October 16, 2003

Emails Show Enron May Have Influenced FERC Probe On Calif Power Crisis, Refunds

It is difficult to look the Orwellian spectacle of the
_resident, whose regime is illegitimate, and Conan the
Deceiver the UNduly injected Governor of Califnoria in
their joint press conference and wonder if there is
any hope at all of restoring the timeline...The
_resident's smirk is back...Here is what they "US
mainstream news media" should be assaulting them
with...Of course, they won't...The Total Recall Putsch
never should have devolved into a discussion of Conan
the Deceiver's serial groping...This issue should have
been central...But, of course, the media fed from the
hand of the "vast reich-wing conspiracy," which in the
Rove years has mastered the art of using minor
scandals to distract from and deep-six major


Published on Wednesday, October 15, 2003 by
Emails Show Enron May Have Influenced FERC Probe On Calif Power Crisis, Refunds
by Jason Leopold

Did bankrupt energy company Enron Corp. influence a
controversial decision federal energy regulators made
in November 2000, saying California wasn't entitled to
more than $3 billion in refunds from power companies
who allegedly gamed the state's wholesale electricity

About two dozen of the more than one million Enron
emails dealing with California's energy crisis,
recently released by the Federal Energy Regulatory
Commission, appear to make a strong case that the
one-time high-flying energy company had some role in
influencing the FERC decision three years ago--a major
blow to California consumers and two of the state's
investor-owned utilities that were teetering on the
brink of bankruptcy. Utilities in California lost
billions of dollars buying high-cost power on the
wholesale market and selling it at a loss under a
state mandated rate freeze.

The issue is of particular importance now because
California's newly elected Republican Governor, Arnold
Schwarzenegger, has indicated through aides that he
would try and quickly settle a number of the lawsuits
the state has pending before FERC and the 9th Circuit
Court of Appeals, many of which name Enron as a

Gov. Schwarzenegger secretly met with Ken Lay at the
Peninsula Hotel in Beverly Hills in May 2001 to listen
to Lay pitch solutions for the state's energy crisis.
During the recall campaign, Bill Forman, the news
editor at the Sacramento News & Review asked
Schwarzenegger about the meeting. Schwarzenegger said
he didn't recall meeting Ken Lay because there were
more than 30 people in the room. If Schwarzenegger
plans to fix the state's budget he better brush up on
his basic math skills. According to a list of
attendees uncovered by the consumer group Foundation
for Taxpayer and Consumer Rights, there were 13 people
at the meeting, including Schwarzengger.

Moreover, Schwarzenegger met privately with Lay and
former Los Angeles Mayor Richard Riordan for about 15
minutes to discuss ways Schwarzenegger and Riordan
could help solve the state's power crisis, according
to one of Riordan's former deputies, who spoke on
condition of anonymity because he still works with
Riordan. Riordan has been named to Schwarzenegger's
transition team

The bigger issue, however, has to do with a ruling
handed down by FERC on Nov. 1, 2000 related to the
sky-high wholesale power prices that wreaked havoc in
much of the state between May and October of that
year. Then Gov. Gray Davis, along with dozens of other
state officials, charged that energy companies
conspired to drive up electricity prices in the state
by using a variety of schemes to game the market. The
November 2000 investigation by FERC was the first
probe into California's power crisis. The commission
conducted a second investigation in mid-2001.

During the 2000 investigation, the Republican
dominated investigated the issue of high electricity
prices and said the wholesale market structure in
California is "seriously flawed" but FERC found no
significant evidence that power sellers or providers
manipulated prices. Instead, the report blamed the
state's mandated market structure for the summer's
power shortages and rising prices.

In some of the Enron emails FERC posted on its
http://fercic.aspensys.com/members/manager.asp, Enron
executives talk about meetings they held with FERC
staff prior to the report on California's power crisis
being released publicly and how they were unsure if
"everything we want" will be included in the
commission's report.

"We were very involved in the discussions of the
report with FERC staff," said James Steffes, Enron's
former Vice President of Governmental Affairs, in an
email to Karen Denne, Enron's vice president of
communications who still works at the company. "I am
not sure, however, if everything we want will be in
the report. We will monitor very closely."

During the months leading up to the FERC report, the
commission received a presentation on from Timothy
Belden, one of Enron's former top traders, who pleaded
guilty in October 2002 to federal conspiracy charges
that he manipulated California's electricity market to
drive up prices and maximize profit for Enron.

After the Belden's presentation to FERC, Mary Hain,
one of Enron's in-house lawyers, sent an email out to
a dozen Enron executives (but not former Chairman Ken
Lay or Chief Executive Jeff Skilling) saying Belden
sent a presentation to Scott Miller, a FERC
investigation who was in charge of the California
power probe, and answered questions for Miller over
the telephone.

"According to the head of the investigation Scott
Miller, the staff got alot more out of this meeting
than Staff's previous meetings with the (utilities)
and the generators. Based on the numerous phone calls
I've been getting, the Staff is looking into the data
we provided," Hain's email says.

