Posted on 05/16/2002 11:36:19 PM PDT by Ernest_at_the_Beach
WASHINGTON – Enron attorneys yesterday said they learned of questionable electricity trading practices by the company in California in October 2000 and by December of that year determined the tactics were possibly illegal.
Shortly after reaching that conclusion, the practices were halted, the attorneys told Senate committees. But several senators disputed the testimony, saying there was no evidence the tactics had ended.
The clash came during daylong hearings in which Enron attorneys and outside counsel for the company were questioned about memos released last week that detailed apparent efforts by Enron traders to inflate the price of electricity in California. The state was rocked by unprecedented wholesale power prices and rolling blackouts in 2000 and 2001.
"I knew there was a possibility of crime ... and I kept my upper management fully apprised of the seriousness of the matter," said Christian Yoder, who was senior counsel for Enron at the time. Yoder was listed as a co-author of two of the memos, dated Dec. 6 and Dec. 8, 2000, which are identical except for the dates.
Richard Sanders, vice president and assistant general counsel for Enron Wholesale Services, said he ordered "certain trading practices ... suspended" even though he was not confident that the memos "completely or accurately described many aspects of the trading practices."
Sanders was the recipient of the December 2000 memos and a third, undated document that disputed many of the conclusions contained in the memos. Sanders said he first learned of the trading practices in an October 2000 meeting that prompted an internal company investigation.
Some senators were not swayed by the testimony.
"We don't really know who you told to stop. ... None of you can prove that it ever stopped," said Sen. Barbara Boxer, D-Calif.
Meanwhile, Sen. Dianne Feinstein, D-Calif., released a document indicating that the Federal Energy Regulatory Commission was alerted in August 2000 that Enron and others were engaging in alleged market abuses. The report was sent to FERC from Southern California Edison.
Feinstein, who questioned the Enron attorneys at a Senate Energy Committee hearing, said the document was "further corroboration ... that the Western marketplace was manipulated and gamed while it appeared the federal agency responsible for overseeing the marketplace and ensuring 'just and reasonable prices' failed to respond."
Sen. Joseph Lieberman, D-Conn., also pointed out that a May to August 2001 FERC investigation of some of Enron's trading activities found the company was exposed to large financial risks. But the probe concluded that the prospect of Enron's failure was remote, and FERC didn't take any action.
Enron declared bankruptcy in December 2001.
FERC Chairman Pat Wood acknowledged to the committee that the agency "knew these types of gaming opportunities existed." Wood, who joined the commission in May 2001 and became chairman in September 2001, has vowed to crack down on market manipulation.
In June 2001, the commission implemented a system of price caps in the Western United States that, aided by mild weather and falling prices for natural gas used to power many California power plants, brought electricity prices under control.
FERC released the December 2000 Enron memos as part of a wide-ranging investigation of alleged power price manipulation on the West Coast.
They detail how Enron traders, using code words like "Death Star" and "Ricochet," created phony congestion on California's power grid, evaded price controls and used other questionable strategies to increase prices. Traders at other companies used similar tactics, the memos said.
The attorneys for Enron testified that the memos grew out of an internal investigation launched in October 2000, after the California Public Utilities Commission served the company with subpoenas.
Sanders, the Enron vice president, testified that the trading practices originated with Enron traders in Portland, Ore. After learning of them in October 2000, he said he "had many discussions" with other Enron executives about the practices.
However, he said he did not discuss the issue with Jeffrey Skilling, who became president of Enron in February 2001, until June 2001, just before Skilling made a trip to San Francisco to participate in a forum.
"I certainly told him the sophomoric nicknames that the traders had attached to the strategies. I certainly told him of at least three of the strategies that were discussed in the memo. I know he was surprised by the nicknames. ... The practices, I don't think I have any recollection of his reaction one way or the other," Sanders testified.
None of the five attorneys who testified knew of any Enron traders losing their jobs because of the disclosure.
"I think it speaks volumes if, in fact, you create a memorandum that talks about pretty widespread deception and you alert Mr. Skilling and top management and you're not aware of anyone losing their job because of it," remarked Sen. Byron Dorgan, D-N.D., chairman of the Senate Commerce consumer affairs subcommittee.
Dorgan called Enron tactics "disgusting corporate behavior without a moral base, and it does, in fact, represent, in my judgment, a culture of corruption." He called for a special counsel to investigate alleged price manipulation.
Sanders bristled at suggestions by Boxer and other Democrats that handwritten notes from Enron's Portland office that surfaced yesterday suggest the company was trying to cover up the trading practices as they became known internally. The senators cited scrawled lines like "no one can prove" and "look like we're forthcoming."
After the PUC subpoenas came in, Sanders said he personally removed document shredders from Enron's trading floor in Portland and that the company tried to "save every scrap of paper, including the recycling."
Despite the marathon hearings, senators indicated they were not through probing the issue. Dorgan said he would call Army Secretary Thomas White, the former head of Enron Energy Services, to testify.
White was vice chairman of Enron Energy Services from 1998 until he became Army secretary in May 2001. The memos say that Enron Energy Services participated in artificially increasing scheduled electricity on California's power grid, for which Enron would get a bonus from the grid manager.
White has denied knowledge of any improper trading practices.
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You are not the first to ask that question!
We are all awaiting answers on the very many questions as to how such a screwed up plan could ever be portrayed as a deregulation plan!
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