Signs Enron Bet on Price Increase Before California Power Shortage
The New York Times
April 11, 2002
By RICHARD A. OPPEL Jr.
W ASHINGTON, April 10 - In the
middle of 2000, on the eve of
the California energy crisis, Enron
was making increasingly
large bets that electricity prices in the
state would increase, according to
Enron records cited by a California
state senator leading an investigation
into the state's power crisis.
The state senator, Joseph Dunn, is scheduled to testify Thursday in Washington
before a United States Senate Commerce Committee hearing that will examine
whether Enron manipulated power prices in California in 2000 and 2001,
contributing to a surge in electricity prices that pushed California into a fiscal
crisis.
Soon after the crisis began, California officials began accusing Enron and other
energy companies of artificially causing shortages. But the energy companies, and
some economists, have said that state officials created a deeply flawed energy
market that led to the crisis. They said a big downturn in the availability of
hydropower from the Pacific Northwest also played a significant role.
In other Enron-related developments in Washington today, House lawmakers
prepared to do battle on Thursday over legislation to improve pension safeguards in
the wake of Enron's collapse. Democratic leaders, who plan to introduce their own
bill, said the Republican proposal offered cosmetic changes and scaled back some
current safeguards. But Republicans said that they had proposed substantial
reforms and that the Democratic legislation could lead some companies to curb
pension coverage by imposing burdensome new rules.
In his prepared remarks to the Senate panel on Thursday,
according to an advance copy of the testimony, Mr. Dunn,
a Democrat from Orange County, will say that internal
Enron records obtained by his state investigating
committee showed that in the months before the energy
crisis, Enron was making larger and larger bets that the
price of electricity in California was going to rise.
"We know from the daily position reports, which Enron
provided our committee, that as the summer of 2000
approached, Enron's traders had taken increasingly `long'
positions in the market, meaning they had a growing
amount of electricity to sell," Mr. Dunn will say.
Mr. Dunn also plans to testify that while the company was
aggressively lobbying California officials to deregulate the
state's electricity market, and promising big benefits for
consumers, Enron documents showed that the company's
"internal predictions do not appear to support" these
"hyperbolic promises."
In addition, Mr. Dunn will assert that in 2000, before
natural gas prices began a similar surge in California,
Enron went from being "short," or betting that gas prices
would fall, to betting that prices would rise. "Staggering
shifts, a veritable sea change, from short to long positions
are found in Enron's own books," he will say.
An Enron spokesman declined to comment today, but in
the past the company has denied assertions that it played
any role in the skyrocketing prices for electricity that
crippled the state. Instead, Enron officials, and executives
of other energy companies, have said that California
officials deserved the blame for policies that stymied
construction of power plants and made it hard for utilities
to lock down long-term supplies of power, forcing them to
obtain supplies from an increasingly volatile spot market.
Executives at Enron, which until it collapsed last year was
the world's largest trader of natural gas and electricity,
have maintained that the company made little profit from
big moves in energy prices, generating profits instead by
taking a tiny cut of the trades it did.
The California energy crisis finally eased last summer, as
prices for electricity and natural gas dropped. California
officials have credited the change to their decision to sign long-term contracts to
buy power, as well as conservation by consumers and wholesale price caps applied
by federal regulators. Energy companies have said cooler weather and other factors
played a role.
Some lawmakers have questioned whether the steep drop in West Coast energy
prices may have accelerated Enron's collapse, as profits from inflated power and
gas prices were no longer able to cloak the company's financial problems.
Meanwhile, in the House today, even Democratic aides conceded that their pension
proposal was certain to lose out to the Republican bill, but they hoped few
Democrats would vote for the other side.
Tonight, one crucial Democrat, Representative Benjamin L. Cardin of Maryland,
said in an interview that he would probably vote against the Republican proposal,
even though it incorporates significant provisions of a bill on which he was a
sponsor.
Mr. Cardin, who has written pension legislation with Representative Rob Portman,
Republican of Ohio, that has enjoyed wide bipartisan support, said he could not
support the Republican proposal because, among other things, it went too far in
allowing investment firms with potential conflicts of interest to advise employees on
pension investment decisions.
Karen Friedman, director of policy strategies at the Pension Rights Center, said
that the Republican bill "will do nothing to protect against future Enrons, will not
protect employees who lose money in Enron-type situations, and, in fact, will roll
back worker protections under current law."
But James Delaplane, vice president for retirement policy at the American Benefits
Council, which represents large employers, said the investment advice provisions
might be the most beneficial to workers. "It provides meaningful new tools to 401(k)
investors to manage their retirement accounts and get professional advice with
respect to investment decisions," he said.
Kevin Smith, a spokesman for the House Education and Workforce Committee,
which produced the bill that is serving as the platform for the Republican
legislation, said it would be hard for some Democrats to vote against the bill.
"It's hard to go home to your district," Mr. Smith said, "and say you voted against a
modest compromise bill that would have done quite a few things that would have
helped Enron workers."
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