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Posted on 05/07/2002 5:52:11 AM PDT by NCDoc
WASHINGTON, May 6 — Electricity traders at Enron drove up prices during the California power crisis through questionable techniques that company lawyers said "may have contributed" to severe power shortages, according to internal Enron documents released today by federal regulators.
Within Enron, the documents show, traders used strategies code-named Fat Boy, Ricochet, Get Shorty, Load Shift and Death Star to increase Enron's profits from trading power in the state — techniques that added to electricity costs and congestion on transmission lines.
The documents — memorandums written in December 2000 by lawyers at Enron to another lawyer at the company — also describe "dummied-up" power-delivery schedules, the submission of "false information" to the state, and the effective increasing of costs to all market participants by "knowingly increasing the congestion costs."
The memos, which provide the first inside look at the complex trading strategies Enron used in California, give strong ammunition to state officials who have long argued that Enron and other power marketers manipulated the state's market and played a crucial role in the crisis that cost California consumers and utilities tens of billions of dollars in 2000 and 2001. The documents state that other power companies used similar techniques.
Tonight, Senator Dianne Feinstein, Democrat of California, said she would ask Attorney General John Ashcroft "to pursue a criminal investigation to determine whether in fact federal fraud statutes or any other laws were violated" by Enron's energy-trading activities. Federal prosecutors are already conducting an inquiry into Enron's accounting, which falsely increased reported profits but ultimately led to the company's filing for bankruptcy protection in December.
Enron agreed to sell its energy-trading unit earlier this year to UBS Warburg, a division of UBS, Switzerland's largest bank. Nearly all of Enron's senior executives, and most of its board members, have departed in the last nine months.
Enron's senior management learned of the documents in late April, and the company's board decided during a meeting on Sunday to waive attorney-client privilege and turn the memos over to investigators at the Federal Energy Regulatory Commission, a person close to the company said. The company has also informed the Justice Department, the Securities and Exchange Commission and the attorney general of California about the documents.
At a noon meeting today, lawyers for Enron gave the memos to investigators from the regulatory commission, which is examining whether Enron manipulated energy markets in the West. The agency released the documents a few hours later. Officials at the commission declined to comment, but they are continuing their investigation into Enron's effect on power prices and asked the company today to provide additional documents on its electricity and natural-gas trading activities.
In a letter sent by officials at the commission today to Enron, investigators at the agency said the documents described how Enron traders were "creating, and then `relieving,' phantom congestion" on California's electricity grid. The documents also detail what investigators described as "megawatt laundering," in which Enron bought power in California, resold the power out of the state and then bought the power back and resold it back into California — allowing Enron to circumvent price caps meant to clamp down on costs.
"These documents prove that these companies can manipulate the market," said Loretta Lynch, the president of the California Public Utilities Commission. "Enron prevented California from seeing these documents for years, and now we know why."
Ms. Lynch said the documents supported her argument that FERC should leave in place temporary electricity price restraints, introduced last June, which state officials say have played a large role in reining in prices. "I don't see how FERC can remove the boundaries they put in place on our market last June."
An outside lawyer for Enron, Robert S. Bennett, said he could not comment on the trading strategies described in the documents. "Because we have sold the trading unit and the people with the knowledge of trading practices are no longer with the company, we do not know what the true facts are, and we do not know which parts of the memoranda are correct and which parts are incorrect," Mr. Bennett said tonight.
But he emphasized that the company had agreed to waive that attorney-client privilege because it was trying to cooperate with the various investigations into Enron's business practices. "These memoranda came to the attention of the board and current management in late April, and the board instructed its counsel to not assert the attorney-client privilege and produce these documents to the appropriate government entities," Mr. Bennett said.
Another memo written by a separate group of lawyers for Enron in 2001 — apparently in January or February, after soaring wholesale power prices in California pushed the state's largest utilities to the brink of insolvency — tried to play down the strategies described in the December 2000 memos.
In this later memo, which was written to prepare Enron for the "various investigations and litigation" it faced because of the California power crisis, the lawyers repeatedly tried to play down or cast doubt on the conclusions drawn by Enron's own lawyers in the earlier memos.
"Some of the information" in the earlier memos "which resulted in some erroneous assumptions and conclusions, cannot be supported by the facts and evidence which are now known," the later memo stated.
In one strategy described in the December 2000 memos, Enron would buy power from a state-run exchange for $250 a megawatt-hour — the maximum under the price caps — and resell it outside California for almost five times as much.
"Thus, traders could buy power at $250 and sell it for $1,200," according to one memo. In that document, the Enron lawyers acknowledged that such activity could be playing a big role in causing electricity shortages in the state, but they suggested that was not a significant concern.
