Posted on 04/11/2002 10:45:26 PM PDT by Tumbleweed_Connection
A top California regulator told Congress today that the Enron Corporation engaged in sham transactions in late 2000 that drove up electricity prices and helped worsen the energy crisis that plagued the West for more than a year.
Testifying to a subcommittee of the Senate Commerce Committee, Loretta Lynch, president of the California Public Utilities Commission, said regulators had studied Enron's actions in the fourth quarter of 2000 and had determined that five subsidiaries traded large volumes of electricity contracts among themselves in an effort to push up prices.
Ms. Lynch said the effect of the trading was to set prices throughout the wholesale electricity market in California far above what was justified. "I believe these trades were sham transactions," Ms. Lynch said. The company, she said, "would trade among itself to drive the price up."
Enron said that it had not manipulated prices and that the problems in California were a result of a flawed deregulation system combined with other factors like a drought in the Northwest and a temporary decline in generating capacity.
"We have and we will continue to cooperate with the committee's investigation," a spokesman for Enron, Mark Palmer, said. "We have cooperated with numerous previous investigations, all of which found that the market structure was the cause of California's energy crisis, not Enron." The committee did not invite Enron to send a representative to the hearing.
Other witnesses from California, including S. David Freeman, the chairman of the California Power Authority; and Joseph Dunn, a state senator who is leading an inquiry into the power crisis, concurred with Ms. Lynch that Enron, with other energy companies, had manipulated prices.
"We must recognize that the so-called invisible hand of Adam Smith was Enron and their fellow gougers picking the pockets of Californians to the tune of billions of dollars," Mr. Freeman said. "Prices were skyrocketing in California in late 2000 and early 2001 as a direct result of Enron's influence and participation."
Today's hearing continued a battle between Enron and many of California's most prominent officeholders and appointees — most of them Democrats — over who is to blame for the spike in electricity rates.
The crisis, which eased last summer after the Federal Energy Regulatory Commission intervened, briefly hobbled the state's economy, threw its politics into turmoil and left California taxpayers and consumers with a multibillion-dollar hangover.
Senator Barbara Boxer, Democrat of California, said Enron "used us as a cash cow to keep that company afloat, to keep the stock price high so insiders could cash out."
But some Republicans suggested that Enron was being used as a whipping boy by Californians for their botched effort at deregulating their electricity market. Senator Peter G. Fitzgerald, Republican of Illinois, told the hearing that he was "skeptical" that Enron had anything to do with the problem, which also afflicted other Western states.
Some witnesses at today's hearing said it was difficult to know precisely what Enron's role had been in influencing prices because the data available about transactions in energy markets was hard to interpret.
But they said there was considerable evidence that Enron planned to drive prices up and profit in a variety of ways. Robert McCullough, an energy analyst from Portland, Ore., who has studied Enron's activities, told the panel that the company sold a site for a power plant in Oregon in 1999 in a deal that suggested the company knew electricity prices would rise sharply.
Mr. McCullough said the deal ended with the site being 50 percent owned by LJM2, an investment partnership managed by a senior Enron executive that is at the heart of the problems that pushed the company into bankruptcy protection last year. Internal Enron documents, he said, showed that LJM2 anticipated a 22 percent return on investment from the project even as Enron was telling the Oregon Public Utilities Commission that it expected 15 percent.
"LJM2 apparently was able to either operate in the same markets with vastly more expertise than Enron," Mr. McCullough said, "or LJM2's estimate showed foreknowledge of the events to come."
Ms. Lynch said an examination of electricity trading by Enron affiliates and subsidiaries in the fourth quarter of 2000 showed that about 30 percent of the transactions were among themselves. She said her analysis was based on data supplied by Enron to the Federal Energy Regulatory Commission. She did not address the possibility that the trades reflected market pressures driving prices upward.
The Enron-related companies — the New Power Company, Enron Energy Services, Enron Energy Marketing, Enron Power Marketing and Portland General Electric — traded nearly 12 million megawatt-hours of electricity in the period at prices ranging from 5 cents a megawatt-hour to $3,322 an hour, she said.
A megawatt-hour is enough to run 1,000 room air-conditioners for about an hour. Before deregulation, utilities typically bought and sold electricity at around $30 a megawatt-hour.
"Enron was selling the same megawatts back and forth to itself, causing the price to rise with each sale, all under the rules it had helped to create," Ms. Lynch said in her prepared testimony. "The selling back and forth also created the illusion of an active, volatile market."
Because Enron booked as revenue the value of each trade, the transactions allowed the company "to create false value," she said. And because Enron reported the trades on its online trading system, she said, they created an artificially high benchmark price for other companies buying and selling power. In addition to benefiting directly from the trades at higher prices, she said, Enron profited by creating the appearance that transmission lines would be overburdened by huge flows of electricity among various power sources.
The Kudlow, Cramer show on CNBC had Sen Drogan - D on today where they were discussing some of the details from the hearing! Drogan was laying blame on the FERC once again and I thought Kudlow did a nice job of saying -- (diplomatically ) that he (Drogan) was full of crap!
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In the period Aug 2000 through Jun 2001, the highest average prices charged to the gov't of Calbania were by: 1) ALL the in-state power generators (exceeded Enron's and Calpine's prices per MWh by 11.2 to 15.9 per cent) and 2) PABC...the state-controlled governing body for electricity generation and distribution in, of all places, British Columbia.
And now, of course, having scrod the situation up royally, Calbania and Grayout Dufus want to crawfish on the contracts they signed.
Well, one must admire their consistency. Ruefully.
Grayout's weird little notion of appointing gov't bureaudorks as energy traders was simply hilarious; a good friend of mine who works for Duke (and he and I both trade the energy markets) likened that idiotic decision to allowing 2nd-graders to play poker with pros.
He was too charitable in that view -- it was like Alzheimer's patients trading against pros. They didn't have a clue as to how much they were losing.
Interesting?
It also had nifty drawings with it !
I liked Loretta Lynch better when she was recording those goofy country songs and sang duets with the late great Harold Jenkins. To quote Paul McCartney, Get back, Loretta! (to where you once belonged!)
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