Energy watchdogs have opened a formal investigation into Enron and two other energy firms over allegations of price fixing during the 2000-01 power shortage.

A report by the Federal Energy Regulatory Commission said that "sufficient evidence" existed to warrant a formal inquiry into three Enron affiliates, plus El Paso Electric and Avista Corp.

Many of the Enron trading strategies involved deceit, including the provision of false information

Federal Energy Regulatory Commission

The report claimed that "Enron's trading strategies, described in the previously released Enron memos, used false information in an attempt to manipulate (power) prices."

The three firms "may have engaged in actions that adversely affected prices", the report added.

If found guilty of the price fixing, the firms face penalties including "possibly refunds", the commission added.

The firm also face being stripped of their federal licences to trade wholesale electricity.

The companies deny the accusations.

Deceit

The commission's announcement follows pressure by Congress and California state politicians for an investigation into an energy crisis that prompted blackouts and sharp power price hikes.

Memos have suggested that Enron deliberately moved power out of California, only to resell it to the state at higher prices, in a process known as "ricochet".

In another strategy, known as "fat boy", Enron is alleged to have created phantom congestion on the California electricity grid to boost prices.

"Many of the Enron trading strategies involved deceit, including the provision of false information," the commission said.

California is seeking refunds of nearly $9bn for alleged overcharging.

El Paso Electric is not affiliated with natural gas and energy trading firm El Paso Corp.