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2,007 | 2002-02-13T00:00:00 | 107-82 | I have held numerous management positions in the energy business prior to joining APM including Chief Operating Officer of PGE Energy Trading one of the largest trading and marketing companies in the industry |
2,008 | 2002-02-13T00:00:00 | 107-82 | APM supports open and competitive energy markets |
2,009 | 2002-02-13T00:00:00 | 107-82 | The primary business focus of APM unlike other energy trading and marketing companies is managing and mitigating the price risk associated with delivery of energy to consumers |
2,010 | 2002-02-13T00:00:00 | 107-82 | For most energy trading and marketing companies the pricing and physical delivery of energy to consumers is only a small part of their portfolio |
2,011 | 2002-02-13T00:00:00 | 107-82 | Because APM is concerned with the reliability and delivered cost of energy to consumers we also are vitally concerned that energy markets operate efficiently and competitively |
2,013 | 2002-02-13T00:00:00 | 107-82 | The legitimate business objective of energy trading and marketing companies is realizing a profit on the transactions that they undertake |
2,016 | 2002-02-13T00:00:00 | 107-82 | While profitable to some market participants in the short term over the long term recurring price volatility will erode consumer confidence in the ultimate value of gas and electricity deregulation |
2,017 | 2002-02-13T00:00:00 | 107-82 | The specific question before this Subcommittee is what effect the demise of Enron will have on the future energy market |
2,018 | 2002-02-13T00:00:00 | 107-82 | I define the term energy market as the environment that sets the price and reliability of energy available to consumers |
2,021 | 2002-02-13T00:00:00 | 107-82 | These systemic problems need to be dealt with through legislation to assure that they will not distort or otherwise adversely affect the energy marketplace in the future |
2,023 | 2002-02-13T00:00:00 | 107-82 | All Energy Trading Exchanges Must Be Independent and Subject to Regulatory Oversight |
2,024 | 2002-02-13T00:00:00 | 107-82 | Understanding the energy market requires recognition of the different physical and financial energy products that are traded on the various exchanges |
2,025 | 2002-02-13T00:00:00 | 107-82 | A physical product is a contract for the purchase or sale at a defined price of a stated quantity of gas or electricity and for its delivery at a specified time and location |
2,026 | 2002-02-13T00:00:00 | 107-82 | A financial product is a contract that provides for the payment of money with the amount determined by the difference between the price specified in the financial product for a defined quantity of electricity or gas at a specified future time and location and the actual price that prevails in the future period |
2,027 | 2002-02-13T00:00:00 | 107-82 | A financial product does not provide for physical delivery of either gas or electricity |
2,029 | 2002-02-13T00:00:00 | 107-82 | It offers market participants a venue to hedge or speculate in energy and other commodities |
2,031 | 2002-02-13T00:00:00 | 107-82 | The attainment of affordable and stable prices for electricity and natural gas supplies is a laudable energy policy objective |
2,032 | 2002-02-13T00:00:00 | 107-82 | This is extremely important for residential and other temperaturesensitive consumers because electricity and natural gas are essential and their requirements to a great extent are inelastic |
2,033 | 2002-02-13T00:00:00 | 107-82 | The value of a regulated financial exchange can be undermined when an unregulated physical and financial derivatives exchange controls a large component of the overall energy trading market |
2,035 | 2002-02-13T00:00:00 | 107-82 | EnronOnline was an unregulated private exchange created by Enron for the trading of gas electricity and other commodities |
2,036 | 2002-02-13T00:00:00 | 107-82 | Ownership of this exchange allowed Enron access to significantly more market data than other participants and this knowledge translated to enhanced market power |
2,037 | 2002-02-13T00:00:00 | 107-82 | The combination of market information and market power gave Enron the opportunity to create self serving price volatility |
2,038 | 2002-02-13T00:00:00 | 107-82 | The magnitude of recent price volatility is demonstrated by the movement of natural gas prices from the 20002001 winter to the current 20012002 winter |
2,039 | 2002-02-13T00:00:00 | 107-82 | Last winter gas prices rose to levels of 10 per Dekatherm and above while this winter gas prices have plummeted to levels in the low 2 per Dekatherm range |
