Perot Systems Gave Enron Pricing Tips, Senator Says (Update4)
By Ron Day
Plano, Texas, June 5 (Bloomberg) -- Perot Systems Corp., the computer-services company founded by H. Ross Perot, gave Enron Corp. the idea for schemes the energy trader used to manipulate California's power market, state Senator Joseph Dunn said.
``It appears that these were the brainchildren of Perot Systems,'' Dunn told a news conference in Sacramento, California. ``This is corporate behavior at its most despicable.'' Dunn, who is investigating energy-market manipulation, said he has given information about his claim to the state attorney general.
Perot shares fell 19 percent after the Los Angeles Times reported today that the company showed traders how to exploit loopholes to raise power prices after it helped to design the state's energy-exchange systems.
Dunn released a 1998 Perot Systems document that identifies flaws in the bidding systems of the California Power Exchange and the California Independent System Operator. The report contains a presentation to sellers in the state's power markets, including Reliant Energy Inc.
``It's a seminar on how market participants can game the ISO and the PX,'' Dunn said, using the abbreviations for the markets. The senator, of Santa Ana, California, spoke at hearing by his committee in Sacramento.
Shares of Plano, Texas-based Perot Systems, whose clients also include banks, health insurers and construction companies, fell $3.43 to $14.55. They dropped as low as $13 before trading was halted for about an hour. Volume of 8.91 million shares was the biggest since the company's initial public share sale in February 1999. The stock has fallen 29 percent this year.
Perot set up computer systems for the two energy markets and continued to give them technical support afterward.
Duty Cited
The company had the duty to alert regulators to the loopholes, not to sell the information to market participants, Dunn said. He accused Perot of a conflict of interest.
Chief Executive Officer Ross Perot Jr. said in an interview that he was unfamiliar with the issues Dunn raised. The company has mostly shut down the group that handled systems for energy trading in California, he said.
``We don't even know if the people who were involved are even around any more; we are digging into it,'' Perot said. ``My father talked to Senator Dunn this morning. He said this isn't how we operate.''
H. Ross Perot, the billionaire who ran for U.S. president in 1992 and 1996, told Dunn that he and the company would cooperate with the committee, the senator said.
Wrongdoing Denied
Perot Systems denied wrongdoing and in a statement said it didn't provide services to Reliant.
System defects identified in the 1998 document were fixed before the California Power Exchange became operational, the company said.
``Perot Systems actively alerted CalPX and California ISO to defects in the market rules, which had already been adopted by the state of California,'' the company said in the statement, distributed by PR Newswire. ``Perot Systems did not reveal or sell any confidential information of any kind.''
``Perot Systems discovered a `hole' in the (Independent Systems Operator's) protocols for buying, selling, and pricing, imbalance energy,'' the company's 1998 document said. Strategies described in the document are similar to tactics detailed in memos prepared by Enron, which filed the largest bankruptcy case in U.S. history last year.
``I have no idea whether they did any work for Enron,'' Enron spokeswoman Karen Denne said of Perot Systems. ``We're no longer in the trading business. The individuals in the trading business are no longer at the company. We are cooperating fully with all investigations.''
Enron Memos
Enron last month turned over internal memos to the Federal Energy Regulatory Commission detailing how traders manipulated the California electricity market to raise prices. The memos discussed how to profit by creating and then relieving phantom congestion on the state's power lines. They also covered other techniques with names like ``Fat Boy'' and ``Get Shorty.''
The memos discuss how to profit by creating then relieving phantom congestion on California's power grid, a technique known as ``load shift.'' Using another technique, called ``ricochet,'' traders would move power in and out of California to avoid the state's price caps.
Another method, known as ``inc-ing load'' or ``Fat Boy,'' involved exaggerating demand for power a day ahead of time, and then getting paid by the ISO for excess power the trader had available.
Strategies in the Perot document are similar to ``Fat Boy'' and ``Load Shift.''
``A small participant could control prices in CA and destabilize the PX market,'' one section of the Perot Systems documents said. A ``relatively small PX participant could purposely congest a small interzonal path,'' another section said.
Yearlong Inquiry
Reliant gave the document to Dunn's committee as part of the panel's yearlong inquiry. The Independent System Operator and the Power Exchange were formed in 1998 to trade electricity under California's deregulated electricity markets.
Perot has been working with California's energy markets since at least 1997, and in March 2000 it agreed to sell services to the California Power Exchange.
California investigators and the FERC are trying to determine whether Enron and others illegally manipulated the western U.S. power market in 2001, when surging power prices drove the state's two biggest utilities to insolvency.
Power prices in California rose more than 10-fold on average in late 2000 and early 2001.
California Attorney General Bill Lockyer's office has received the Perot document from Dunn, spokeswoman Sandra Michioku said. The investigation is ongoing, she said, declining to comment further.
The state's two largest utilities, units of PG&E Corp. and Edison International, became insolvent after paying more for electricity than California law allowed them to charge customers. PG&E's Pacific Gas & Electric, the state's largest utility, filed for Chapter 11 bankruptcy protection in April 2001.
The California Power Exchange didn't return calls seeking comment. The Pasadena, California-based exchange filed for Chapter 11 bankruptcy protection in March 2001. ISO spokesman Gregg Fishman said Perot developed computer systems for the agency but wasn't involved in the design of its energy market. |
