Shell

By David R. Baker
Friday, April 15, 2016 – Updated 5:04 pm

Fifteen years after blackouts swept the state, a Federal Energy Regulatory Commission judge has found that a division of Shell Oil engaged in fraud and market manipulation during California’s energy crisis, with company traders joking on tape about burning the evidence if they were ever caught.

The tentative decision, which must be approved by the FERC board, holds Shell and Spanish energy company Iberdrola liable for $1.1 billion in ill-gotten profits, money that could be refunded to Californians if the decision stands.

It could end the last legal case over the expensive, long-term power purchase contracts that California signed under duress during the 2000-01 crisis, which pushed the state’s largest utility into bankruptcy and fueled the recall of Gov. Gray Davis. The state has already settled with all other companies accused of unjustly profiting from the long-term contracts, settlements worth a total of $7.7 billion.

“This crisis was unprecedented in the history of the modern electricity system, and finally we’re getting some justice for the people of California,” said Mike Florio, a member of the California Public Utilities Commission, whose lawyers have been pursuing Shell Energy North America since 2002.

California officials are still pushing complaints against 13 companies involved in short-term contracts during the crisis, but have settled with others for a total of roughly $4 billion, Florio said.

Enron-like schemes

The initial decision, issued Tuesday by Administrative Law Judge Steven Glazer, details Shell traders using schemes similar to those employed by Enron to drive up day-to-day power prices, which then increased the price California had to pay on its long-term contracts. As a result, Californians ended up overpaying Shell by $779 million and Iberdrola by $371 million, according to the initial decision. Both figures include interest.

Shell traders’ jokes

In an echo of Enron, some Shell traders joked about the schemes on taped telephone conversations. In audio files and transcripts posted online by California’s utilities commission, traders ask each other whether they have ethical problems with rolling blackouts.

In one exchange, a trader notes, “I don’t know how honest that is, but we’re not in the honesty game, are we?” Another replies, “We’re in optimizing. It’s not a question of honesty. … It’s a question of optimization.”

A Shell spokesman offered only a brief comment Friday, noting that the case was still ongoing.

Shell’s response

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