2,041 | 2002-02-13T00:00:00 | 107-82 | Furthermore price volatility in gas and electricity is significantly greater than the price volatility of other commodities |
2,044 | 2002-02-13T00:00:00 | 107-82 | In the future an energy trader should not be allowed to own operate manage and participate in its own electric and gas trading exchange |
2,049 | 2002-02-13T00:00:00 | 107-82 | Given the tremendous earnings potential of operating private unregulated trading exchanges it is likely that a number of other large integrated energy companies which previously operated in the tier beneath Enron may absent a legislative prohibition create or expand their own private electricity and gas trading exchanges |
2,051 | 2002-02-13T00:00:00 | 107-82 | Energy Trading And Marketing Companies Should Be Precluded From Engaging In Certain Affiliate Transactions |
2,052 | 2002-02-13T00:00:00 | 107-82 | Energy trading and marketing companies that are affiliated with regulated public utilities should not be permitted to own contracts for firm gas transportation firm electric transmission and firm gas storage capacity on affiliates electric transmission or interstate gas pipeline systems |
2,054 | 2002-02-13T00:00:00 | 107-82 | Moreover with the significant vertical and horizontal integration and convergence between gas and electric within these major energy companies which also own unregulated energy trading and marketing companies anticompetitive concerns certainly are raised regarding these giant companies activities in the marketplace when they are allowed to engage in unregulated speculative trading supported in part with regulated assets |
2,055 | 2002-02-13T00:00:00 | 107-82 | In conclusion there is a need for Congress to take action to assure that the structure and activities involved in energy trading and pricing are not permitted to create an environment where electric and gas consumers particularly those with inelastic demands for human needs are left unprotected |
2,056 | 2002-02-13T00:00:00 | 107-82 | The consumer cannot protect himself and therefore certain safeguards must be developed to allow the energy trading and marketing industry to thrive but not through excessive profits paid by consumers |
2,057 | 2002-02-13T00:00:00 | 107-82 | Associated PressFebruary 12 2002 UBS Warburg Launches Trading Business By Kristen Hays Associated Press Writer HOUSTONUBS Warburgs new online energy trading platform may be named for the Swiss investment bank but the staff is almost all Enron Corp Make that exEnron |
2,058 | 2002-02-13T00:00:00 | 107-82 | UBS Warburg Energy on Monday cranked up the online trading operation it acquired from the fallen energy giant and saw some action from traders buying and selling natural gas and electricity |
2,061 | 2002-02-13T00:00:00 | 107-82 | We are excited to launch UBSWenergycom and believe that the capabilities of UBS Warburg Energy backed by the credit rating of UBS will provide a competitive and liquid energy market to our customers said Lawrence G Whalley managing director and head of the new operation |
2,063 | 2002-02-13T00:00:00 | 107-82 | We havent been able to trade said Charlie Sanchez energy markets manager for Gelber Associates in Houston |
2,066 | 2002-02-13T00:00:00 | 107-82 | We are doing transactions said UBS Warburg Energy spokeswoman Jennifer Walker |
2,069 | 2002-02-13T00:00:00 | 107-82 | Well be set up to trade with them later this week said Chuck Carlton a natural gas trader with Williams |
2,074 | 2002-02-13T00:00:00 | 107-82 | Its trading operation once purported to reap most of the companys profits traded energy as well as other commodities such as paper pulp bandwidth and weather futures |
2,075 | 2002-02-13T00:00:00 | 107-82 | The new operation is on the fifth and sixth floors of Enrons new 40story glass tower across the street from the former energy giants 50story downtown Houston headquarters |
2,079 | 2002-02-13T00:00:00 | 107-82 | The Chair would now recognize the Honorable Pat Wood the Chairman of the Federal Energy Regulatory Commission and immediate past chairman of the Public Utilities Commission of Texas and a proud Texas Aggiesoon to be father of another child within the next 5 weeks to the committee |
2,087 | 2002-02-13T00:00:00 | 107-82 | PATRICK H WOOD III CHAIRMAN FEDERAL ENERGY REGULATORY COMMISSION HON |
2,089 | 2002-02-13T00:00:00 | 107-82 | ISAAC C HUNT JR COMMISSIONER SECURITIES AND EXCHANGE COMMISSION MARY J HUTZLER ACTING DIRECTOR ENERGY INFORMATION ADMINISTRATION DEPARTMENT OF ENERGY AND HON |