"This strategy appears not to present any problems," the memo stated, "other than a public relations risk arising from the fact that such exports may have contributed to California's declaration of a Stage 2 Emergency yesterday."
The Death Star strategy, as described in the memos, allowed Enron to be paid "for moving energy to relieve congestion without actually moving any energy or relieving any congestion."
And the Load Shift strategy allowed Enron to generate about $30 million in profits in 2000 using techniques that, according to the documents, included creating "the appearance of congestion through the deliberate overstatement" of power to be delivered.
In the past, Enron officials said the California power crisis was caused by the state's deeply flawed electricity deregulation plan, the lack of new power-generation capacity and by temporary factors, like a drought that drastically reduced available hydropower. Even some economists who think price manipulation was widespread say these other factors contributed to soaring prices.
But Enron executives always insisted that absolutely nothing their traders had done contributed to the crisis. In an interview last year, Enron's former chairman, Kenneth L. Lay, dismissed accusations that manipulation was even partly to blame for California's troubles.
"Every time there's a shortage or a little bit of a price spike, it's always collusion or conspiracy or something," Mr. Lay said in the interview, which was also taped for " Frontline" on PBS. "I mean, it always makes people feel better that way."
Copyright 2002 The New York Times Company
The main problem is that there is no truly competitive market in electric power in California at the wholesale level. Not enough players, not enough generating capacity, and not enough transmission lines. Any one of the larger energy suppliers can drive the price into the statosphere during periods of high demand by witholding power.
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What a piece of Bravo Sierra. Wilson signed the bill created by the Rats, and Davis was on the sidelines with his rats as the phoney deregging bill was made.
I don't absolve Petey Wilson from signing this but to say he set this up is pure third party Bravo Sierra! Wilson was a POS in many cases, but blaming him for all this is like those who tried to blame GW for the power crisis last year.
If we had a true free market in electricity and true deregulation, we would have been paying slightly higher prices, steadily, over the past six years ... and we would be paying far less today. Instead, prices are ARTIFICALLY HIGH because Davis and his idiot staff locked us into high-priced long-term contracts -- and now blame everyone but themselves. So Clintonesque.
Dump Davis!
The problems were a) the market could never be truly free because of inadequate capacities, and b) the idiots who bought into it (Wilson and others) didn't realize that energy prices on an unregulated market can go up as well as down, WAY UP.
Grey Davis did a terrible job, as you say, but short of re-regulation there was no way to prevent the astronomical energy prices seen in California once prices were deregulated in the face of inadequate production and transmission capacities.
The governor could have signed long-term contracts in the fall of 2000 except he was too busy campaigning for Gore and himself. Now, because he has himself in a box of his own making, he is stuck in 'traffic' on the "on-ramp" on the energy business. Playing in a 'park' where he should have never been, Davis blames others for his ineptness and inattentiveness. DUMP DAVIS, the former Camp California.
EXACTLY!!! Just like the dork in power takes advantage of the 'illiterate'/uneducated voter. He points the finger at ENRON, but won't acknowledge all the fingers pointing at him.
I remember it that way, too. The 'competitive market' envisioned never developed because the PUC 'fixed' the retail price so low that the wholesale market had no working margin, and no 'new' supply (enviro whackos stalling generating plants). The liberal PUC's blocked the competitive market, and then pass that buck back on Pete Wilson.
Liars and deceivers who never take fault for their 'part' in the matter. -- DUMP DAVIS!!!
He did not sign those contracts in an effort to bankrupt PG&E. PG&E was operating under the rat phoney deregging that did not cap their cost of electricity. The deregging did cap what we paid for it. The rat partial Free Lunch for all Kalis using electricity. This was socialism/fascism at its best form.
It did not take a rocket scientist to figure out when you got your PG&E bill for Dec 2000 and saw that it would be just a matter of time before PG&E went bankrupt. They were paying about 3 times what they could charge us for electricity are per the left winged Rat who designed this poison pill for PG&E. Wilson signed the phoney de regging package and probably was awarded with some type of deferred bribe like his wife becoming a board member of ARRO for his games he played with MTBE while our governor.
Take millions of customers who were not conserving electricity pay $400/month per home for electricity and only get back about $165 per home, and you have bankruptcy thanks to deregging!
Wilson is guilty of a lot of things but not engineering, designing and formulating the phoney deregging. He just signed it and probably got some type of Deferred Bribe.
He probably never got the 'quo'. Just like when Bush Sr. broke his 'read my lips' on taxes; then, got 'stiffed' by the RATS on the spending cuts to set off the mini-recession that cost him the '92 election. To this day, I think Bush Sr. has not forgiven the RATS for that deceit. "Deal with a RAT and expect to be bitten." Why? Because they're RATS!
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