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Papers Show That Enron Manipulated Calif. Crisis
Published on Tuesday, May 7, 2002 by the Washington Post
'Smoking Gun' Enron Memos
Papers Show That Enron Manipulated Calif. Crisis
by Peter Behr
 
Enron Corp. manipulated the California electricity market with such maneuvers as transferring energy outside the state to evade price caps and creating phony "congestion" on power lines, according to internal Enron documents released yesterday.

The techniques described in two memos written by lawyers for Enron in December 2000 were given names such as "Fat Boy," "Death Star," "Get Shorty" and "Ricochet." The company turned the documents over to federal regulators, who made them public.

The evidence of their use contradicts denials Enron made at the time and provides impetus to several investigations of the bankrupt energy giant's role in the California crisis.

Operators of California's power system ordered rotating blackouts on six days early in 2001. That followed a tenfold surge in power prices that began the previous summer, hitting the state's utilities with billions of dollars in excess electricity charges.

Details of Enron's financial problems came to light months after the California crisis. "These documents confirm what we have known for some time, through circumstantial evidence: They show internal corporate strategies for manipulating the market," said California state Sen. Joseph Dunn (D), who heads a legislative committee investigation into the power crisis the state suffered a year ago.

U.S. Sen. Dianne Feinstein (D-Calif.) said she will ask the Justice Department to launch a criminal investigation of power sales in California.

The "ricochet" strategy was used to evade wholesale price controls on California electricity by transferring power out of the state and then back in.

Another maneuver took advantage of dramatically higher prices that California energy officials were willing to pay to get emergency supplies during shortages, the Enron documents say.

The "Death Star" strategy is described as permitting Enron to be paid "for moving energy to relieve congestion without actually moving any energy or relieving any congestion."

The reports were sent to Richard Sanders, Enron's vice president and assistant general counsel, in preparation for lawsuits arising from the California crisis. Sanders, who is still with Enron, could not be reached for comment yesterday.

A third, undated memo, prepared by different lawyers in consultation with a senior Enron trading executive, took issue with the first two reports, concluding that some of the trading strategies "may have increased" power supplies.

Energy analyst Robert McCullough said the memos indicate that Enron traders deliberately tried to create the appearance of shortages and congestion, prompting declarations of power blackouts that need not have been ordered in some cases.

State officials complained during the crisis that electricity suppliers were manipulating the state's deregulated power markets. Under political pressure last spring, the Federal Energy Regulatory Commission imposed temporary electricity price ceilings on California and neighboring western states.

That action, coupled with favorable weather and an economic slowdown, sent electricity prices plummeting last summer, ending the power crisis.

FERC officials and energy companies are still locked in a battle over the amount of refunds owed to California because of overcharging.

Enron said the documents released yesterday were spotted recently by company officials who took office after Enron's Dec. 2 bankruptcy filing, the largest such filing in U.S. history.

As correspondence between Enron and its attorneys, the documents had previously been marked confidential and had not been given to federal and state investigators.

Enron attorney Robert Bennett said Enron managers concluded that the documents should be turned over, and in a telephone conference call Sunday, Enron's board agreed.

"This board and the current management wants to be fully candid with Congress and other government entities and do the honorable and responsible thing," Bennett said.

© 2002 The Washington Post Company

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