Wednesday August 2nd, 2006
by: Ed Mayberry, August 2, 2006 5:08:00 am
A federal jury began deliberating today whether two former Houston energy traders illegally reported bogus transactions. Former Dynegy trader Michelle Valencia and former El Paso Corporation trader Greg Singleton are on trial in Houston. They allegedly illegally reported bogus transactions before scrutiny of trading practices heightened in the aftermath of the Enron crash. Valencia and Singleton were the first in a string of traders to face a jury after a lengthy federal investigation of errant trading practices launched after the 2001 Enron crash. The two are accused of reporting fake data to industry publications in 2000 and 2001 that use the information to calculate natural gas index prices. The publications--such as Inside FERC Gas Market Report or Natural Gas Intelligence--calculate price based on information supplied by traders or their companies. They, in turn, use those prices in trading. Such indexes are used to price billions of dollars in transactions involving natural gas and electricity in physical and financial markets each year. Lawyers for Valencia and Singleton say they reported bogus data, as did other energy merchants, but did so on orders and didn't know the practice could be criminal. Valencia faces 23 counts of conspiracy, false reporting and wire fraud. Singleton faces eight counts of conspiracy, false reporting and wire fraud in allegations that largely overlap with those against Valencia. Both say they're innocent.
A federal appeals court has reversed several convictions against four ex-Merrill Lynch executives accused of fraudulent dealings with Enron. The four had been found guilty of helping engineer Enron's 1999 sale of mobile power plants to the brokerage to help Enron appear to have met earnings targets. The 5th U.S. Circuit Court of Appeals in New Orleans yesterday found fault with the government's theory of fraud that led to the wire fraud and conspiracy convictions. Convictions were reversed for James Brown, William Fuhs, Daniel Bayly and Robert Furst. Bayly is Merrill's former head of investment banking. They were among five former executives found guilty of one count of conspiracy and two counts of wire fraud in November 2004 in connection with the sham sale of power barges anchored off the coast of Nigeria. The four defendants had appealed on several grounds, including problems with jury instructions and the government's arguments of criminal liability and deprivation of honest services.
Regulators must consider ordering stiffer penalties for companies that manipulated markets and caused blackouts in the 2000-2001 energy crisis. The ruling today comes from the Ninth U.S. Circuit Court of Appeals in San Francisco in an Enron-related case. The court says the Federal Energy Regulatory Commission's 2003 handling of some fallout from California's energy crisis was "arbitrary, capricious and an abuse of discretion.'' California has sought reimbursement for up to $10 billion paid for overpriced power. The FERC ordered energy companies, including several subsidiaries of Enron, to pay about $3 billion. Those repayments are from October of 2000 to June of 2001. Regulators must now entertain allegations and possibly demand refunds for market manipulation before October of 2000.
El Paso Corporation has reached settlements of shareholder class action lawsuits, agreeing to pay $273 million to the plaintiffs. The company will pay about $48 million and its insurers will contribute about $225 million. El Paso also settled an associated derivative lawsuit, agreeing to pay $17 million--$12 million will be used to fund the settlement of the shareholder litigation. El Paso says it's resolving legacy litigation to focus on the core businesses of natural gas pipelines and exploration and production.
More oil money could flow to Texas under a bill approved by the U.S. Senate to open areas of the Gulf of Mexico to oil and gas drilling. Supporters say the measure would be a major step toward producing more domestic energy and forcing down natural gas prices that have soared in recent years. Energy attorney Andy Taylor with Bracewell & Giuliani's Austin office says Texas and Houston will benefit from expanded offshore drilling.
"The involvement we will have--Texans will have--in the infrastructure development to develop these reserves, even in the eastern Gulf coast, and then the increased flow of natural gas and crude oil into the petrochemical industry in Texas, the crude oil refining industry in Texas--all of that--will benefit from this increased development even though the wells themselves will be physically located east of the Texas Gulf Coast."
Critics of the legislation note that it will be years before any oil or gas will be taken and that the legislation falls short of addressing many of the country's energy problems. Still, the bill attracted wide, bipartisan support. The money would come from oil and gas leases to be offered for more than eight million acres off Florida's coast. It calls for Texas, Alabama, Louisiana and Mississippi to share 37.5 percent of the federal leasing proceeds from new Gulf drilling.