Hain also gave a presentation to FERC, based largely
on Belden's presentation materials, advocating Enron's
argument that the surging energy prices were due to
scarcity of supply, the Financial Times reported in
October 2002.

"I have also attached a revised version of the
presentation that Tim sent to Scott Miller on Friday,"
Hain's email said. "Tim's version conveys the same
message but takes a different approach to conveying
the message. On Friday, Tim talked to Scott and
answered some additional questions. Tim said that
Enron is in favor of eliminating the mandatory (Power
Exchange) buying requirement and would like the
(utilities)to be able to buy from Enron Online. He
also explained more fully the existence of scarcity.

The Power Exchange reference relates to the now
defunct California Power Exchange, the market where
electricity was bought and sold in the state. It's
interesting that Hain's email refers to the Power
Exchange because when FERC issued its report on Nov.
1, 2000 it ordered the Power Exchange to shut down and
told buyers of sellers of power to use EnronOnline, a
trading platform operated by the energy giant that
helped the company report record profits the following
year. Those profits, however, were largely illusory.

Enron had long believed that the Power Exchange was a
threat to its profits. In May 1999, during the infancy
of dergulation in California, Enron first experimented
with market manipulation by submitting a bid at the
Power Exchange for 2,900 megawatts on a transmission
line that only has a capacity of 15 megawatts.

The Power Exchange said Enron congested the Silver
Peak Line, which runs from the Central Valley to San
Diego. Deliberately congesting the transmission line
produced higher prices for power during the time.

The Power Exchange spent a year investigating the
issue and in May 2000 found Enron in violation of the
state's rules for trading electricity.

Enron agreed to pay the Power Exchange $25,000 to
settle the issue without admitting or denying the
charges. However, Enron's Hain sent out an email in
February 2000 to company executives saying Enron's
scheme likely cost California upwards of $47 million.

The interesting thing about the conversations Enron
had with FERC and vice versa in regard to the
commission's probe of California's electricity crisis
is that the communication may have been illegal.
According to FERC's own governing rules, the
commission is not permitted to discuss pending issues
with anyone outside the commission.

"No member of the body comprising the agency,
administrative law judge, or other employee who is or
may reasonably be expected to be involved in the
decisional process of the proceeding, shall make or
knowingly cause to be made to any interested person
outside the agency an ex-parte communication relevant
to the merits of the proceeding. A member of the body
comprising the agency, administrative law judge, or
other employee who is or may reasonably be expected to
be involved in the decisional process of such
proceeding who receives, or who makes or knowingly
causes to be made, a communication prohibited by this
subsection shall place on the public record of the

A spokesman for FERC would not return messages, first
left at the commission on Oct. 6, seeking comment for
this story, nor would a spokesperson for Enron.

It's unclear whether Enron had any correspondence with
FERC commissioners about the investigation. However,
Jeff Dasovich, an Enron government relations
executive, said in a Sept. 12, 2000 email to Staffes,
his boss, that FERC's Republican Chairman, Curt
Hebert, went up to Dasovich after a panel discussion
on California's power crisis and "lobbied me hard to
support" FERC's proposal to break up the country's
power grid into regional transmission companies, a
plan that Enron abhorred.

Hebert resigned as FERC chairman in 2001. Hebert
reportedly opposed a request by Enron's former
Chairman Ken Lay to allow Enron greater access to
interstate power grid, prompting Lay to say he would
no longer support the Mississippian as FERC chairman.
Hebert said he resigned after two of President George
Bush's FERC appointees, Pat Wood and Nora Brownwell,
came aboard at FERC and began to outvote him on the
five-member panel. In 2001, Brownwell and Wood pushed
through a regulation that would penalize electric
companies that don't join multistate regional power
grids, a proposal pushed by Enron but opposed by

The correspondence between FERC and Enron in 2000
confirms what many of California officials said at the
time, that FERC failed to do its job to keep a
watchful eye on energy companies and protect
consumers. Enron's influence at the highest levels in
government may have cost California more than $3
billion in electricity overcharges between May 2000
and November 2000. California is currently fighting
for those refunds at the 9th U.S. Circuit Court of

Schwarzenegger is aggressively pursuing a plan to push
California electricity market closer toward
deregulation, which Gov. Davis halted two years ago
when the crisis spiraled out of control. He said he
plans to shut down at least one of California's energy
agencies and will fire dozens of Davis' energy
advisers in favor of his own handpicked team of
free-market conservatives.

Unless Schwarzenegger eases California back toward a
deregulated electricity market, the state could find
itself saddled with skyrocketing power prices once
again. According to a recent report by the General
Accounting Office, In August, the General Accounting
Office issued a report criticizing FERC because the
agency doesn't have the power to protect consumers
from the side effects of deregulation, such as soaring
electricity and natural gas prices, which ended up
costing California more than $70 billion and
bankrupted the state's largest utility, Pacific Gas &
Electric Co.

Jason Leopold spent two years covering California's
electricity crisis and the Enron bankruptcy as bureau
chief of Dow Jones Newswires. He is writing a book
about California's electricity crisis.

Posted by richard at October 16, 2003 09:02 PM