Texas Commercial Energy files antitrust lawsuit against power market participants citing market abuses and fraud

PLANO, Texas, July 7, 2003 — Texas Commercial Energy (TCE) announced it has filed a federal antitrust lawsuit against various electric companies claiming that they violated federal and state law by illegally manipulating the Texas electric market and fraudulently inflating prices.

The lawsuit was filed in the Federal District Court in the Southern District of Texas, Corpus Christi Division where Texas Commercial Energy filed for Chapter 11 bankruptcy protection on March 6, 2003.

“Texas Commercial Energy is a victim of market power abuses in an energy marketplace that is mandated by Senate Bill 7 to be a level playing field for all participants,” said Mike Shirley, president of TCE.

The defendants named in the lawsuit are all participants in the Texas electric market and include affiliates of TXU, Reliant, American Electric Power (AEP) and Mirant.

The lawsuit claims that the willful actions of the defendants damaged TCE’s financial stability and corporate reputation forcing the company to file for Chapter 11 bankruptcy protection in order to protect its entire customer base from being transferred to higher cost providers and to allow the company time to prove that it had been victimized by market manipulation.

TCE’s complaint explains that at the time of the most notable and damaging series of manipulative events in February 2003 TCE was a profitable and competitive Retail Electric Provider (REP) generating annualized revenues of over $200 million. The complaint further states that defendants’ illegal acts resulted in $15 million of fraudulent charges for TCE, as well as a financial crisis for the company and many of its customers.

“This is all about big business abusing power and purposefully manipulating markets to help themselves, while hurting smaller Texas companies and consumers,” Shirley stated.

TCE’s lawsuit presents evidence to demonstrate that the defendants have a history of repetitive and illegal market manipulation. “Even as we present extensive, compelling evidence, we will not be surprised if these defendants try to shift the focus of this litigation from their anticompetitive, fraudulent actions to a debate about our company’s operations and ability to compete,” Shirley commented.

According to TCE, all of the defendants – as a condition of selling power in Texas – were required in June 2002 by the Public Utility Commission of Texas (PUCT) to execute affidavits affirming that they would not engage in the type of manipulation and other fraudulent activities experienced in California. They also agreed that they understood that such actions would not be tolerated nor allowed in Texas. The defendants were also required to affirm that they had sufficient management controls in place to ensure that their companies would not practice such abuses in the future.

Shirley noted, “The PUCT, as the governing body of Texas’ energy marketplace, required these affidavits after its earlier investigations into 2001 market manipulation abuses led to over $10 million in fines being levied against four Electric Reliability Council of Texas (ERCOT) market participants, including TXU, Reliant, Mirant and AEP.”

“TCE believes that the PUCT knew these prohibited activities had occurred and could potentially occur again in the Texas market,” Shirley said. “TCE also believes the PUCT wanted these affidavits as assurances from the market participants that they would not engage in such activities. It is precisely these types of fraudulent transactions that played a major part in the failure of the California deregulated electric market. Unfortunately, such behavior continues to occur in Texas despite the efforts of the PUCT to prevent it.”

The lawsuit also states that anticompetitive practices by the defendants have purposefully burdened consumers with unnecessarily high energy prices, willfully undermined the creation of a competitive energy marketplace in Texas as mandated by Senate Bill 7, and seriously damaged TCE’s ability to operate as a competitive Retail Electric Provider.

In its complaint, TCE references a recent PUCT investigation citing continuing manipulation in the ERCOT. The legal filing further references a summary report submitted March 18, 2003 in PUCT Docket No. 24770, in which the PUCT’s Market Oversight Division found that “hockey-stick bidding” materially contributed to the price spikes that were completely out-of-line with any rational basis for the cost. The MOD report summarizes that, absent this market manipulation, the market clearing price for energy should have been $299 per MWh or less, rather than the $990 per MWh which occurred during the time periods in question.

Shirley said, “TCE filed this lawsuit because we believe that illegal and anticompetitive market manipulation will continue until strict enforcement and punishment convince these power market abusers that they cannot prey on Texas consumers and businesses.”

“Underhanded tactics in energy trading were at the heart of California’s energy crisis,” Shirley stated. “Consumers must now face the reality that such tactics continue to be employed in Texas. While the model for Texas deregulation includes many progressive features, regulators and law makers must have zero tolerance for market manipulation that damages the public trust, increases prices for consumers and tries to stamp out competition in order to line the pockets of a few large companies.”

“TCE remains committed to its customers and is determined to emerge stronger than ever from the Chapter 11 filing,” Shirley said. “Despite being victimized by the market, TCE is on track with its plan of reorganization and is continuing to grow its customer base by offering customers guaranteed switching and billing services.”

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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