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Posted on 05/08/2002 12:51:08 PM PDT by Ernest_at_the_Beach
WASHINGTON – Federal regulators broadened their investigation of alleged manipulation of California power prices yesterday, saying they would seek information from other companies about questionable electricity trading practices revealed in memos from Enron Corp.
The December 2000 documents discussed strategies that Enron traders used to inflate prices in California and indicated other companies were engaged in similar practices.
"All sellers are hereby put on notice that they must preserve all material that discusses such trading strategies, or similar trading strategies, including documents to which a claim of privilege may attach," Donald J. Gelinas, an official with the Federal Energy Regulatory Commission, said in a notice posted on the agency's Web site yesterday.
The information will be sought from sellers of wholesale electricity and power reliability services to the California Independent System Operator and the California Power Exchange during 2000 and 2001.
"Others did it, too. We're certain of it," Loretta Lynch, president of the California Public Utilities Commission, told The Associated Press.
The disclosure of the Enron memos reverberated from the White House to Wall Street yesterday, with calls for vigorous investigation from the Bush administration, sharp criticism on Capitol Hill and falling stock prices for energy companies.
At a Senate subcommittee hearing, an Enron board member acknowledged that the internal company memos revealed "certainly questionable practices, seemingly gaming the system."
The memos, which Enron turned over to federal regulators Monday, outline how traders created phony congestion on California's power grid, shifted electricity out of state and back again to avoid price controls and engaged in other practices to influence prices as the state's power crisis grew during 2000. Traders used nicknames such as "Death Star," "Ricochet" and "Get Shorty" to identify the practices.
White House spokesman Ari Fleischer said President Bush expects the investigation that brought the memos to light "will be vigorously pursued, wherever it may go."
Bush's close political ties to now-bankrupt Enron have been a liability for the administration. Fleischer said the memos "were released as part of an ongoing investigation launched by this administration through FERC."
Sen. Barbara Boxer, D-Calif., said the administration should have acted long ago to rein in the high energy prices that rocked California in 2000 and 2001.
"This administration not only did nothing for almost a year while we were just twisting in the wind with the highest energy prices ever known to humankind, but they listened to Enron. And (Vice President) Dick Cheney took a memo from Enron in which Enron essentially said, 'This is what we need in an energy policy.' And almost everything they wrote was in there," Boxer said, referring to the energy plan Bush proposed last year.
Sen. Dianne Feinstein, D-Calif., asked for a wide-ranging probe by the Justice Department.
Calling the Enron memos "a kind of camel's nose under the tent of the entire industry," Feinstein said, "I certainly think there is ample evidence . . . for the attorney general to do an investigation, and not only of Enron."
One of the memos portrays Enron's trading practices in a more positive light than the others, saying the strategies could have increased power supplies in California. But that document was buried in the avalanche of negative publicity about apparent price manipulation.
Stock prices of many energy companies were down sharply in trading yesterday. Some analysts attributed the slump to concerns that the Enron disclosures could lead to new federal regulations or refund liabilities.
Gov. Gray Davis and other California officials are using the disclosures to increase pressure on FERC for substantial refunds, cancellation or reworking of expensive long-term power contracts the state entered into, and the continuation of price controls due to expire Sept. 30.
Feinstein said she would make a renewed push for legislation that would increase regulation of energy trading.
The Enron disclosure "confirms what California has been saying for well over a year now: Our markets have been manipulated," Davis said in a letter to FERC Chairman Pat Wood yesterday.
FERC declined to comment on the situation, citing its ongoing investigation. The probe was launched in February, after Wood heard Senate committee testimony that Enron might have manipulated prices on the West Coast.
Yesterday, FERC indicated it is moving toward granting a broad release of confidential industry documents to Michael Aguirre, a San Diego attorney pressing a class-action lawsuit against electricity suppliers.
The commission told electricity suppliers they have 10 days to dispute the release to Aguirre of previously secret documents collected during two earlier investigations of the California market meltdown.
Several companies involved in California's power market yesterday distanced themselves from the practices outlined in the Enron memos.
"It should be stressed that the alleged actions of one company should not be used as a blanket condemnation of all participants in the California energy markets," power-seller Reliant said in a written statement.
A spokesman for another power company, Mirant, denied any wrongdoing.
"Mirant has and continues to operate within the rules that were designed by California and FERC," said company spokesman Patrick Dorinson.
Sen. Joseph Lieberman, D-Conn., grilled several current and former Enron board members about the memos at a Senate subcommittee hearing on the company's financial dealings. The directors said they first learned of the memos two weeks ago and moved Sunday to hand them over.
"It certainly appeared on its face . . . a sort of a description of . . . certainly questionable practices, seemingly gaming the system. I think those were the exact words I used at the board meeting," director Norman Blake Jr. said, according to a transcript of the hearing.
Feinstein questioned why the memos were not disclosed earlier.
"These documents have sat within Enron for the last 18 months. This is six months after a subpoena was issued for them. And finally, after all this time, the Enron board has decided it would release the documents. It is appalling that it took this long," she said.
The memos could bolster the case made by the California Public Utilities Commission for termination or revision of some $43 billion in long-term power contracts, an attorney for the commission said yesterday.
The utilities commission contends the contracts were negotiated during a period the power market was rigged and says the deals bind the state to more than $20 billion in overcharges.
But Charles Robinson, general counsel for the California Independent System Operator, which oversees the electricity grid, said some of the activities described by Enron might fall through the cracks of ISO regulations, while others were clearly violations.
Davis said the memos were evidence of what Enron expected from the state's ill-fated electricity deregulation.
"It is very clear that Enron attempted to take advantage of the rules, drive up prices in California, create artificial shortages, cause blackouts and make a killing all at the same time," Davis said. "They wanted to bilk us for every dollar they could and that is exactly what they did."
Staff writer Craig D. Rose contributed to this report.
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Of course, driving up prices is the opposite of creating shortages. Shortages occur when a product is priced below market rate.
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