[California and collusion of electricity and natural gas markets]
By Peter Navarro
Union Tribune
February 6, 2002
Will the U.S. Justice Department's investigation
of insider trading at Enron uncover a far
greater scandal – collusive manipulation of
the California electricity and natural gas markets?
That question should be on the lips of every lawyer, politician, newspaper editor, and electricity consumer
from San Diego to San Francisco.
The Justice Department will examine allegations of
a highly sophisticated "pump and dump" scheme. The "pump" involved falsifying accounting
reports to inflate profits and stock prices.
The "dump" involved unloading over a billion
dollars of stock by key Enron executives – including
former CEO Kenneth Lay and former CEO Jeffrey Skilling.
To make its insider trading case, the Justice
Department will subpoena hundreds of witnesses.
It also will sift through reams of internal memos,
private cell phone records, hotel receipts, e-mail
messages and executive calendars.
Within this treasure trove, the Feds may, as a very nice bonus, uncover the "smoking gun" of market manipulation. Such hard evidence has thus far eluded both California's attorney general and a State Senate committee investigating Enron and other key members of California's so-called energy "cartel" – from Enron's Texas bedfellows like Dynegy and Reliant to Calpine, Duke, Mirant and El Paso Natural Gas. Recall – ever so painfully – how this ruthless admixture of electricity generators, energy marketers and gas pipeline operators mercilessly extracted over $50 billion of excess charges in 2001 against a chaotic backdrop of rolling blackouts and a faltering economy.
California has a pending claim before the Federal Energy Regulatory Commission to recover some of these billions. Numerous organizations have filed lawsuits against cartel members to recover billions more. And any evidence of collusive behavior would give enormous legal weight to these claims.
Of even greater consequence, the Enron investigation may offer Gov. Gray Davis a graceful political and very potent legal way out of the $43 billion worth of ridiculously expensive long-term power contracts he signed.
Unfortunately, there's no provision in the law to void such contracts on the grounds of the governor's bad judgment, bad advice from his advisers or bad bargaining by his representatives. But bad faith, deception and duress are far different matters in contractual law. Indeed, if the contracts were signed during a time of illegal market manipulation, a judge would surely render them null and void.
Accordingly, California must put considerable heat on the Justice Department to ensure an investigation that far transcends the interests of beleaguered investors and victimized pensioners. Here are just some of the things to watch for:
Were there any communications between Enron executives and other members of the cartel that might constitute antitrust violations? Did Lay, Skilling or any other Enron executive call President Bush, Vice President Dick Cheney or any FERC regulators even as Gov. Davis was unsuccessfully lobbying FERC for electricity price caps? And can the now disgraced Skilling be coerced into singing like a bird to avoid jail time? This last possibility is surely the most tantalizing and titillating.
At the time of Skilling's abrupt resignation
from Enron many months ago, it seemed an
unfathomable act. Why would a man at the pinnacle
of success willingly give up the reins of one of the highest flying corporations in history?
The answer Skilling gave at the time was neither believable or satisfactory. Perhaps he can atone for his sins by coming forth now with the whole truth and nothing but.
Navarro is a professor of business at the University of California Irvine and the author of "If It's Raining in Brazil, Buy Starbucks."
c1.zedo.com
Copyright 2002 Union-Tribune Publishing Co. |
