUN STAFF AND WIRE REPORTS

NEW YORK -- Morgan Stanley Capital Group Inc. has agreed to pay $857,089 to settle charges it violated power market trading rules during the Western energy crisis in 2000 and 2001, according to documents filed with the Federal Energy Regulatory Commission.

The investment bank's energy unit was among dozens of firms ordered to present evidence that they had not violated California's market rules for electricity trading, as state officials have alleged. All of the companies were to respond to the June 25 "show cause" orders by the close of business Tuesday.

FERC had accused Morgan Stanley of engaging in questionable power scheduling practices, including a partnership with PNM Resources Inc. of New Mexico to allegedly inflate wholesale power prices, according to the documents filed last week.

In April, Nevada Power Co. of Las Vegas filed a lawsuit seeking protection from a $25 million claim by Morgan Stanley Capital Group Inc.

Morgan Stanley terminated an electricity supply contract with Nevada Power in May 2002, demanding a $25 million termination payment from the Las Vegas Utility, said the suit filed in U.S. District Court.

Nevada Consumer Advocate Tim Hay said it was unlikely that the recent settlement would affect Morgan Stanley's claim against the Las Vegas utility or the Nevada Power suit. He added that he was unaware of any possible benefit from the settlement for Nevada customers.

Morgan Stanley has testified that it used the agreement with the New Mexico utility to legitimately transport power from states in the Southwest to the Pacific Northwest, according to the documents. The firm admitted no wrongdoing under the proposed settlement, which still must be approved by FERC's board.

FERC has encouraged all of the energy firms named in the June orders to settle by Nov. 3, when formal hearings are to start. If they cannot produce the proper evidence, the companies could lose the right to trade at market prices and be forced pay back profits.

Motions to dismiss have been filed in 17 cases and settlements have been reached in 11 cases.

Reliant Resources Inc. has reached a proposed $836,000 settlement with FERC staff. Last week, Aquila Merchant Services filed papers on a proposed $75,975 settlement, and American Electric Power reached a $45,240 settlement. Mirant reached a settlement in principle, but details were not disclosed.

Other companies named in the June orders include Duke Energy Corp. and Dynegy Inc.