Posted on 05/08/2002 1:18:36 AM PDT by JohnHuang2
OS ANGELES, May 7 — Documents showing that Enron manipulated California's power market were described today by politicians, lawyers and consumer groups as the smoking gun they needed to help recover billions of dollars they say the state was overcharged by Enron and other companies for electricity in 2000 and 2001.
The documents — Enron memorandums released by federal regulators on Monday — were hailed as a windfall by state officials who have used regulatory and legal means to try to force half a dozen power-generating and marketing companies to refund at least part of the profits they made during a yearlong energy shortage.
Federal regulators also said today that they would investigate whether other energy-trading companies used the manipulative trading strategies described in the documents by lawyers for Enron, which is now in bankruptcy. Duke Energy, Dynegy, the Williams Companies, Mirant and Calpine were among the companies the regulators "put on notice that they must preserve all material that discusses such trading strategies, or similar trading strategies."
Enron is no longer in the trading business, but the documents and interviews with California officials indicate that when Enron was flying high, its trading strategies exploited weaknesses in the state's energy markets to the hilt.
The disclosure that Enron and perhaps some other trading companies used techniques that Enron code-named Death Star, Fat Boy and Get Shorty to inflate prices artificially in California's deregulated energy market appeared to vindicate a long campaign by Gov. Gray Davis. Mr. Davis, a Democrat, battled the Bush administration and federal authorities for months last year before regulators agreed to put caps on skyrocketing electricity prices.
"About $30 billion was extorted from this state," Mr. Davis said in an interview today. "Those who claimed that there was no price manipulation here were just plain wrong."
Mr. Davis said the state intended to press federal officials to use their jurisdiction under the Federal Power Act to order power companies to give back profits made from selling power and renegotiate long-term contracts signed with the state during the heat of the crisis. "I don't see how they can turn a deaf ear to our claims in light of these memos," he said.
Mr. Davis also joined California's two senators, Dianne Feinstein and Barbara Boxer, both Democrats, in calling on Attorney General John Ashcroft to start a separate criminal inquiry into Enron's trading activities. The company is already under investigation for the accounting fraud that led to its collapse late last year.
Other companies uniformly denied today that they had engaged in Enron-style trading practices. Spokesmen for several companies said that Enron was unique because it acted purely as an energy trader while other companies had made long-term commitments to build power plants in the state.
"We are confident our practices are well within all of the parameters and tariffs of the market rules," Duke said in a statement.
A spokeswoman for Williams said, "Enron and Williams are two entirely different companies."
But the Enron memos, written by an outside lawyer for the company's energy trading group, called the company's price manipulation "the oldest trick in the book" and said that "other market participants" had followed Enron's lead to inflate prices. And an official of the agency that operates California's power grid said the strategies described in Enron's memos matched suspicious behavior by many participants in the market that the agency has documented and submitted to federal regulators.
Joseph Dunn, a California state senator whose committee is investigating energy price manipulation, called the Enron memos "a jailhouse confession" and said that he would demand to see any similar memos at other companies. He said he now had fresh ammunition to refute the common claim by companies that such information must be protected under lawyer-client privilege.
Overlapping state and federal investigations and lawsuits and the possibility that regulators could order companies to return past profits sent share prices of energy companies tumbling. Shares of Dynegy, one of the largest traders and generators, fell more than 17 percent.
The major power marketers have struggled over the last few months to restore their reputations and shore up their finances, mainly by selling unprofitable assets and disclosing more about their often-opaque finances. But the Enron memos seem to have stirred doubts once more about the integrity and longevity of the industry — and the way energy is traded.
"The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal," said R. Martin Chavez, a former head of risk management in energy trading at Goldman, Sachs and chief executive of Kiodex, a risk management firm. "I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at."
It was not immediately clear, however, how the Enron documents would help the state recover the billions it says it is owed. The state says its power bill rose fourfold in 2000 compared with 1999 and stayed artificially high in 2001, largely because of price manipulation.
UBS Warburg, the investment bank that bought the Enron trading operation in February, said it had no liability for any violations committed under former management.
"We did not inherit the liabilities," said David Walker, a spokesman for UBS Warburg. "What was pre-Feb. 11 is an Enron issue."
Moreover, some traders said today that the line between price manipulation and exploiting legitimate market opportunities was thin, particularly in California's nascent and flawed electricity trading market. The rules governing most electricity markets are enormously complex because they are intended to keep the power grid reliable at all hours of the day as well as to ensure low prices. Traders routinely seek to maximize their profits during periods of high demand.
"People are coming out and triangulating that through these memos the markets were manipulated," one former Enron trader said. "It's much more complex than that. California set the rules."
In fact, the California State Senate's investigation of price manipulation has uncovered evidence that traders who work for the state agency that handles the power grid, the Independent System Operator, also took advantage of market rules to move prices artificially.
"The bogeyman here is not just Enron and the power companies, but the system itself," said Jim Battin, a Republican state senator who has participated in the inquiry.
Still, people pursuing claims against the power companies greeted the Enron memos as hard, written evidence of the circumstantial suspicions that had guided their lawsuits for months.
"There has been a glacial change not only in the litigation but in the whole idea of deregulated energy markets," said Michael Aguirre, who is handling lawsuits against power companies on behalf of California's lieutenant governor and all state ratepayers. The legal actions are intended to force the return of at least $40 billion from power companies, he said.
More broadly, the Enron memos cast doubt on the skeptical approach that President Bush and Vice President Dick Cheney took to the state energy problems last year. Mr. Bush and his top aides repeatedly attributed high prices to regulatory and environmental barriers that they said made it difficult for energy companies to serve the market properly. They opposed any regulatory intervention to curb prices.
California's troubles were used as a prime exhibit in the administration's energy strategy, which was focused primarily on increasing the supplies of energy and which strongly endorsed deregulated markets for electricity.
Likewise, the Federal Energy Regulatory Commission long played down the possibility that power generators had engaged in systematic price manipulation. The commission did two investigations of California's energy markets that produced no evidence that the companies manipulated the market.
Under its new chairman, Pat Wood, the commission began a new inquiry that has yet to reach conclusions.
Mr. Davis said today that Mr. Cheney and many other officials treated Enron "as the mothership of deregulation" and refused to look into allegations of abuse. Mr. Cheney was right that California made some mistakes in the way it managed its energy markets, Mr. Davis said. But he said that the administration took a laissez-faire approach to power markets for too long, worsening the blow to California's economy.
"It turns out we were right," Mr. Davis said. "Enron was manipulating prices to a fare-thee-well."
The state was never concerned about being overcharged, because they just figured they would sue on behalf of the poor, beleagured taxpayers who were going to be the true victims in this. Now it's just a slam dunk instead of being a minor risk.
The state was never concerned about being overcharged, because they just figured they would sue on behalf of the poor, beleagured taxpayers who were going to be the true victims in this. Now it's just a slam dunk instead of being a minor risk.
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Here is prime example of the Slimes getting caught lying and trying to make news instead of reporting it: (Slimes caught lying again! So what's new!)
I have had MANY dealings with Enron over the years, including a major one with one of it partnerships that brought it down. I can tell you that just about everyone who dealt with Enron in business felt that they were just too aggressive, that morality was irrelevant, and hosing everyone they came in contact with was important. I never trusted them and I didn't like them. It was their entire culture.
Fortunately, there aren't too many other Enrons out there with that attitude that I've dealt with over the years, and I'm glad to say that every single one of them is either bankrupt or heading there fast.
Blame the other fellow. Be it the VRWC, Paula Jones, Brodderick, Congress, or the Easter Bunny!
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