Union Tribune

May 8, 2002 

A-1

Scope of power-price inquiry widens

By TOBY ECKERT 
COPLEY NEWS SERVICE 

WASHINGTON Federal regulators broadened their
investigation of alleged manipulation of California power prices
yesterday, saying they would seek information from other
companies about questionable electricity trading practices
revealed in memos from Enron Corp.

The December 2000 documents discussed strategies that Enron
traders used to inflate prices in California and indicated other
companies were engaged in similar practices.

"All sellers are hereby put on notice that they must preserve all
material that discusses such trading strategies, or similar trading
strategies, including documents to which a claim of privilege
may attach," Donald J. Gelinas, an official with the Federal
Energy Regulatory Commission, said in a notice posted on the
agency's Web site yesterday.

The information will be sought from sellers of wholesale
electricity and power reliability services to the California
Independent System Operator and the California Power
Exchange during 2000 and 2001.

"Others did it, too. We're certain of it," Loretta Lynch, president
of the California Public Utilities Commission, told The
Associated Press.

The disclosure of the Enron memos reverberated from the White
House to Wall Street yesterday, with calls for vigorous
investigation from the Bush administration, sharp criticism on
Capitol Hill and falling stock prices for energy companies.

At a Senate subcommittee hearing, an Enron board member
acknowledged that the internal company memos revealed
"certainly questionable practices, seemingly gaming the system."

The memos, which Enron turned over to federal regulators
Monday, outline how traders created phony congestion on
California's power grid, shifted electricity out of state and back
again to avoid price controls and engaged in other practices to
influence prices as the state's power crisis grew during 2000.
Traders used nicknames such as "Death Star," "Ricochet" and "Get
Shorty" to identify the practices.

White House spokesman Ari Fleischer said President Bush
expects the investigation that brought the memos to light "will
be vigorously pursued, wherever it may go."

Bush's close political ties to now-bankrupt Enron have been a
liability for the administration. Fleischer said the memos "were
released as part of an ongoing investigation launched by this
administration through FERC."

Sen. Barbara Boxer, D-Calif., said the administration should have
acted long ago to rein in the high energy prices that rocked
California in 2000 and 2001.

"This administration not only did nothing for almost a year while
we were just twisting in the wind with the highest energy prices
ever known to humankind, but they listened to Enron. And (Vice
President) Dick Cheney took a memo from Enron in which Enron
essentially said, 'This is what we need in an energy policy.' And
almost everything they wrote was in there," Boxer said, referring
to the energy plan Bush proposed last year.

Sen. Dianne Feinstein, D-Calif., asked for a wide-ranging probe
by the Justice Department.

Calling the Enron memos "a kind of camel's nose under the tent of
the entire industry," Feinstein said, "I certainly think there is
ample evidence . . . for the attorney general to do an
investigation, and not only of Enron."

One of the memos portrays Enron's trading practices in a more
positive light than the others, saying the strategies could have
increased power supplies in California. But that document was
buried in the avalanche of negative publicity about apparent
price manipulation.

Stock prices of many energy companies were down sharply in
trading yesterday. Some analysts attributed the slump to
concerns that the Enron disclosures could lead to new federal
regulations or refund liabilities.

Gov. Gray Davis and other California officials are using the
disclosures to increase pressure on FERC for substantial refunds,
cancellation or reworking of expensive long-term power
contracts the state entered into, and the continuation of price
controls due to expire Sept. 30.

Feinstein said she would make a renewed push for legislation
that would increase regulation of energy trading.

The Enron disclosure "confirms what California has been saying
for well over a year now: Our markets have been manipulated,"
Davis said in a letter to FERC Chairman Pat Wood yesterday.

FERC declined to comment on the situation, citing its ongoing
investigation. The probe was launched in February, after Wood
heard Senate committee testimony that Enron might have
manipulated prices on the West Coast.

Yesterday, FERC indicated it is moving toward granting a broad
release of confidential industry documents to Michael Aguirre, a
San Diego attorney pressing a class-action lawsuit against
electricity suppliers.

The commission told electricity suppliers they have 10 days to
dispute the release to Aguirre of previously secret documents
collected during two earlier investigations of the California
market meltdown.

Several companies involved in California's power market
yesterday distanced themselves from the practices outlined in
the Enron memos.

"It should be stressed that the alleged actions of one company
should not be used as a blanket condemnation of all participants
in the California energy markets," power-seller Reliant said in a
written statement.

A spokesman for another power company, Mirant, denied any
wrongdoing.

"Mirant has and continues to operate within the rules that were
designed by California and FERC," said company spokesman
Patrick Dorinson. 

Sen. Joseph Lieberman, D-Conn., grilled several current and
former Enron board members about the memos at a Senate
subcommittee hearing on the company's financial dealings. The
directors said they first learned of the memos two weeks ago and
moved Sunday to hand them over.

"It certainly appeared on its face . . . a sort of a description of . . .
certainly questionable practices, seemingly gaming the system.
I think those were the exact words I used at the board meeting,"
director Norman Blake Jr. said, according to a transcript of the
hearing.

Feinstein questioned why the memos were not disclosed earlier.

"These documents have sat within Enron for the last 18 months.
This is six months after a subpoena was issued for them. And
finally, after all this time, the Enron board has decided it would
release the documents. It is appalling that it took this long," she
said.

The memos could bolster the case made by the California Public
Utilities Commission for termination or revision of some $43
billion in long-term power contracts, an attorney for the
commission said yesterday.

The utilities commission contends the contracts were negotiated
during a period the power market was rigged and says the deals
bind the state to more than $20 billion in overcharges.

But Charles Robinson, general counsel for the California
Independent System Operator, which oversees the electricity
grid, said some of the activities described by Enron might fall
through the cracks of ISO regulations, while others were clearly
violations.

Davis said the memos were evidence of what Enron expected
from the state's ill-fated electricity deregulation.

"It is very clear that Enron attempted to take advantage of the
rules, drive up prices in California, create artificial shortages,
cause blackouts and make a killing all at the same time," Davis
said. "They wanted to bilk us for every dollar they could and that
is exactly what they did."

Staff writer Craig D. Rose contributed to this report.