Enron Traders Caught On Tape

When a forest fire shut down a major transmission line into California, cutting power supplies and raising prices, Enron energy traders celebrated, CBS News Correspondent reports.

"Burn, baby, burn. That's a beautiful thing," a trader sang about the massive fire.

Four years after California's disastrous experiment with energy deregulation, Enron energy traders can be heard – on audiotapes obtained by CBS News – gloating and praising each other as they helped bring on, and cash-in on, the Western power crisis.

"He just f---s California," says one Enron employee. "He steals money from California to the tune of about a million."

"OK, he, um, he arbitrages the California market to the tune of a million bucks or two a day," replies the first.

The tapes, from Enron's West Coast trading desk, also confirm what CBS reported years ago: that in secret deals with power producers, traders deliberately drove up prices by ordering power plants shut down.

"If you took down the steamer, how long would it take to get it back up?" an Enron worker is heard saying.

"Oh, it's not something you want to just be turning on and off every hour. Let's put it that way," another says.

Officials with the Snohomish Public Utility District near Seattle received the tapes from the Justice Department.

"This is the evidence we've all been waiting for. This proves they manipulated the market," said Eric Christensen, a spokesman for the utility.

"They're f------g taking all the money back from you guys?" complains an Enron employee on the tapes. "All the money you guys stole from those poor grandmothers in California?"

"Yeah, now she wants her f------g money back for all the power you've charged right up, jammed right up her a------ for f------g $250 a megawatt hour."

And the tapes appear to link top Enron officials Ken Lay and Jeffrey Skilling to schemes that fueled the crisis.

"Government Affairs has to prove how valuable it is to Ken Lay and Jeff Skilling," says one trader.

"Do you know when you started over-scheduling load and making buckets of money on that?

Before the 2000 election, Enron employees pondered the possibilities of a Bush win.

"It'd be great. I'd love to see Ken Lay Secretary of Energy," says one Enron worker.

That didn't happen, but they were sure President Bush would fight any limits on sky-high energy prices.

"When this election comes Bush will f------g whack this s--t, man. He won't play this price-cap b------t."

"We will not take any action that makes California's problems worse and that's why I oppose price caps," said Mr. Bush on May 29, 2001.

Both the Justice Department and Enron tried to prevent the release of these tapes. Enron's lawyers argued they merely prove "that people at Enron sometimes talked like Barnacle Bill the Sailor."

This is a Bush hit piece for sure. This has been broadcast before more than a year ago. CBS appears to be drudging this up to paint Bush as some sort of energy manipulator. I would guess they are searching for an election issue that will turn California solidly away from Bush.

It is interesting to know the background context of this energy trading fiasco. For sure there was some abuse as there was a systems platform and information management system that was prone to abuse.

But it is important to understand that the Enron scandal was not a scandal relating to trading or pricing in California. The Enron scandal was primarily an accounting scandal, where for example some backwoods water treatment facility in Brazil would be bought for say $10 million and then Fastow would broker the deal in such a way to load about $200 million of Enron debt onto this off balance sheet facility known as a 'Special Purpose Entity' or SPE. There were about 3000 such SPEs and it was way out of control. It was during the Clinton years where lies and thieving were the norm. Thank God that Enron is gone as it will be split into 3 entities and the rest destroyed.

But the context for the California trading fiasco is better seen in the backdrop of California not paying its bills. Because California had not been proactive in preparing for its energy infrastructure due to environmental holdups and delayed permitting, it became dependent on power generated outside state lines and it still is.

When California began its energy wholesale purchasing it tried to dictate pricing and contracts and it failed miserably as there was no economic reason for energy generators to meet the demand at the price points California demanded. In short California would not award contracts to keep plant employees and facilities ready for peak loads and when they requested such power they balked at the pricing. Even after agreeing to spot price demands, their accounts payable department were told not to pay the bill.

This nonpayment of bills policy was applied to over 60 energy generating companies including some regulated utilities of other states. California went after all of them feigning all along that it was a victim of these 'pirates'. And some in California still maintain that absurd claim.

So we see some Enron employees who were basically 'pissed' (to use the venacular) at California demanding power and not paying its bills or signing contracts for peaking power. This state of being pissed escalated into a pissing contest and hence the game was on.

Now whose at fault?

I would surmise it is both sides but the cause goes back to an attitude problem among the dinosaurs of regulated power who had long enjoyed with their Green Berkelized constipated buddies a de facto dicatorship and monopoly of all things in energy generation.

What we witnessed therefore was the freemarket in a head-on collision with monopolistic power.

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