Is Obama’s pick for the Commodity Futures Trading Commission tainted because he lobbied for a Califorinia electric player during the state’s energy crisis?
That’s what left-leaning magazine Mother Jones says of Scott O’Malia, a Republican Senate aide nominated to be one of five CFTC commissioners.
MJ: During the years O’Malia lobbied for Mirant—a spin-off of Southern Co., a major utility holding company—the firm was a key player in the Enron-driven energy crisis in California, intentionally withholding electricity from the state’s market. This drove prices sky-high, caused rolling blackouts, and, ultimately, a statewide emergency. According to a report by California’s Public Utility Commission, Mirant, one of the state’s top electricity suppliers, along with four other companies, “did not produce needed power even though their plants could have met California’s electricity needs.” That is, Mirant held back power when it was needed most.
Following this crisis and Enron’s collapse, Mirant, which had been one of Enron’s trading partners in the energy market, came under investigation by various federal and local authorities, including the Federal Energy Regulatory Commission, the Securities and Exchange Commission, and California’s attorney general. Soon, the company faced an onslaught of lawsuits alleging, among other things, that it had artificially inflated its earnings and manipulated California’s energy market. In 2005, Mirant, which was forced to declare bankruptcy in July 2003, agreed to pay the state around $500 million to settle claims that it had bilked California consumers during the electricity crisis.
Mirant’s business practices also drew scrutiny from the CFTC itself. In 2004, the body fined the company’s energy trading subsidiary $12.5 million for attempting to manipulate natural gas prices by reporting false transaction information to industry publications compiling pricing data, notes MJ.
O’Malia was nominated for the same position last year by President Bush, but was blocked by Senator Maria Cantwell because she felt the CFTC was not doing enough to crack down on oil speculation, according to the Wall Street Journal.
O’Malia told us he wouldn’t comment because he hasn’t yet read the article. But to fair here, O’Malia would probably argue that the Mirant experience actually qualifies him for the position. Here’s his testimony from his first nomination to head the CFTC in June 2008:
My energy experience continued when I went to work in the private sector for two years with Mirant, an Atlanta-based independent electricity company. It was during this period that I learned first hand the devastating impacts a flawed market design can have on consumers and markets. The Enron debacle opened my eyes to the very serious consequences of poorly designed markets and inadequate oversight.
As investors and the credit rating agencies lost confidence in this sector, it forced the industry to reevaluate its own risk management controls. During this time, I worked to help establish the Committee of Chief Risk Officers. This organisation developed industry best practices to put an end to the manipulative trading behaviour deployed by Enron and others.
The White House seems to agree:
Mr. O’Malia also established the Washington, D.C. office of Mirant Corporation, where he worked to establish rules and standards for corporate risk management and energy trading among wholesale power producers.
Let’s see what the Senate thinks this time.
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