"You know, we're the states that are bearing the burden of developing these natural gas and crude oil reserves for the entire country. I just think that's a good recognition by the Senate that these Gulf Coast states, including Texas, deserve some compensation for that burden that they bear to supply the rest of the country."
Texas gets ten percent of that after 2007. Beginning in 2017, Texas will get 21 percent of the revenues as other parts of the Gulf are opened. Senator John Cornyn says the bill is a windfall for Texas. Senator Kay Bailey Hutchison says the first areas to be opened would provide more than 1.2 billion barrels of oil and 5.8 trillion cubic feet of gas. Taylor, who worked for five years as an engineer in the oil and gas business before attending law school, says any move to get new reserves to market is good.
"The country is so dependent right now on domestic supplies of natural gas and crude oil that any move by our government leaders to allow domestic production to increase and allow the oil and gas companies, many of which are based in Houston, to do what they do best and that is go out and find oil and gas reserves and get them to the market, any move along those lines is good for Texas and good for the country."
The passage of the bill in the Senate sets up a dispute with the House, which favors even more drilling in waters now off-limits.
Comcast is taking over the cable television system in Houston now run by Time Warner Cable in early 2007, under an agreement reached in 1985. The two companies jointly owned the Houston franchise, managed by Time Warner. Comcast is dissolving the Houston partnership as it divests its ownership interests in Time Warner. The move follows their joint acquisition of Adelphia Communication's assets. The companies have been swapping cable systems to help the Adelphia acquisition.
Meanwhile, Time Warner reports a billion dollars in quarterly profit. That's in contrast to the loss of $409 million a year ago when it took a charge for settling securities litigation. Time Warner's cable TV business grew on increasing high speed Internet and digital phone customers. It offset weakness at AOL, which today unveiled a long-awaited plan to offer many of its services, including e-mail, for free.
Yukos has been officially declared bankrupt, after a three-year effort by Russian tax authorities that critics say was a politically-motivated campaign against the founder of Yukos. Arbitration Court Judge Pavel Markov pronounced the oil company bankrupt and okayed the liquidation of its remaining assets. No sale timeline has been given, but creditors are still able to submit claims. The company's production unit, Yuganskneftegaz, was sold to the state after a December 2004 auction. Analysts expect that state-owned gas monopoly Gazprom and state-controlled oil company Rosneft will acquire the assets. Yukos founder Mikhail Khodorkovsky remains in jail.
Gasoline prices hovering in the $3 a gallon range are prompting consumers to cut spending or change their spending habits--but not the way they drive. A survey conducted by the Boston Consulting Group finds 77 percent of Americans say they've already had to cut back or change spending over the past year. In addition, nearly half see the possibility of pump prices hitting $5.50 a gallon--close to European levels--in the next two years. At the same time, though, the random-digit-dial phone survey of more than 1,000 adults nationwide finds most Americans seem to have maintained their driving habits with "very little cutback in average consumer driving.''
EGL Eagle Global Logistics has paid $4 million to settle alleged over-billing for military cargo shipments, according to the Houston Business Journal. The Justice Department said the Houston-based air and ocean freight services provider added improper war risk surcharges to shipments of military goods from Dubai, United Arab Emirates to Iraq. EGL was a subcontractor for Houston-based Halliburton subsidiary KBR. A former EGL vice president admitted adding $1.14 million in surcharges to invoices, and directed a subordinate to create fraudulent invoices. EGL launched its own investigation after receiving a subpoena from the Office of the Inspector General of the Department of Defense in 2004 and fired two employees as a result of the investigation.
The Houston office market is on a roll, according to O'Connor & Associates, citing increases in rents, occupancy and absorption in the second quarter. Current occupancy stands at 84.24 percent, after bottoming out two years ago at 81.99 percent. Rental rates have risen four cents per square foot over the quarter to $18.44, and since the beginning of the year, Houston has registered 29 sales of multi-tenant office properties.
