A 'long-term energy contract' would have stopped all of this 'manipulation', guvner. Oh, I forgot, you were too busy fundraising for Algore and the DNC.
Posted on 05/10/2002 11:16:22 AM PDT by Timesink
Enron Corp. and at least two other power sellers combined to profit by using false information to resell extra power during California shortages in 2000, according to internal Enron memos.
THE TWO MEMOS, co-written by an Enron attorney and an outside counsel, detail a system in which Enron’s trading unit requested power on behalf of the company’s retail customers in California that wasn’t actually needed. The memos call it ” ‘dummied-up’ load from EES,” or Enron Energy Services, the retail unit where Army Secretary Thomas White was then vice chairman.
Enron’s trading unit obtained the power from utilities outside California that couldn’t sell power without a request from within the state, according to the memos — benefiting those suppliers. Then Enron would sell the excess power the next day to California’s perennially power-needy system operator, reaping big profits for energy that it wasn’t entitled to hold in the first place. The move took advantage of the attempts of utilities to hold down volatile prices by ordering less power than they needed to suppress demand.
It was unclear in the memos who at the company knew about the strategy. Mr. White, who has been under fire for his contacts with Enron officials while he was disposing of his company stock after becoming army secretary, said Wednesday that he wasn’t aware of it and had only recently seen the memos describing the scheme.
“To my knowledge, there was never any chicanery” at the retail unit, he said, adding there was no profit to be made for his unit by the scheme — though there was for Enron’s wholesale traders at the Enron North America unit. “We would have no commercial purpose for” falsifying Energy Services’ power requests, he said. “They are playing a wholesale game. We are playing a retail game.”
The new disclosures also could cast a renewed spotlight on the company’s former chief executive, Jeffrey Skilling. Two people familiar with the situation said Mr. Skilling had been briefed on the schemes after the memos were written in December 2000. A spokeswoman for Mr. Skilling had no comment.
The memos were likely to broaden a new front of inquiry into the practices of Enron, the once-mighty energy company already collapsed under the weight of its aggressive accounting practices. The company already is facing calls for criminal inquiries over evidence — which first surfaced Monday when the same memos were released by the Federal Energy Regulatory Commission — that it used false claims of energy demand and supply to manipulate the huge California energy market for its financial gain.
The memos contain the first documented suggestion that Enron units combined with two other energy sellers — the Powerex power marketing subsidiary of Canadian utility BC Hydro, and Puget Sound Energy of Bellevue, Wash. — to exploit structural weaknesses in California’s troubled energy market.
While not illegal, the strategies contributed to rocketing power costs in the state from mid-2000 to early 2001. The price increases contributed to the near-financial collapse of two of the state’s main private utilities and led the state to spend billions of dollars from its own coffers to make sure the lights stayed on.
The two memos describe how Enron North America would submit a list of requests for power, or “schedule,” to the California Independent System Operator, so that the administrative body for the state system would move the power across the grid the following day. Under the state’s market rules, all such requests for power must be “balanced,” with a buyer and seller for every megawatt hour to be moved.
In this case, according to the memos, power traders would submit a schedule that purported to be balanced because the Enron Energy Services unit had retail buyers lined up among the state’s large institutions. Then, because the system operator would tend to need power to correct imbalances the next day, it would buy the excess from Enron — at a higher price than the company would have gotten from a legitimate sale.
“Enron has performed this service for certain other customers for which it acts as scheduling coordinator,” the memos say, naming Powerex and Puget Sound Energy.
Charles Robinson, general counsel for the ISO, said the practice described by Enron didn’t appear to violate ISO market rules, at least at the time. On May 1, the ISO submitted a broad market redesign proposal to the Federal Energy Regulatory Commission in which it is seeking permission to fine companies that deliberately submit false energy schedules.
“We’re trying to make it less attractive to do this,” Mr. Robinson said, although he said that changes in the state market already have made the practice uneconomical.
California officials have long suspected that practices such as these were used to drive up prices during the state’s energy crisis, but have had a tough time proving it. Frank Wolak, a Stanford University professor who is chairman of an external monitoring committee at the ISO, says Enron’s strategy should result in fines.
At the time the memos were written, utilities were underestimating their daily needs in an effort to hold down prices. One week after the Enron memos were written, the ISO swept aside a $250-per-megawatt-hour price cap and agreed to pay whatever price was required to keep energy flowing to the state. Power prices soon rose to over $1,200 a megawatt hour.
