New trading allegations hit El Paso

Allegations that Houston-based El Paso swapped power contracts with Morgan Stanley to avoid a restatement of earnings sent shares of the troubled energy company tumbling today.

A report in the New York Times said El Paso swapped power contracts for the five-year period 2006-2011 for the period 2011-2016 in an attempt to convince its auditor, PricewaterhouseCoopers (PwC), that there was still a viable market for power 10 years into the future. In doing so, it convinced PwC that profits it had booked from a previous long-term deal – extending 15 years – were likely to be realised.

Officials at El Paso and Morgan Stanley could not immediately be contacted for comment.

But the market reacted strongly to the report, sending El Paso’s already battered share price to a low of $9.25 in morning trading. The company has been hit hard by problems in the energy trading sector, and two weeks ago said it was exiting the business. It has also been accused of manipulating natural gas prices during the California energy crisis two years ago, and is part way through a large asset sale designed to shore up its balance sheet.

Liquidity has fallen in all power futures markets this year, but industry participants say activity in long-dated contracts has almost completely dried up due to concerns over the longer-term viability of the markets.