Three million dollars in grant funding for five workforce development programs for the biotechnology and life science industries have been announced by Governor Rick Perry under the "Meeting Industries' Critical Workforce Needs" grant program. The Texas legislature in 2003 passed legislation calling for the development of strategies to strengthen competitiveness of six key industry clusters, including information and computer technology, petroleum refining and chemical products, energy, aerospace and defense, advanced technologies and manufacturing, as well as biotechnology and life sciences. One grant of over $1 million goes to the University of Houston to develop biotechnology education and training programs. The San Jacinto College District will receive just over a half-million dollars to train 500 laboratory technologists, engineers and IT specialists.
An Amarillo developer is interested in establishing an estimated $5 billion nuclear power plant at the Panhandle city. The Amarillo Globe-News today reports on the plan by George Chapman. The copyright story says Amarillo Power, which Chapman controls, is proposing a nuclear power plant that could be completed and online within a decade. Documents obtained through the Nuclear Regulatory Commission and other sources show a plan for a two-unit, 2700-megawatt advanced boiled water reactor. Chapman didn't immediately return a call seeking comment today. Amarillo has long been home to Pantex--a nuclear weapons assembly and disassembly facility. Federal law requires the NRC to ensure a company meets financial qualifications to construct and operate a nuclear plant.
The economic development chief of Illinois is in Pittsburgh in a competition with Texas over who gets the world's first near-zero-emissions coal power plant. Jack Lavin of the Department of Commerce and Economic Opportunity and other Illinois officials are meeting with the people behind the venture known as FutureGen. Lavin says the Illinois and Texas contingents are learning what documentation they'll need to supply to prove their states are environmentally suited to host the billion-dollar project. A week ago, a consortium of energy companies working with the energy department in creating FutureGen announced that Illinois sites near Mattoon and Tuscola are among the four finalists. The other two locations are in Texas. The winner is scheduled to be announced in September of 2007.
The Texas Department of Public Safety is accepting applications for anyone interested in becoming a state trooper, with the next recruit school starting on January 21st, 2007 in Austin. The application deadline for Texas residents is September 22nd, and September 15th for out-of-state residents. Information is available toll-free at 1-866-TXTROOP (898-7667) or on the agency's Web site. Applicants must be U.S. citizens, at least 20 years old and have completed 90 hours of college credit.
Continental Airlines reports flying 86 percent full on its domestic mainline and only slightly less full on international flights in July. The Houston-based air carrier flew 8.7 billion revenue passenger miles, compared to 7.9 billion a year ago.
Hurricane evacuees who fled to Texas to escape Katrina and Rita have through the end of October to recertify for federal housing aid. The Federal Emergency Management Agency has been helping thousands of displaced residents pay for temporary housing and utilities. When the storms hit last August and September, about 150,000 evacuees ended up in Houston. About 16,000 families in Texas still eligible for assistance must recertify with FEMA by October 31st, to get aid through February. Another 4,000 evacuees now determined to be ineligible for more federal aid have until August 31st to begin paying for their own housing. Mayor Bill White says the able-bodied are expected to work, and those with plans to return home need to take personal responsibility. He says "it's not an entitlement.''
Jeans, jerseys, shoes and socks are expected to be hot shopping items this weekend during the Texas sales tax holiday. Comptroller Carole Keeton Strayhorn is reminding consumers of the sales tax-free weekend--Friday, Saturday and Sunday--as schools prepare to reopen. Most clothing items and footwear under $100 are tax free during the three days to any and all shoppers. Backpacks, purses, bicycle helmets and sewing supplies are among the items that remain taxed. Strayhorn estimates shoppers will save $38.5 million in state sales taxes and $10.5 million in local sales taxes this year.
Insider stock sales at Irving-based Exxon Mobil rose significantly in the last week. But an analyst says that the real surprise isn't how many shares are being sold at energy companies, but how few. Ten Exxon Mobil insiders reported on Monday and Tuesday the sale of more than $30 million worth of Exxon Mobil shares. Chairman and Chief Executive Rex Tillerson, who assumed his current position on January 1st, wasn't among them. The insiders generally acquired the shares through the exercise of stock options, and sold them for an average price of $67.22 per share. That's according to data provided by the Washington service. Exxon Mobil spokesman Russ Roberts says this isn't so unusual--in fact, he says it's "very typical, because following blackout periods employees often exercise options.''