2,092 | 2002-02-13T00:00:00 | 107-82 | The bankruptcy of Enron was a significant event in 2001 and the energy industry certainly had a tremendous impact on the investor community on its own employees and retirees |
2,093 | 2002-02-13T00:00:00 | 107-82 | But the focus of your hearing today is what is the effect of that event on the Nations energy markets |
2,094 | 2002-02-13T00:00:00 | 107-82 | And so looking specifically at the removal of Enron from the Nations energy markets it is pretty safe to conclude that there has not been any significant damage from the exit of the largest power and gas marketer in the country |
2,095 | 2002-02-13T00:00:00 | 107-82 | The prices in the energy markets remain stable and importantly there have been very few disruptions in the deliveries of the actual electricity or gas to customers |
2,098 | 2002-02-13T00:00:00 | 107-82 | It has been helpful that it was in an down economy or has prices were trimming downward that this happened so that customers that had locked in higher prices with Enron were actually able to exit those contracts and go get cheaper power off the market or cheaper gas and that is certainly fortunate |
2,100 | 2002-02-13T00:00:00 | 107-82 | The kind of counterquestion is then did the energy markets and the growing trend toward competition in those markets cause or contribute to Enrons collapse which is a separate question |
2,102 | 2002-02-13T00:00:00 | 107-82 | I think because of Enrons business strategies certainly being explored by your sister committee but I think certainly from all that we have available to us at the Commission and that we reviewed the energy market strategy that Enron had was successful in a rising price market |
2,104 | 2002-02-13T00:00:00 | 107-82 | But it has not in my mind certainly caused a questioning of whether energy markets themselves caused their collapse |
2,105 | 2002-02-13T00:00:00 | 107-82 | However based on recent allegations that Enron in its better days may have manipulated electric and gas markets the FERC Commission staff has begun a fact finding investigation |
2,106 | 2002-02-13T00:00:00 | 107-82 | The staff team has been given by the full Commission access to whatever resources including subpoena power that are necessary to investigate whether there was in fact manipulation in the electric and gas markets over the past 25 months |
2,107 | 2002-02-13T00:00:00 | 107-82 | And we expect that hopefully this complete picture of what has happened in theparticularly in the west but in the energy markets in the recent past will inform broadly and specifically both the debates that this committee is having and that energy customers are asking questions about across the country |
2,109 | 2002-02-13T00:00:00 | 107-82 | We will be working with our sister agencies that have expertise in areas where we dont such as Chairman Newsomes agency and Mr Hunts agency as well as the Federal Trade Commission to develop and get the expertise that we need to really provide a full picture of how energy markets have worked and may have been manipulated or could have been manipulated and in fact try to draw some conclusions as to whether they were or were not actually manipulated |
2,114 | 2002-02-13T00:00:00 | 107-82 | I think the separate but equally important decision about whether to open retail markets to competition is one that I think is appropriate to leave to the State level because it is really separate from whether wholesale power markets work to deliver efficiencies and innovation at the generation of power level |
2,116 | 2002-02-13T00:00:00 | 107-82 | I was pleased in todays Commission meeting which we held earlier this morning that reports from PJM or excuse me the PennsylvaniaJerseyMaryland Interconnect and the Midwest RTO to create a single energy market over some 26 States |
2,117 | 2002-02-13T00:00:00 | 107-82 | As well as a separate but also uplifting report from participants in a Southeast United States RTO which would be primarily the footprint covered by Entergy Clico and the Southern Company as well as a number of other public power entities gives me a lot of hope that the Commissions approach toward voluntary compliance with regional transmission organization order of the Commission 2 years ago will move forward and result in a good wholesale workable market for benefits to be flowed through to customers |
2,120 | 2002-02-13T00:00:00 | 107-82 | It is kind of a motherhoodapple pie shoot but what transparency means is is the information that is back and forth given to the public marketplace about a sale or a purchase of gas or power is that information out there |
