Was Channel 11's TXU report shocking or old news?
Channel 11 investigative reporter Robert Riggs sits on a Florida beach, talking on his cell phone while on vacation, trying to explain how his story two weeks ago caused a huge one-day sell-off of TXU stock.
"We were shocked at the reaction by Wall Street," Riggs says. Nobody, he maintains, thought his story--a look into a very complicated lawsuit brought against TXU by small energy provider Texas Commercial Energy of Garland--would spark trading five times the normal daily amount, which led to a 4.2 percent decline in the stock. "Even we thought it was a bit of an overreaction."
Market analysts agreed, and within a week the stock had climbed back up above $40, about where it stood before the report. Because of the reaction to the report, and because TXU threatened a lawsuit in the wake of its airing, Channel 11 found itself facing charges from TXU--and others who follow the energy industry--that it had hyped an old story and smeared TXU in the process.
The background, condensed as much as possible for those not immediately, wildly interested in energy market squabbles: TCE is like Reliant Energy, one of the new competitors to TXU in the now-deregulated Texas energy industry, only much smaller. The company, because of its relatively shallow pockets, had to purchase energy day to day, not buy it with years-long contracts the way TXU and others do it. This means that when energy prices soar unexpectedly--as they did during a two-day ice storm in Dallas during February 2003--a company like TCE may find itself unable to tote the note. (Refer to the final floor-trading scene between Billy Ray Valentine and the Dukes in the 1983 hit movie Trading Places for context.)
This crippled TCE, which later went bankrupt and blamed TXU for deliberately manipulating energy prices during this time, the same claim made against Enron during the California energy crisis. TCE sued, saying they had tapes of TXU traders manipulating the market (again, à la Enron). TXU denied this, and last month the case was dismissed. TCE is appealing.
Riggs and Channel 11 investigative producer Todd Bensman played portions of those tapes during their news report, which alleged that conversations between traders, although inconclusive, could be interpreted as discussions about purposely cornering the market and refusing to sell until the price had become exorbitant. The report also focused on one trader who worked for Enron in Portland with supervisors who were later indicted and convicted by the feds. Although the report says the trader is "not indicted or accused of any crime," the implication is clear: The excerpts from the tape, added to TCE's claims, married to the fact five former Enron employees work for TXU, all mean that TXU is up to something.
"The Channel 11 report suggests something nefarious is going on, but they never say exactly what it is," says a reporter who has covered this story and asks that his name not be used. "Because people worked for a bad company means they can't go back to work in that field? Please.
"I want to break an Enron story here--who doesn't? But we were all [newspapers, wire services and TV stations, including Channel 11] offered those tapes back in February, and the papers reported on them during the trial. There's not much to them. All they've got is smoke."
(Energy beat reporters for The Dallas Morning News and the Fort Worth Star-Telegram declined comment. Channel 11 says the tapes are more newsworthy now given recent Enron developments.)
TCE was thrilled with the story, immediately sending out tapes of it to local media, along with a press release suggesting that its claims were upheld by the Channel 11 report. (A neat trick, since Channel 11 credited all the allegations to TCE.) And why shouldn't TCE be excited? The lead attorney that handled TCE's lawsuit, talking about a previous case, was recently quoted in the Wall Street Journal as saying, "I was feeding a lot of information to European and U.S. papers. It was part of my strategy to affect the stock price, which I was very successful at."
TXU, on the other hand, immediately issued a press release after the Wall Street reaction saying it was contemplating legal action against TCE based on what it said in the report. Reacting to the sell-off, Merrill Lynch issued a report saying, "TCE's allegations are not new as it has been claiming that market manipulation (rather than its own adoption of a risky short energy strategy) were the ultimate cause of its failure." It then called the sell-off of TXU stock an "overreaction" and reissued its "buy" rating. Wells Fargo also advised stockbrokers that the Channel 11 report was "without merit."