Avista Corp. ( AVA) and El Paso Electric Company ( EE) sold off Wednesday as the industry's legal woes took a step closer to home. Six energy companies -- half of them affiliates of fallen industry giant Enron -- face potential prosecution for alleged manipulation of energy markets in the western United States, the Federal Energy Regulatory Commission said. The FERC said it may take formal enforcement action against Avista, Avista Energy, El Paso Electric and three affiliates of bankrupt energy trader Enron for actions that apparently helped fuel the California energy crisis of 2000-2001. FERC's announcement came six months after the agency began a sweeping investigation of companies throughout the energy trading sector, which has weathered an unprecedented meltdown, due to the questionable business practice of some of its most prominent players.
FERC said it continues to investigate other companies for possible wrongdoing in the western power market, specifically noting that it will examine allegations of gas price manipulation by Williams ( WMB). In the meantime, the agency will begin administrative hearings for the companies it has already identified as likely culprits. "If the Enron companies, El Paso Electric or Avista are found to have violated federal law, the commission could revoke their market-based rate authority," FERC stated in a release. "If any of the companies are found to have violated a FERC rule, regulation, tariff or order, they may be ordered to disgorge any profits obtained while engaging in the prohibited activities." Enron spokesman Eric Thode said two of its affiliates -- Enron Power Marketing and Enron Capital and Trade Resources -- will continue to cooperate with FERC. Both affiliates are now debtor entities still in the process of fulfilling contracts but conducting no new trading. The third Enron affiliate, Portland General Electric ( PGB), could not be reached for comment. Both Avista and El Paso issued statements pledging their cooperation. "Avista has asked on several occasions to meet with FERC staff in order to provide additional information or clarification about our filing, but they have declined our requests for a meeting," said Avista Chief Executive Gary G. Ely. "We now look forward to the opportunity to tell our story to FERC, clear Avista's name and move forward." Similarly, El Paso Electric said it intends to answer FERC's questions "candidly, openly and completely." The company is not affiliated with Houston-based energy merchant El Paso. In its interim report Tuesday, FERC also revealed possible flaws with the natural gas prices it had been using to calculate refunds owed by energy companies to the state of California. The agency said the original prices are difficult to validate and could have been manipulated by companies with incentives to do so. Newly calculated figures are expected to help bridge the gap between the $9 billion in refunds California is requesting and the $1 billion FERC had indicated it would support. The FERC announcement punished those directly targeted, but had little effect on the industry overall. Washington-based Avista suffered the most, plummeting 11.9%, to $11.85, late Wednesday morning. El Paso Electric slid 9.3%, to $11.61. Portland General Electric shed 4.9%, to hit $17.45. All three companies are trading near the low end of their 52-week ranges.