- The Washington Times - Saturday, May 18, 2002

The Justice Department's Enron task force is examining evidence that Enron Corp. and other power companies illegally manipulated markets to drive up prices during California's energy crisis.

While the task force was formed in response to accusations of securities fraud and an ensuing cover-up by Enron's auditor, Arthur Andersen, from the beginning it was empowered to pursue criminal violations wherever they occurred, according to sources close to the probe.

State and federal agencies in separate investigations recently have found evidence that Enron and other power companies took advantage of California's poorly designed electrical system to extract exorbitant prices, often up to 10 times what power customers elsewhere in the country were paying in 2000 and 2001.

California Attorney General Bill Lockyer on Thursday asked federal authorities to reconsider a state request for $1.5 billion of refunds for the overcharges. He released 169 pages of internal correspondence from Enron's Portland, Ore., energy-trading office, which he said documented the price manipulation.

The documents not only implicate Enron, but also other power providers such as Powerex, Williams, Portland General, Coral and the federally run Bonneville Power Administration, he said.

While the state has little hope of recouping any overcharges from Enron, which filed for Chapter 11 bankruptcy protection in December, the Federal Energy Regulatory Commission could order refunds from still-viable companies if it determines they overcharged the state.

"Enron executives made us feel insufferable and indelible pain just so they could make a fast buck," said California Gov. Gray Davis, a Democrat. Analysts attribute a good chunk of the state's record $24 billion budget deficit to its overpayment for power.

"Now, it's time for them to feel the long arm of the law," Mr. Davis said. State officials and Democrats in Congress have been demanding the Justice Department investigation since Enron memos documenting manipulative trading strategies with such nicknames as "Get Shorty" and Death Star" surfaced this month.

"This is, without a doubt, one of the most egregious cases of corporate misconduct in the recent history of this country," Mr. Davis said. "The persons responsible are a menace to society and should be facing serious jail time."

Mr. Lockyer said the documents Enron submitted to his office in response to subpoenas show illegal market manipulation by a number of power providers, beginning in June 2000. In one series of power transactions in the Four Corners region of the West, Enron boasted in the memos of a trading strategy that enabled it to earn $31 for every $4 in expenses.

"Here's service for you," the memo says.

FERC in past years has largely dismissed California's charges of market manipulation, finding repeatedly that the Western wholesale power markets were competitive, though theoretically admitting the potential for manipulation.

Pat Wood, chairman of the federal agency, said in testimony this week that regulators now are more inclined to pursue the "deceptive" practices revealed in the Enron memos, now that they have concrete evidence of gaming in the market.

The agency, which can impose civil fines and penalties, is investigating the trading abuses in conjunction with the Commodity Futures Trading Commission. The Justice Department is looking for criminal violations of law.

The state's charges of market manipulation also gained credibility this month as major energy traders operating in California, including Duke, Reliant and Dynegy, admitted they had artificially pumped up their revenue by booking "wash" power sales to each other that were never actually delivered.

The Enron memos show traders engaged in similar tactics to create the appearance of congestion on California's power lines, enabling them to extract fees from the state for relieving the "phantom congestion."

Some of the tactics Enron used were legal, and typical of the "arbitrage" techniques energy traders everywhere use to profit from different prices for power in different places, analysts say.

But Enron's own lawyers and federal regulators testified this week that some of the tactics were deceptive and illegal.

S. David Freeman, chairman of the California Power Authority, told the Senate Commerce, Science and Transportation Committee on Wednesday that former Enron Chairman Kenneth L. Lay lobbied strenuously for deregulation and against power price caps in the state.

But when the state won its battle for price caps, Mr. Freeman said Mr. Lay told him: "I don't care what you crazy people in California do, I've got people down there who can figure out how to make money."

Separately, Sen. Joseph I. Lieberman, chairman of the Senate Governmental Affairs Committee, threatened to subpoena the White House for information on staff contacts with Enron officials. The Connecticut Democrat said the White House has been too slow in responding to his requests.


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