Calif. officials: Enron is key in energy ‘fraud’

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Witnesses at a Senate hearing Thursday pinned much of the blame for California’s electricity crisis last year on Enron Corp.

Chaos in the state’s deregulated energy market produced scattered power outages. A year later, rolling blackouts are gone, but fallout persists: high utility bills, costly long-term supply contracts and political woes for Gov. Gray Davis.

Enron played a key role in what happened to the people of California,” said Sen. Barbara Boxer, D-Calif., who arranged the hearing in Washington to put the spotlight on the energy company, which is in bankruptcy protection.

State Sen. Joe Dunn, a Democrat who heads an investigation by the California Legislature, said in testimony that Houston-based Enron falsely promised lower electricity prices for homeowners in lobbying for the 1996 law that partially deregulated California’s electric utilities. The law forced utilities to sell their generating plants to wholesalers, who were to compete in setting power prices. Enron became a middleman, brokering deals between wholesalers and utilities.

“The deregulation, led by Enron, has become perhaps the greatest fraud ever perpetrated on the American consumer,” Dunn said.

No Enron officials appeared at the Senate commerce committee hearing. Eric Thode, a company spokesman, said, “We have cooperated and will continue to cooperate with the committee’s investigation, as we have cooperated with numerous previous investigations which found that the market’s structure was the cause of California’s energy crisis, not Enron.”

Dunn said Enron worked to control market prices through “aggressive” trading that built a commanding inventory of electricity and natural gas, which many California power plants use to generate electricity.

Natural gas prices in California rose in December 2000 to five times as high as those at Texas wellheads. In April 2001, wholesale electricity was selling for $201 a megawatt-hour — a 528% increase from a year earlier. A megawatt-hour powers 750 homes for an hour.

Loretta Lynch, the chairwoman of the state’s Public Utilities Commission, said Enron manipulated prices by trading electricity among five of its affiliates. “These were sham transactions, causing the price to rise with each supposed sale,” she said.

S. David Freeman, chairman of California’s Consumer Power and Conservation Financing Authority, testified that Enron leaned on the Federal Energy Regulatory Commission not to step in when prices rose. After months of inaction, FERC imposed caps on the wholesale price of electricity in 11 Western states.

The mushrooming prices threatened California’s three major privately owned utilities with financial ruin. One, Pacific Gas and Electric, declared bankruptcy. The administration of Davis, a Democrat, spent $13 billion to buy high-priced electricity on the utilities’ behalf to end blackouts.

Passed along to consumers, the extra costs have added $40 to the average family’s monthly electricity bill, says Doug Heller of the Foundation for Taxpayer and Consumer Rights, an advocacy group in Santa Monica, Calif.

Last spring, the state signed 56 contracts with companies to pay $43 billion for power over 20 years. At the time, Davis said the average price of $70 a megawatt-hour was a bargain. But market prices have dropped to $30 with the price caps and the opening of new power plants. Republican Bill Simon Jr. has criticized the contracts as he campaigns to unseat Davis in November.

The state is trying to rewrite the contracts. Meanwhile, California Attorney General Bill Lockyer is investigating Enron‘s marketing practices. He also has filed civil complaints for damages against six other energy suppliers.

Consumer Watchdog
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