BC Hydro and its marketing arm, Powerex, were among the main power suppliers to California at the time, reaping billions of dollars of revenue in sales to the state. Last year, California Attorney General Bill Lockyer sued Powerex and several other power suppliers for charging “unjust and unreasonable” prices for their power in violation of state and federal law. Mr. Lockyer estimated BC Hydro had overcharged customers in the state by more than $430 million. Powerex called Mr. Lockyer’s allegations “ridiculous and unfounded” when the suit was filed.
A spokesman for Puget Sound said the energy company started scheduling its own power in California after November 1999. The spokesman, Grant Ringle, said, “we believe that all of our transactions were in accordance with the rule and FERC tariffs.” He added the company is “conducting a thorough internal review of all of the pertinent transactions.” Mr. Ringle said the review is in response to FERC’s request for information from energy companies trading in California’s market.
A spokeswoman for BC Hydro, Elisha Odowichuk, said the memos’ contentions about Enron’s trading strategies, including its tactic to inflate demand, “came somewhat as a surprise.” She said, “we haven’t done anything outside the rules. We always follow the guidelines that have been set by” the Federal Energy Regulatory Commission. The spokeswoman said Powerex’s chief executive, Ken Peterson, wasn’t aware that Enron was inflating the loads in order to put more electricity into the system.
Enron’s lawyers turned the memos over to federal regulators as part of their investigation into market manipulation in California. Since the memos were released on Monday, there has been a storm of criticism of Enron and other energy marketers who may have engaged in similar strategies to manipulate California’s market at a time when the state was undergoing power shortages and price increases.
California politicians have called for a federal investigation to determine if Enron and other companies violated any criminal laws. Enron sold its trading unit in January to UBS Warburg, a unit of Switzerland’s UBS AG.
UBS acquired the trading technology and 635 Enron employees including many top executives. Among those are Mark Haedicke, who was general counsel to Enron Wholesale Services, which included the trading unit. Mr. Haedicke is now a senior lawyer at the UBS trading unit.
According to one person close to the matter, Mr. Haedicke and one of his lawyers, Richard Sanders, who received the memos, took the information to Mr. Skilling sometime in 2001. This person doesn’t know what Mr. Skilling did with the information. The memos were unearthed in recent weeks by Enron’s lawyers as they were digging through documents to turn over to federal authorities.
So my question is: How much of this is meaningful and how much is Grey Davis chicanery? I mean, it is the WSJ, but at the same time the article seems to make clear that nothing illegal was done, and I can't help but think that some important information is being left out about how the California ISO handled things.
Can anyone fill in the holes?
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I would translate that as 'government screw-ups and oversights'.
The corporations worked within the confines of the California regulations. 'Lousy' regulations crafted, passed, and signed by the bureaucRATic DOOFI, IMHO.
But I may be wearing people out with the volume. If anyone would prefer less traffic on the Calpowercrisis topics drop me a note!
I recall the power crisis in Kalifornia being a ploy by democratic strategists to create a crisis that they could "solve" and to blame BUSH during the election. I also recall there being a short term oil crisis so we needed to use the emergency oil reserves.
Energy's blame game, While feds slept, Enron milked California ("Not a clue" alert!)
I believe I got the right article.
California had nonsensical rules in place which prevented power companies from generating and selling electricity at a profit, as their fuel costs were soaring.
So, the companies tried to figure out ways to get around the rules, and at least in the case of Enron, managed to use California's rules against it.
The Democrats and their Media have an agenda item.
Promote the thought that Enron was totally responsible for the California Power Crisis!
That their favorite politician's had nothing to do with it, that they were VICTIMS!!!!!
I guess you just hit a sore point - what you just gave us was a copy of what Lewis was always posting on the threads all last year as we were trying to keep track of all of Davis crazy moves!
Were you reading many of those articles on the CALPOWERCRISIS list?
During the same period, the LA WPD sold thousands of MwH to the state, at an average price very nearly double the Enron rate.
So, who is the "profiteer"? And how did Enron actually profit from all of this?
I have disdain, not disrespect, for stupid laws. California government--of, by, and for bureaucRATs of many political persuasions--makes many of the worst, and intrusive, decisions pertaining to the lives of its supposedly free people.--Controls that don't control, illegals that aren't illegal, deregulation that isn't deregulation, conservation that isn't conservative, health care without caring for health, and savings that aren't saved.
Laws that protect and defend and are enforceable I have respect for. Laws that allow for the taking of innocent life, that deny EQUAL liberty, and that elevate paganistic/uncivilized practices, and that cannot be reasonably enforced should be disdained and stricken from the books of governance, and left to the individual(or the individual's family)---with freedom goes responsibility.
Yep, that Democrat bragged about being known as "The Father of California Electricity De-regulation."
He doesn't brag about anymore.
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