- The Washington Times - Thursday, May 16, 2002

Internal memos released last week by Enron Corp. strongly suggest that the company's gaming of California's electricity market contributed to the rolling blackouts that bankrupted utilities and roiled the state. That's not too surprising, considering Steven Hall's admissions of deceit before the Senate Commerce Consumer Affairs Subcommittee yesterday.

Mr. Hall was a lawyer hired by Enron to investigate its activities in California. As the energy crisis was beginning to bite in December of 2000, he co-authored a memo (released last week) outlining his concerns about deceptive company practices that were driving up power prices across the state.

In one strategy, named "Death Star," Enron traders took advantage of California's rules on congestion on electrical lines by scheduling fraudulent power transmissions. As Mr. Hall's Dec. 6, 2000, memo pointed out, "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."

Enron traders also deliberately overscheduled electrical loads to create the appearance of congestion in some zones and then shifted those loads to other zones, thereby earning additional congestion payments (the "Load Shift" strategy). Mr. Hall's memo estimated that such manipulations had earned the company $30 million in fiscal year 2000, even though, "By knowingly increasing the congestion costs, Enron is effectively increasing the costs to all market participants in the real time market."

Enron also sold power that it did not have from fake sources via its "Get Shorty" strategy. Under the scheme, traders sold non-existent ancillary power services to the "Day-Ahead" market and then cancelled the commitment the following morning, buying power from the "real-time" market to cover the fraud. The same memo cited above noted, "In order to short the ancillary services it is necessary to submit false information that purports to identify the source of the ancillary services." Moreover, Enron traders had to be careful to "buy services right at 9:00 a.m. so that Enron is not actually called upon to provide ancillary services."

It would be easy to believe that such schemes were solely responsible for California's power crisis. Yet as even California State Sen. Steve Peace, a Democrat who helped write the state's deregulation plan admitted, "If we weren't so tight [in electricity], they [Enron] would have never hit us as hard as they did." While Enron's power games and the 1996 passage of what must regarded as a model of wrongheaded electricity deregulation certainly contributed to the statewide power crisis, it was truly a culmination of a collective set of decisions by California's residents to put environmental protection ahead of power generation.

There's probably no way to prevent unscrupulous individuals in corporate boardrooms from attempting to profit from market manipulations, though fraud can and should obviously be punished. Ultimately, only clear thinking about energy supplies and excess electrical capacity will ensure that California's ratepayers are safe from additional Enron-like power games.


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