Firm’s energy trading, lobbying roles of interest
San Diego Union Tribune
Allegations of accounting chicanery at Enron Corp. are causing California regulators and consumer advocates to reconsider the role played by the once-dominant company in the state deregulation debacle.
While it’s already known that Enron advocated a structure that made California’s deregulated electricity market more complex — and ultimately more vulnerable to meltdown — there is renewed interest in determining what impact the company’s massive lobbying machine may have had in deepening the state’s problems.
Enron‘s role as the single largest trader of electricity during the crisis also needs further scrutiny, an official monitor of the state market now suggests.
What is already known from public filings and recent disclosures is that Enron weighed in often with federal regulators and Vice President Dick Cheney during a critical period between the fall of 2000 and the spring of 2001.
This time frame coincided with a critical period in which the Federal Energy Regulatory Commission determined that California’s electricity market was producing illegally high prices and when the commission imposed price controls that played a major role in taming the crisis.
The period also coincided with the state’s historic runup in electricity prices, a run that led to 40 percent hikes in consumer bills, pushed two major utilities to insolvency and left the state shackled with expensive, long-term power contracts, which Enron and others had suggested the state sign.
During the early months of this critical period, while Curtis Hebert was chairman of FERC, Enron‘s clout with federal regulators was unsurpassed, according to Robert Nordhaus, then a member of the market surveillance committee for the California Independent System Operator.
“It was clear that market power was being exercised in California,” said Nordhaus, using the technical term for price manipulation, “and that regulatory intervention was necessary to correct it. I remain puzzled as to why it took FERC as long as it did to come up with effective corrective measures. It is a suitable subject for investigative journalism.”
It was during this time that Enron repeatedly argued against FERC action in California and argued for letting the market continue unfettered. Hebert said Lay urged FERC to press forward with efforts that would lay the groundwork for expanding deregulation to markets beyond California.
“They pressed the administration to ignore the California crisis and instead focus on opening up more markets,” said Douglas Heller of the Foundation for Taxpayer and Consumer Rights, which released a report yesterday alleging the crisis will cost state consumers more than $70 billion.
But Lay didn’t ignore California. He and other industry executives attended two sessions with Gov. Gray Davis during the crisis, but Lay also had one private meeting. According to a Davis spokesman, Lay repeatedly urged Davis to raise consumer electric rates. The spokesman said Davis disagreed, although the California Public Utilities Commission ultimately did approve the 40 percent hikes.
“The governor and Ken Lay were at philosophical odds in the California crisis on everything from the theory of deregulation to the need to raise rates,” said Steve Maviglio, a spokesman for Davis. “But the governor was aware that Ken Lay was extremely well connected so it was totally reasonable for the governor to want to communicate with him.”
Bottom line, said Maviglio, “Enron could care less about the pickle California was in. They wanted to preserve deregulation.”
Beyond its lobbying efforts, Enron‘s role in the trading of electricity needs deeper scrutiny, said Frank Wolak, a professor of economics and member of the market surveillance committee for the state’s Independent System Operator.
“I have said I have no evidence of collusion, and I still don’t,” said Wolak. “But there’s been a lot of revelations that increase the probability that there may have been some collusion. There was a lot of attempts at influence by Enron and it starts to raise some red flags.”
Wolak emphasized that Enron‘s role will be difficult to determine because it functioned as a middleman, buying and selling power behind the scenes. But that trading role was huge, he said.
Arthur O’Donnell, editor of California Energy Markets, a San Francisco based newsletter, estimates Enron was involved in at least 20 percent of all electricity trades in the West.
But the investigations into Enron‘s actions remain far too narrow, said Michael Aguirre, a San Diego attorney who is pressing a year- old class-action suit against the company and other suppliers.
“All the attention in the Enron crash so far has been in the effect on investors,” said Aguirre, who is running for district attorney here.
“But the losses suffered by consumers run to tens of billions of dollars. We need more attention on what impact Enron‘s actions had on ratepayers.”