Energy giants fear growing U.S. probe
An Enron trader's conviction could be the beginning of a major antitrust case.
By Carrie Peyton Dahlberg -- Bee Staff Writer
Published 2:15 a.m. PST Sunday, November 17, 2002
Investigators examining California's energy crisis have fired off scores of subpoenas over the past two years, held countless hearings and combed through millions of pages of documents.
But amid the mass of probes from Washington to Sacramento, something is different about the federal grand jury investigation unfolding in San Francisco.
It is not the only effort with the power to bring criminal charges against electricity producers and traders. It is probably not the best vehicle for getting refunds to California consumers.
Instead, it has mystery and intrigue, a whiff of betrayal and the prospect of tales that could be told.
The U.S. attorney for the Northern District of California galvanized the energy industry last month by getting the only criminal conviction to date linked to market games, a guilty plea by former Enron trader Timothy Belden to a lone count of wire fraud.
Now, the office has subpoenaed at least seven energy giants, asking questions that one company's attorney characterized as typical of an antitrust investigation.
Energy companies that do business in California have denied any criminal acts, and economists say no one needed to collude to milk tens of billions out of a flawed market.
Still, if a case could be made that power sellers conspired to drive up prices in California, it would have huge implications.
Antitrust convictions "would give the federal government enormous power to reorganize the energy industry" to prevent abuses, said state Sen. Joe Dunn, D-Laguna Niguel, who heads a Senate committee examining market manipulation.
If corporations as well as individuals are found culpable, that could give California more ammunition in civil suits, where it could seek stiff damages, said Peter Siggins, chief deputy attorney general.
It's possible such a verdict could boost other efforts for refunds to consumers, and it would have an undeniable psychological impact.
"The public would like to see bad guys going to jail, so there's some value in that," said Chris Schreiber, an investigator for Dunn's committee.
With the stakes so high, energy companies are saying little and feeling beleaguered.
They've spent millions of dollars and hundreds of hours dealing with ongoing investigations. Mirant Co., for example, estimates it has received well over a dozen subpoenas and formal document requests, turned over more than 1 million pages of documents and is facing close to three dozen lawsuits.
Duke Energy says it has responded to hundreds of investigative data requests and sees no end in sight.
"It is extremely frustrating," said company spokesman Pat Mullen, adding that Duke is cooperating with all probes and looks forward to being cleared.
The state grid operator, which processes confidential trading data, has become a source for so many investigators that it keeps an official count. From July 2000 through last month, it has responded to 59 subpoenas from nine state and federal entities, answering 634 individual data requests and spending more than 275 working days just providing information.
Energy workers have become so demoralized by the escalating revelations that some are reluctant to meet even with their own company's lawyers for fear they'll be left out to dry, one attorney said.
With so many ongoing examinations of the state's energy crisis, it is too early to know whether the San Francisco effort will become a definitive case or produce only minor convictions.
Proving antitrust activities is rarely easy, legal experts say. Uncovering a meeting in a smoke-filled room isn't necessary -- but it helps. Patterns of behavior that affect prices and wouldn't make sense unless everyone acted the same way also could be enough to make a case.
"It's an area of the law that remains unsettled and flexible," said Richard Wydick, a UC Davis law professor. While that leaves prosecutors room to push the envelope, "I'd guess that this administration would probably rather do a whole lot of things other than expand the antitrust laws."
Often, the best proof of market tampering comes from a critical document or a knowing insider, said Franklin Gevurtz, a professor at McGeorge School of Law.
Well over a year ago, Gary Stern, who researches market games for Southern California Edison, discussed potential whistle-blowers who would be well-placed to tell tales, if there were tales to tell.
"If you could get him, the best person would be Tim Belden," Stern remembers telling investigators. "It's quite fascinating that this is the guy they're now getting information from."
The three-lawyer team conducting the San Francisco probe is not talking about its scope or direction, except to say that it is examining any potential criminal market manipulation.
Belden, through his attorney, is declining comment.
As part of his Oct. 17 plea, the man who ran Enron's Western trading operations has pledged to cooperate with investigators. That has been raising whirlwinds of speculation about what Belden has seen and heard, and what he is saying about it.
Could he implicate a handful of Enron officials? Could he tar colleagues throughout the industry? Or does he have little to offer except a tale of his own deeds and the chance for federal prosecutors to stage an enormous bluff, hoping to scare someone who knows more into pleading?
Belden's plea was "amazing" because much of what he said he did could be interpreted as legitimate trading, said Stanford economics professor Frank Wolak, who studied market abuses for the state grid operator.
"If I were him, I would have said prove it," said Wolak.
The plea has left some energy traders hurt and angry, saying that Belden has helped move the line between aggressive trading and criminal behavior.
"The market was set up specifically so that people could do what Tim did," said Gary Ackerman, head of the Western Power Trading Forum. The plea "puts us in a very difficult position because now we have one of our peers who has admitted guilt."
Those familiar with the U.S. attorney's probe say the subpoenas that have gone out in the past 10 days -- to AES Corp., Duke Energy Corp., Dynegy Inc., Mirant Corp., Reliant Resources Inc., Southern Co. and Williams Cos. -- are just the first round.
One source predicts that three to four indictments could come before the end of the year.
Others expect very little.
"I remain skeptical that the Justice Department will bear the largest fruit," said consumer advocate Michael Shames. "They're comfortable going aggressively after companies that no longer exist," such as Enron, but it will stop there, he predicted.
Shames thinks more might come from the state attorney general's office, which has gathered reams of market data and which could pursue criminal charges on its own or in tandem with local prosecutors.
But he has long since lost hope for refunds that would come anywhere close to the billions that consumers will pay for the crisis through inflated electric bills for years to come.
"The greatest benefit to be drawn from this long, interminable, almost dentist-chair painful process is that the truth will come out and serve as a defense against future market manipulation," Shames said. |
