Enron Memo Describes How Energy Traders Drove Up Power Prices in California

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May 6, 2002

Enron Memo Describes How Energy Traders Drove Up Power Prices in California

By Mark Sherman
Associated Press Writer

WASHINGTON (AP) - Federal energy regulators released on Monday a confidential Enron document, prepared as California's power crisis worsened, which describes how Enron traders drove up power prices.

The memorandum, written by Enron lawyers in December 2000, outlined practices similar to those described by California officials who allege that the energy trading company created phantom congestion on electricity transmission lines and engaged in sham sales among its affiliates to increase electricity prices.

Describing one such strategy used by Enron energy traders and called "Death Star," 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 to transactions solely 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."

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.

Sen. Dianne Feinstein, D-Calif., asked the Justice Department to open a criminal investigation into Enron's possible manipulation of the state's electricity market.

"My suspicions have been high for some time that Enron was fraudulently manipulating the California energy market for its own benefit," she said in a statement. "In the wake of this new information ..., I am asking Attorney General John Ashcroft to pursue a criminal investigation to determine whether in fact federal fraud statutes or any other laws were violated by Enron."

Justice Department officials could not be reached for comment immediately.

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 commission Monday along with a later, undated report from other 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 Richard Sanders, Enron's vice president and assistant general counsel, 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.


On the Net: FERC: http://www.ferc.gov

Enron: http://www.enron.com

AP-ES-05-06-02 2041EDT

This story can be found at : http://ap.tbo.com/ap/breaking/MGAL6GJ1X0D.html

-- Cherri (jessam5@home.com), May 08, 2002

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