-Caveat Lector-
Former Employee Says Enron
Manipulated California Power Market
By Jason Leopold
Dow Jones Newswires
2-24-2
LOS ANGELES - A former Enron Corp. employee has written a letter
to U.S. Senator Barbara Boxer claiming that he has knowledge the
company's trading arm manipulated wholesale electricity prices in
California.
For more than a year, California Gov. Gray Davis and other state
officials have alleged that energy companies, including Enron ,
manipulated the price of electricity and natural gas in the
state by
withholding supplies to create an artificial shortage and gouging
utilities by charging prices for power that were 10 times higher
compared with previous years.
G&E Corp. unit Pacific Gas & Electric Co . filed for bankruptcy
protection last April because electricity prices were higher
than what
the utility was allowed to charge its customers. Edison
International
unit Southern California Edison was on the verge of bankruptcy
but
struck a deal with state regulators last year that will allow the
company to begin paying its creditors in March. The letter, sent
to
Sen. Boxer (D., Calif. ), last week by David Fabian, a former
employee for Enron's trading unit who wrote the company's trading
software for electricity and natural gas sales, claims Enron
congested
the te's transmission lines and then resold the power in the
state's
wholesale electricity market at skyrocketing rates. Mr. Fabian
worked
at the unit from 1997 until the end of 2000.
"I never witnessed this but this is what the traders talked
about," Mr.
Fabian told Dow Jones Newswires. "I spent a lot of time with
traders
writing the software programs and they discussed how they could
use
tricks to get high prices for electricity." Enron held the
so-called "firm"
transmission rights for North Pass and South Pass, California
transmission lines that carry electricity north to the south and
south to
north. Firm transmission rights, which are auctioned to energy
companies, give holders the right to reserve space on lines, and
rent
out that space. "Enron would clog up NP and SP and then gouge
people when they needed to use the line to ship power," Mr.
Fabian
said in an interview. Mr. Fabian also alleged in his letter that
Enron
had a "cozy" relationship with the federal Bonneville Power
Administration and knew when the agency had an abundant supply of
water, used to produce hydroelectricity. "BPA would tell Enron
traders
when they would dump water in order to make power," Mr. Fabian
said. "Once the dams got full they would have to dump water, then
Enron could get it for a low bid and they would resell it at a
markup."
A spokesman for BPA denied claims that the agency gave Enron
advance notice of the agency's activities. Sen. Boxer's office
confirmed that the senator has received the letter, but a
spokeswoman said Ms. Boxer hasn't responded to it yet. An Enron
spokesman wouldn't return calls for comment. The California
Independent System Operator, manager of the state's high- voltage
power grid said that the kind of congestion Mr. Fabian described
in
the letter may be what the ISO calls "phantom congestion." The
grid
operator uses the term to indicate that an entity is sending
power over
a line simply to congest it. A spokesman for the grid operator
said he
couldn't say specifically if Enron engaged in this type of
behavior, but
there is evidence that "phantom congestion" took place during the
height of the state's power crisis, which caused electricity
prices to
skyrocket. California is seeking $9 billion in refunds from
generators,
including Enron, for allegedly gouging utilities. The Federal
Energy
Regulatory Commission is investigating Enron's role in
California 's
power crisis and expects to issue a decision on the refund case
in the
summer. Allegations that Enron manipulated the California power
market in order to boost prices first surfaced in May 1999 .
(Note:
they tripled prices to CALIF the day Bush won election, a year
and
one half later.) The now-defunct California Power Exchange spent
a
year investigating the case, the first of its kind since
California
deregulated its power sector in 1998. CalPX found in 2000 that
Enron
violated the state's rules for trading power in May 1999 by
submitting
a bid for 2,900 megawatts on a transmission line that has a rated
capacity of 15 MW, documents obtained in 2000 by Dow Jones
Newswires show.
"On April 28, 2000 , the CEO of the CalPX issued an order
accepting
an offer of settlement from Enron Power Marketing, Inc., ...
which
finds that Enron's conduct in the Day Ahead Market for May 25,
1999,
constituted a violation of CalPX Scheduling and Control
Protocol," the
documents say.
Enron agreed to pay CalPX $25,000 to settle the issue without
admitting or denying the charges. Enron spokesman Mark Palmer
said in 2000 when the story was initially covered that the
settlement
wasn't an admission of guilt, but rather a "contribution to
CalPX costs
for investigating the incident." CalPX said Enron had congested
the
Silver Peak Line, which runs from the Central Valley to San
Diego.
Deliberately congesting the transmission line could have
congested
other transmission lines in the area and produced higher prices
for
power, including that sold by Enron, according to the documents.
Mr.
Fabian is a resident of Houston .
Gov. Gray Davis, who has been criticized for his handling of the
state's energy crisis, said Mr. Fabian's letter and his
allegations of
market manipulation by Enron appears to be a smoking gun. "For
more than a year, I charged the energy companies with
manipulating
the market to drive up energy prices," Gov. Davis said in a
statement.
"Now we have what appears to be a smoking gun from an ex-Enron
employee. This may be just the tip of the iceberg. This is just
one
more reason why I won't let California go back to its flawed
deregulation scheme." Sen. Boxer asked FERC earlier this month to
determine if the $43 billion in long-term power contracts
California
signed with several energy companies can be voided if an
investigation determines that Enron manipulated the electricity
and
natural gas markets in California .
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