2,125 | 2002-02-13T00:00:00 | 107-82 | To close and I have heard it from a number of members this is an industry thatthe energy industry requires a tremendous amount of capital on a daily basis to build power plants to build power lines to put up distribution lines to hang meters on customers houses |
2,128 | 2002-02-13T00:00:00 | 107-82 | And I would just say that the energy markets in fact are what I think saved this country from the collapse of a large company |
2,134 | 2002-02-13T00:00:00 | 107-82 | Pat Wood III Chairman Federal Energy Regulatory Commission i introduction and summary Mr Chairman and Members of the Subcommittee Chairman Barton has asked me to answer three questions Did Enrons collapse shake energy markets |
2,135 | 2002-02-13T00:00:00 | 107-82 | Conversely did energy markets contribute to Enrons collapse |
2,136 | 2002-02-13T00:00:00 | 107-82 | And is there anything that Congress should do relating to energy markets to repair or prevent such problems in the future |
2,138 | 2002-02-13T00:00:00 | 107-82 | The bankruptcy of one of the largest energy providers in the country has stunned both the energy and investor communities and many employees and retirees saw their savings accounts all but vanish |
2,139 | 2002-02-13T00:00:00 | 107-82 | But the collapse of Enron has not caused significant damage to the nations energy trading or energy supplies |
2,140 | 2002-02-13T00:00:00 | 107-82 | In the aftermath of Enrons collapse prices in energy markets remained stable trading within expected trading ranges |
2,141 | 2002-02-13T00:00:00 | 107-82 | And most important there have been few disruptions to the deliveries of electricity and gas except for a few isolated incidents where Enron subsidiaries have not been able to honor their delivery commitments to end use customers |
2,142 | 2002-02-13T00:00:00 | 107-82 | The Federal Energy Regulatory Commission Commission or FERC has monitored the effects of Enrons collapse on energy markets and has not found any substantial spillover effects |
2,143 | 2002-02-13T00:00:00 | 107-82 | The nations electric and natural gas markets resilience following the swift collapse of one of its major participants indicates a high degree of robustness and efficiency |
2,144 | 2002-02-13T00:00:00 | 107-82 | Did energy markets and the growing trend toward competition cause or contribute to Enrons collapse |
2,146 | 2002-02-13T00:00:00 | 107-82 | Enron was trying to bring its strategy of assetlight trading platform leverage beyond energy markets into a variety of commodities and markets including broadband water and others |
2,147 | 2002-02-13T00:00:00 | 107-82 | While Enron may have developed the strategy first in gas and then in electricity markets it is not the fault of the energy markets that Enrons business strategy may only have been successful in markets with rising prices |
2,150 | 2002-02-13T00:00:00 | 107-82 | Enrons actions cannot be blamed upon the energy industry |
2,151 | 2002-02-13T00:00:00 | 107-82 | I disagree with those who claim that the Enron collapse sounds the death knell for competition in energy markets or justifies nationwide reimposition of traditional costbased regulation of electricity |
2,152 | 2002-02-13T00:00:00 | 107-82 | The facts available to date indicate that Enrons failure had little or nothing to do with whether energy commodities and their delivery to customers are monopoly regulated or competitive |
2,154 | 2002-02-13T00:00:00 | 107-82 | Based on the facts as they appear now Enrons actions would have led to the same result whether its core business focused on energy grains metals or books |
2,155 | 2002-02-13T00:00:00 | 107-82 | You may be aware that members of the Senate Energy and Natural Resources Committee have asked the Commission to formally investigate allegations that Enron may have exercised inappropriate influence on the nations electric and gas markets |
2,159 | 2002-02-13T00:00:00 | 107-82 | An investigation of this magnitude is neither easy nor fast so it may take several months before staff has completed its work and presents its results to the Commission the Congress and American energy customers |
2,160 | 2002-02-13T00:00:00 | 107-82 | Based on the information in the factfinding report the Commission will determine how to proceed on any pending or future FPA section 206 complaints or whether to institute formal section 206 investigations on our own motion into longterm power contracts whose prices may have been influenced by any inappropriate Enron activities |
