- 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
- 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
- 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 .