Former Employee Says Enron
Manipulated California Power Market

By Jason Leopold
Dow Jones Newswires

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 .

Email This Article


This Site Served by TheHostPros