Enron memo describes how traders drove up state's power prices
MARK SHERMAN, Associated Press Writer Monday, May 6, 2002
(05-06) 16:46 PDT WASHINGTON (AP) --
A confidential Enron document released by federal energy regulators Monday showed how traders for the now-bankrupt energy company drove up power prices during last year's California power crisis.
Written by Enron lawyers, the December 2000 memorandum lists practices described by California officials who say the energy trading company created phantom congestion on energy transmission lines and engaged in sham power sales between its affiliates to increase electricity prices.
Referring to a strategy called "Death Star" by Enron traders, the lawyers wrote, "The net effect of these transactions is that Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion."
Another practice, called "ricochet," allowed Enron to send power out of California and then resell it back into the state to avoid price caps that applied only to transactions within California.
"To us, this is really the smoking-gun memo," said Sean Gallagher, a staff attorney with the California Public Utilities Commission. "It's Enron's own attorneys admitting that Enron is manipulating the California market."
Enron's document confirmed long-held suspicions, said Sen. Joe Dunn, D-Santa Ana, chairman of a state Senate committee investigating the power crisis.
"We have known for a long time that there was gamesmanship in the market by a variety of market participants," said Dunn, who testified last month at a U.S. Senate hearing on Enron's role in California's power crisis. "These documents finally prove internal knowledge ... that they were intentionally engaging in that behavior."
Steve Maviglio, a spokesman for California Gov. Gray Davis, said the memos are more evidence that federal energy regulators should order power companies to refund billions of dollars in exorbitant electricity sales.
The Federal Energy Regulatory Commission has been investigating whether Enron either took advantage of or helped spark the crisis in California's newly deregulated power markets, in which wholesale power rates jumped tenfold, three investor-owned utilities faced financial ruin and Californians experienced rolling power blackouts. Enron has denied any role in the crisis.
The company provided the memo to the FERC Monday along with a later, undated report from another set of Enron lawyers that took issue with the first memo. FERC posted the memos on its Web site, along with a letter to Enron seeking more information about the company's electricity and natural gas trades in California and other western states.
Robert Bennett, a Washington attorney who represents Enron, said the memos became known 10 days ago and could easily have been kept confidential. The reports were addressed to Enron Vice President and Assistant General Counsel Richard Sanders to prepare for investigations and lawsuits resulting from the California situation.
"Current management decided the responsible thing to do was to release the documents," Bennett said.
Questionable accounting practices helped drive the company into bankruptcy last year and resulted in the sale of the energy trading unit at the center of the California allegations. "It's virtually impossible for us to determine the accuracy or inaccuracy of these memoranda," Bennett said.
The memos and Enron critics said the company was one of several energy marketing companies that sought to take advantage of California's power crunch. The second report "tries to downplay megawatt laundering by saying that other market participants did it more than we did," Gallagher said.
California officials have credited FERC's caps on wholesale power prices, imposed last summer, with helping restore calm to the state's power markets. The caps are set to expire Sept. 30, leading some officials to worry about the return of soaring power prices.
"These memos are another reason FERC should keep them in place," Gallagher said.
The California Independent System Operator, which manages most of the state's electricity grid, was already aware of most of the strategies described in the reports, said spokeswoman Stephanie McCorkle.
The grid manager, created by the state to maintain reliable electricity supplies after deregulation, has assessed power companies more than $120 million in penalties for violating its rules, McCorkle said.
She said she could not provide a company-by-company breakdown of the penalties. |
