- The Washington Times - Friday, July 19, 2002

Army Secretary Thomas White said yesterday the division he once ran at Enron Corp. was not involved in a strategy to manipulate California's power market and drive up prices.

Mr. White said his division, Enron Energy Services, served "retail" customers such as large businesses seeking to save energy costs and had only an "arm's-length" relationship with the Enron wholesale power division under federal criminal investigation for illegal price manipulation.

"It wasn't in our interest to escalate the price of power," he told the Senate Commerce, Science and Transportation Committee. "We always sought the cheapest price for our customers," sometimes buying from Enron's competitors, though the power, once purchased, was routed through the company's wholesale power division for delivery, he said.

The straight-talking former Army general, who earned about $50 million in his 11 years at Enron before becoming Army secretary in May 2001, said he was "appalled" by the scandals that drove the energy giant into bankruptcy, though he once was "proud" to work there.

Skeptical lawmakers questioned how he could plead ignorance of Enron trading strategies that helped drive California power prices to record levels at a time when his own division was expanding in the state.

Mr. White said the Enron trading operation that used questionable tactics nicknamed "Fat Boy" and "Death Star" was in Portland, Ore., not in Houston, where his division was located.

He did concede, however, that some of his staff were in regular contact with the Portland operation and might have been involved in the plans.

"Anything's possible," he said, but he supports "prosecuting those involved to the full extent of the law."

The Army secretary also did not deny that his division, which he headed from its debut in 1998 until 2001, benefited from California's sky-high prices, since it prompted California businesses to seek conservation and cost management services like those he offered.

Sen. Barbara Boxer, California Democrat, said Mr. White's division likely was able to turn a profit for the first time in 2000, after two years of losses, because of California's troubles.

She said a Wall Street analyst said Mr. White told him in 1999 that California was the reason the company expected to make money for the first time.

Mr. White said he could not recall the conversation with the Wall Street analyst.

Sen. Byron L. Dorgan, North Dakota Democrat, said Mr. White's division appeared to be deeply involved in the "Fat Boy" tactic outlined in a memo written by Enron lawyers in December 2000 explaining how traders manipulated the California market.

Under the "Fat Boy" strategy, Enron traders "dummied up" or inflated the orders for power from Mr. White's division when scheduling the power delivery through California's grid operator, enabling Enron to earn a higher price on the power delivery.

While Mr. White conceded that Enron's power traders used his division's orders on behalf California power customers to push up prices, he said he wasn't aware of the strategy and his division was not the one that lied to California officials by inflating the orders.

But Mr. Dorgan said it is beyond belief that two Enron divisions were working at cross-purposes.

"You were kissing cousins," he said. "One part of the corporation facilitated what the other part of the corporation did The glove to me looks like it fits."

Mrs. Boxer accused Mr. White of being "evasive" and "argumentative" and called for his resignation. She said she would ask the Securities and Exchange Commission to look into whether his sale of Enron stock last year violated insider-trading laws.

Mr. White conceded he had more than 80 phone conversations and meetings with Enron executives last year during the eight months he was given to divest his stock under a confirmation agreement with the Senate.

The Justice Department's Enron task force is reviewing the matter.

Mr. White said he culled no inside information from the conversations, which were mostly with "good friends" and involved personal matters.

Whenever the conversations turned to Enron, he said, they focused only on matters that were public.

"It was what you were reading in the newspaper," he said, noting that the much-publicized fall of Enron's stock last year "would naturally be a point of discussion."

Mr. White said the fact that he sold most of his stock just before a Senate-imposed deadline in late October, as Enron was plummeting toward bankruptcy and its stock was tanking, suggests he had no inside information, since he would have been better off selling earlier.

Far from having knowledge about the company's impending bankruptcy, Mr. White said he held onto the stock too long because he "believed in the company" and thought it would turn around.

"My selling pattern, and the fact I never cashed in [over 600,000 Enron] stock options, reflects that."

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