Duke denies former worker claims of market manipulation

Responding to allegations of market manipulation by former workers, Duke Energy Corp. said the output of its South Bay power plant in California was directed by the California Independent System Operator to track fluctuations in electricity demand and not to manipulate prices.


By the OGJ Online Staff

HOUSTON, June 22 -- Responding to allegations of market manipulation by former workers, Duke Energy Corp. said the output of its South Bay power plant in California was directed by the California Independent System Operator to track fluctuations in electricity demand and not to manipulate prices.

Bill Hall, vice-president, western regional operations, said the company strongly denied allegations by three former plant employees that power output was reduced at Duke Energy�s direction. The workers making the allegations were employees of San Diego Gas & Electric Co.(SDG&E) who were not hired as part of the new operating team when Duke Energy, Charlotte, NC, assumed full control of the South Bay power plant in April.

They testified Friday before the state senate Committee to Investigate Price Manipulation of the Wholesale Energy Market. State officials said the whistle-blowers' comments could provide the most damaging illustration yet that power generators held down production to inflate prices on the spot market. Gov. Gray Davis has long claimed power companies have overcharged the state and utilities.

Jimmy Olkjer, a former assistant control room operator at Duke's South Bay plant in San Diego, claimed Duke appeared to be cutting production at crucial times. Former mechanic Glenn Johnson reportedly claimed he saw generation units taken "down for economics," and Ed Edwards, also a mechanic, reportedly said he was ordered to destroy 23 pallets of working parts.

But Hall said units were operated under the direction of the California ISO to meet system reliability and Duke Energy�s contractual commitments. And, while the three ex-workers alluded to log books from the plant control room with notations from Duke Energy Trading & Marketing, the employees apparently did not know the ISO directs output through Duke's marketing arm, Hall said.

"Our records of ISO directions match up perfectly with the log book notations," he said. "We have asked the ISO to confirm this."

Hall called claims Duke operated South Bay's 15 Mw jet-fueled unit, its most expensive, to drive up ISO prices "preposterous." Designed principally to provide start-up power to the station�s steam units, it was operated because the price of jet fuel was substantially less than the cost of natural gas, he said.

"This resulted in lower marginal costs," he said. The unit was run to provide electricity to cover Duke Energy�s California contractual commitments and was not bid into the ISO market, so there was no way it could have influenced ISO market prices, Hall said.

Hall denied the company destroyed replacement parts to keep units out of service and drive up prices. He said the company kept enough spare parts on hand "at all times" to properly maintain its plants. Parts that were disposed of were damaged or obsolete, he said.

Inventory management practices at South Bay represent standard industry practices, Hall said. Duke Energy purchased the entire inventory for South Bay when it assumed operations for the plant in 1998.

"We retained the parts and tools we deemed useful and disposed of inventory that was damaged or obsolete," he said. Despite historically high production levels, forced outage levels have improved under Duke Energy ownership than when the plants were owned by the state's utilities and are better than national industry averages, Hall claimed.

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