2,161 | 2002-02-13T00:00:00 | 107-82 | Last what should Congress do related to energy markets to ensure that a future Enron disaster is prevented or mitigated |
2,162 | 2002-02-13T00:00:00 | 107-82 | You can support and enhance the initiatives you have already encouraged to promote fair and effective wholesale competition in the electric and gas markets because such competition lowers costs and improves reliability for all customers |
2,166 | 2002-02-13T00:00:00 | 107-82 | enrons impact on gas and electric markets Enrons collapse had little perceptible impact on the nations physical commodity wholesale electric and gas markets which are FERCs primary regulatory responsibility |
2,167 | 2002-02-13T00:00:00 | 107-82 | Energy markets have adjusted quickly to Enrons collapse |
2,168 | 2002-02-13T00:00:00 | 107-82 | The Commissions monitoring of the physical energy markets indicates that there has been no immediate damage to energy trading or energy supplies |
2,169 | 2002-02-13T00:00:00 | 107-82 | Although Enron transactions comprised 15 to 20 percent of wholesale energy trades its demise has had negligible effects on trading |
2,171 | 2002-02-13T00:00:00 | 107-82 | Market Monitoring and Reactions From late October 2001 when news of a likely formal investigation of Enron and its auditors by the SEC first became known to early December 2001 after Enrons declaration of bankruptcy spot market data indicates that there was no change in natural gas or electric wholesale prices that could not be attributed to weather or other fundamentals |
2,178 | 2002-02-13T00:00:00 | 107-82 | Commission staff again contacted energy traders to determine whether major supply disruptions in wholesale markets were occurring and was informed that Enron had flattened its books ie made its portfolio of trades neither long nor short so that it could more easily step out of transactions and not cause disruption |
2,182 | 2002-02-13T00:00:00 | 107-82 | Although Enron was a significant player in electric and gas marketsas a pipeline as a commodity trader as a futures contract trader and as a market makerthere were many other players in these large established commodity markets and a great deal of market diversity |
2,184 | 2002-02-13T00:00:00 | 107-82 | A similar process occurred among the counterparties to Enrons longerterm untraded gas and electric contracts |
2,185 | 2002-02-13T00:00:00 | 107-82 | Thus over only a few weeks time the gas and electric markets systematically minimized Enrons role in the marketplace and the likelihood that a companyspecific failure could significantly affect the underlying commodities |
2,187 | 2002-02-13T00:00:00 | 107-82 | The flexibility of todays energy markets allows a buyer losing its supply to replace the energy in realtime at least briefly through imbalance services offered by transportation providers |
2,189 | 2002-02-13T00:00:00 | 107-82 | Thus the risk of a buyer having insufficient energy because of a sellers default appears to be manageable as evidenced by the recent experience with Enron |
2,190 | 2002-02-13T00:00:00 | 107-82 | The more substantial risk in these circumstances is the loss of an advantageous contractual price for energy |
2,192 | 2002-02-13T00:00:00 | 107-82 | When a seller defaults market conditions for buying energy may be better or worse than when a buyer entered into its contract with the seller |
2,194 | 2002-02-13T00:00:00 | 107-82 | Enrons market role Enrons role in the gas and electric markets was primarily in the trading of financial assets commodity and futures contracts rather than physical assets with the exception of its natural gas pipelines which continued operation relatively untouched by the events affecting the parent and affiliated companies |
2,196 | 2002-02-13T00:00:00 | 107-82 | Adjustments in the financial asset marketplaceas to the length of a contract or the identities of the counterpartiesrarely affect the flow of the physical gas and electricity underlying those contracts |
2,197 | 2002-02-13T00:00:00 | 107-82 | Thus while the commodity markets were shortening the length of contracts and moving more trade to nonEnron partners gas and electric deliveries continued unaffected |
2,198 | 2002-02-13T00:00:00 | 107-82 | Enron controls a number of natural gas pipelines but its financial failure has had little apparent impact on their operations |
2,199 | 2002-02-13T00:00:00 | 107-82 | But even if it had it is worth noting that the gas and electric markets have demonstrated their ability to react to and manage around problems that could affect their ability to deliver electricity and gas |