Enroned
March 28th, 2007 at 10:02 pm
Enron had “Fat Boy,” “Death Star” and “Ricochet.” TXU used a less creatively-named scam called “Rational Bidding Strategy,” according to a public PUC filing today. Like Enron’s manipulations in California in 2000-01, TXU knowingly withheld power during the summer of 2005 in order to drive up electricity prices, costing consumers $70 million in direct impacts. This is the fifth time TXU has been found in violation of state utility law or commission rules.
Today PUC officials recommended that TXU be assessed $210 million for market power abuses, $140 million in penalties and $70 million in a refund to customers.
“We are very disappointed that commission staff has recommended an enforcement action based on a fundamentally flawed analysis that is inconsistent with the rules and policies that the Commissioners themselves have expressly adopted,” the Houston Chronicle reported TXU as saying. (No word on whether this was New TXU or Old TXU speaking.)
The 61-page filing offered some detailed insights into how TXU allegedly took advantage of Texas’ deregulated market.
Here’s how it worked: In the summer, during hours of peak demand, a “balancing energy market” comes into play. State grid operators use the market to balance supply and demand in real-time. An auction takes place every fifteen minutes, with suppliers offering power to retailers for purchase. At the end of each auction all generators, regardless of their bid price, get paid based on the most expensive accepted offer price. This is called the market clearing price of energy.
TXU is critical to meeting balancing energy demand because it owns so much generation. In fact, the PUC’s independent market monitor, Potomac Economics, found that TXU’s supply was needed 82 percent of the hours studied. But as a “pivotal supplier” TXU would place bids in the balancing energy market that were absurdly high. Nobody could afford the offer. “TXU could foresee that economically withholding significant quantities would be likely to result in higher balancing market prices,” Potomac found. This “Rational Bidding Strategy” produced profit of $19.6 million and caused $70 million price increases in the balancing energy market.
That $19.6 million in extra profit is only what has been quantified by the PUC. In the filing today, Danielle Jassaud, the director of market analysis for the commission, wrote:
In addition, TXU likely profited indirectly, because balancing energy prices affect the pricing of bilateral electricity contracts, and therefore any bilateral contracts negotiated by TXU during and after the Study Period may reflect inflated prices and bring in additional profits. This indirect effect on bilateral sales profits can affect a variety of contracts over a long period of time. This effect, although real, has not been quantified by the IMM. The balancing energy market serves, at the most, five to ten percent of demand, and TXU’s inflated profits in the balancing energy market therefore do not reflect the full amount of benefit that TXU gained through its abuse of market power.
