A key Avista Corp. executive says he likes the Spokane companys chances of coming out well when the Federal Energy Regulatory Commission completes an investigation of alleged misconduct.


The executive, Avistas Kelly Nor-wood, vice president of rates and regulatory affairs, says that after being rebuffed in earlier attempts to meet with FERCs advisory staff, Avista has met in Washington, D.C., twice with FERCs trial staff since the investigation was launched. He adds that those meetings have been constructive.


Meanwhile, Scott Morris, president of Avista Utilities, Avista Corp.s utility operating division, says, If weve done something, well fix it. He pledges that the company wont hide anything if it discovers a problem in its own internal investigation.


The testimony of FERCs trial staff, which is handling the proceedings against Avista, is due to be filed on Dec. 20, and Morris says, Until we see it, my glass is half full. He says hes wary because Avista had thought twice before, in May and again in June, that it had answered FERC satisfactorily, only to have FERC make new demands. The filing of the trial staffs testimony is part of a schedule of events in the case that is expected to culminate next Aug. 13 with an administrative law judges decision.


FERCs advisory staff, on the other hand, is conducting an investigation of potential price manipulation in Western energy markets that has resulted in the inquiry against Avista.


Norwood, a member of the Avista group that traveled to Washington, says, Weve been able to talk this through with the trial staff. Weve had conference calls with them. We have provided FERC access to all of the audio recordings of Avista energy traders taped telephone calls.


Theyve started to listen to those calls, he says.


Bob Lafferty, Avistas manager of wholesale power; Avista energy trader Kim Materne; and two of the companys attorneys also participated in the Washington, D.C., meetings, Avista spokesman Hugh Imhof says.


Also, Imhof said last week it was his understanding that FERCs trial staff would be here this week for more meetings with Avista staff members.


FERCs inquiries began after lawyers for Enron Corp., the collapsed Houston-based energy giant, gave FERC on May 6 three explosive memorandums that disclosed what FERC says were energy-trading strategies designed to manipulate prices in Western markets.


Two days after receiving those memos, FERC issued a data request to Avista and some 130 other sellers of wholesale electricity in the West during 2000 and 2001, asking whether they had engaged in activities based on the Enron trading strategies.


On May 22, Avista said it had not engaged in such activities, but on June 4, FERC said Avista had not complied with its data request and directed the Spokane company to show cause why it should not lose its right to sell power at market prices.


In August, FERC released a preliminary report of its advisory staffs investigation into energy price manipulation in the West and announced proceedings against Avista and three other companies.


Norwood says that in its inquiry against Avista, FERC has raised three questions:


Was Avista involved in the Enron strategies?


Did Avista comply with FERCs May 8 demand for information?


Was Avista, as Enron has implied, inappropriately involved in transactions between Enron and Portland General Electric Co. (PGE), a Portland, Ore.-based Enron subsidiary?


Norwood asserts that as Avista has reviewed its traders taped telephone conversations, has gone over its trading transcripts, and has interviewed its employees, there was never anything there that suggested we promoted, initiated, or were even aware of any of those strategies. He also says Avista has run key-word searches on the computers of its trading staff members and other employees to search for documents that would show involvement in the Enron strategies, but has found nothing.


Norwood also says, I think we were compliant with FERCs May 8 demand for information. He explains that Avista still hasnt listened to all 17,000 hours of taped conversations of the two years of business that traders did in 2000 and 2001 on the companys real time trading desk, which is in operation around the clock 365 days a year. He says it wasnt possible for Avista to listen to all of those hours of recorded conversations in the two weeks it was given to make its initial response to FERC.


Finally, Norwood says Avista did not act inappropriately when it served as an intermediary in transactions between Enron and PGE. He says that in 1999, Enron filed with FERC a rate schedule that said it would sell power to PGE at market rates at two Pacific Northwest power-trading points. Norwood refers to that filing as a code of conductand says that as long as such a filing is on record with FERC, there should be no reason for us not to be involved in a transaction between two affiliates.


On May 17, Avista thought it had finished its initial internal review to respond to FERCs May 8 demand for information, Norwood says. The next day, he says, Avista received a letter from PGE in which the Portland company said it had identified transactions on 18 dates between April and June 2000 that might have involved Enrons Ricochet trading strategy. PGEs letter said Avista was identified in the documents PGE intended to disclose to FERC as an active participant in those trades. PGE didnt, however, provide a list of those trades at that time, Norwood says.


FERC defines Ricochet trading, or megawatt laundering, as buying energy from the California Power Exchange, exporting the power out of California by selling it to another company for a small fee, then bringing it back into California and selling it at a higher price.


Immediately after Avista received the letter from PGE, it carefully went back over its trading activities on the 18 dates PGE had listed, re-interviewed trading staff members who worked on those dates, and again examined its trading records, Norwood says. He says the company still didnt find evidence it had been involved in the Enron strategies, and told FERC so on May 22, attaching PGEs letter to its response.


FERCs June 4 show-cause order against Avista said the trading transcripts submitted by PGE reveal that Avista personnel were indeed actively involved in Ricochet transactions with Enron and PGE.


After the order came out, Norwood says, PGE gave Avista a list of the trades it had referred to in its letterand Avista also received something else.


On June 5, Norwood says, we were given a handwritten schematic from Enron that showed we were in this loop of transactions. Does that mean we knew what was going on? Absolutely not.


Imhof says Avista believes the handwritten schematic portrays the Forney perpetual loop, which FERC describes as a means Enron used to qualify for payments for relieving congestion on the interstate power gridwithout relieving congestion.


Imhof says Avista believes the Forney loop is named after Enron trader John Forney. Trading transcripts provided by Avista to FERC in June describe discussions between Forney and Avista traders.


FERC provides an example of such a strategy in its investigative report. FERC says that to carry out strategies dubbed Death Star, Wheel Out, and Non-Firm Exports, Enron used counter-parties, including Avista, to hide transactions.


In the example, FERC claims, Enron would schedule a non-firm energy export from Palo Verde, Ariz., to the Oregon border, sell the energy there to Avista, which would resell it at the border to PGE, which would transfer it across its system. Enron then would return the energy to the border, and the Los Angeles Department of Water and Power would schedule the energy from the California-Oregon border to Palo Verde. Finally, the energy would be scheduled to be returned to California, FERC says.


Yet, FERC says, In fact, no energy flows because the schedule begins and ends at the same location.


Says Imhof, We know now that for those 18 days, thats what they had us participating in. At least, thats what we surmise.


He adds, It seem-ed like just normal business. We had no idea.


Avista declines to provide a copy of the handwritten schematic, but Norwood says FERC erred when it said the trades in question involved the Ricochet strategy.


Rather, when Avista responded to FERCs June 4 show cause order, it claimed it had been used unwittingly by Enron in the latters Death Star scheme, which involved scheduling transmissions on the interstate power grid to get congestion-relief paymentsthen canceling the transmissions and still collecting the payments. FERC has rejected Avistas claim that it was used by Enron.