Accounting & Tax

Duke, El Paso Face SEC Probe

The possibility of more round trip trading sends the Securities and Exchange Commission into two more energy companies.
Stephen TaubJune 10, 2002

On Friday, officials at two major energy companies—Duke Energy Corp. and El Paso Corp.—confirmed that the SEC had requested information about deals associated with the controversial “round trip” practice. Also called “wash trades,” these deals involve buying and selling power or natural gas at the same price with the same counterparty.

Within the past week, “The SEC asked for information on wash trades, but we can’t get into the details because it was a nonpublic request,” Duke company spokesman Terry Francisco told Reuters. He added that the company is fully complying with the request for information.

The Federal Energy Regulatory Commission (FERC) has reportedly asked 150 power companies to submit statements admitting or denying whether they engaged in natural gas wash trades in the West or in Texas. The deadline for the submissions was last week.

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Officials at the Charlotte (N.C.)-based Duke, which is one of the nation’s largest power companies, reportedly told FERC that they conducted several transactions that might appear to be wash trades, however the deals were used to hedge natural gas prices.

During the past month, executives at several other energy companies have admitted to conducting round-trip trades. The list includes Dynegy Inc., Reliant Resources Inc., Williams Cos. and CMS Energy Corp. In fact, Reliant officials recently restated the company’s first quarter 2001 results, and said they will reissue consolidated financial statements for 1999, 2000 and 2001 to account for the effects of the “round trip” trades.

Executives at El Paso, a gas pipeline and energy-trading company, said they would cooperate fully with the SEC’s request. However, a recent company press release noted that in response to two prior FERC requests, officials stated publicly that the company has not engaged in so-called “wash” or “round-trip” trades for the purpose of artificially inflating volumes or revenues for the purpose of manipulating prices.

Interestingly though, an El Paso securities filing document said 125 pairs of trades out of 40,000 conducted by its El Paso Merchant Energy subsidiary in 2000 and 2001 were round-trip trades.