Memo Describes Enron Role in California Energy Crisis

By MARK SHERMAN, Associated Press Writer

Enron Corp. drove up electricity prices during California's energy crisis, using names like "Death Star" and "Ricochet" to describe strategies that aimed to cash in on the power shortage, company documents show.

A memorandum, written by Enron lawyers in December 2000, outlined practices similar to those described by California officials who allege the energy trading company created phantom congestion on electricity transmission lines and engaged in sham sales among its affiliates to increase electricity prices.

Describing one such strategy called "Death Star," the lawyers wrote: "The net effect of these transactions is that Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion."

Another practice, called "Ricochet," allowed Enron to send power out of California and then resell it back into the state to avoid price caps that applied to transactions solely within California.

"To us, this is really the smoking-gun memo," said Sean Gallagher, a staff attorney with the California Public Utilities Commission (news - web sites). "It's Enron's own attorneys admitting that Enron is manipulating the California market."

Enron turned over the documents to the Federal Energy Regulatory Commission (news - web sites), which made them public Monday.

Steve Maviglio, a spokesman for California Gov. Gray Davis (news - web sites), said the memos are more evidence that federal energy regulators should order power companies to refund billions of dollars in exorbitant electricity sales.

Sen. Dianne Feinstein, D-Calif., asked the Justice Department (news - web sites) to open a criminal investigation into Enron's possible manipulation of the state's electricity market.

"My suspicions have been high for some time that Enron was fraudulently manipulating the California energy market for its own benefit," she said in a statement. "I am asking Attorney General John Ashcroft (news - web sites) to pursue a criminal investigation to determine whether in fact federal fraud statutes or any other laws were violated by Enron."

Justice Department officials could not immediately be reached to comment.

The Federal Energy Regulatory Commission has been investigating whether Enron either took advantage of or helped spark the crisis in California's newly deregulated power markets, in which wholesale power rates jumped tenfold, three investor-owned utilities faced financial ruin and Californians experienced rolling power blackouts. Enron has denied any role in the crisis.

The company provided the memo to the commission along with a later, undated report from other Enron lawyers that took issue with the first memo. FERC posted the memos on its Web site, along with a letter to Enron seeking more information about the company's electricity and natural gas trades in California and other Western states.

Robert Bennett, a Washington attorney representing Enron, said the memos became known 10 days ago and could easily have been kept confidential. The reports were addressed to Richard Sanders, Enron's vice president and assistant general counsel, to prepare for investigations and lawsuits resulting from the California situation.

"Current management decided the responsible thing to do was to release the documents," Bennett said.

Questionable accounting practices helped drive the company into bankruptcy last year and resulted in the sale of the energy trading unit at the center of the California allegations. "It's virtually impossible for us to determine the accuracy or inaccuracy of these memoranda," Bennett said.

Someone forgot that free markets create the conditions for maximising profit, even if it requires cutting production. The neoliberals always talk about "government waste" and "market efficiencies", but neglect to mention other side effects, like "cartels", "monopolies", "dumping" and "market manipulation".

They won't bring up terms like "red lining", "market segmentation", "target markets", and "usury". They also ignore the relationship between culture and economy.

Markets are a good way to distribute goods, but they always fail at distributing important goods to everyone, and fail at reducing consumption of natural resources.

What I learned during the energy crisis were -

- you can't put natural resources into a pseudo-market brokering system without regulations

- when fuel prices rise, people use less fuel, and that's good

- PV solar is not anywhere near as efficient as heating water with the sun

- laptop computers use only 50 watts, telecommuting saves hudreds of dollars in gas money

- free market neoliberals are good liars, because they worship the market (and hayek) the way communists worship marx.

- all brokers will do anything to make a buck, because they are not thinking of the social impact of what they do. they are blind to their immoral behavior.

I'd like to say that I fully agree that market systems disregard cultures and communities. With the onset of globalization corporations can move their centers of production anywhere they please solely to increase profits and without any consideration of the communities losing those jobs in production. Want proof? Look over the borders into Mexico from the skyscrapers of El Paso, you'll see the maquilladoras where workers accept much lower standards for their labor, standards unacceptable here in the United States. Effects have been seen in the closing of automotive plants in Michigan, Virginia, and several other states.
I agree that due to a vast increase in the quality of telecommunications technology, and technology as a whole, the importance of fostering a global community is unavoidable. However I strogly feel that if international corporations continue to exploit markets at the expense of not just our communities here in the United States, but in communities throughout the world.
Now I can't give anybody any solutions, I'm only one college student in a world of billions. Billions! Having an open mind, feeling compassion for all our fellow living organisms from the tiniest phytiplankton in our oceans to the most powerful entity(ies) on the earth: the United States government, capitalism, the free market, our US military, and so many other things I cannot even remember. This compassion, understanding, and a greater sense of community and less of a sense of competition, these things I think can only bring positive ideas to the world's table.

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I am a university student majoring in history. I am very interested in current events concerning global politics, world foodways, energy alternatives, organic farming, global unity, and lots of rock music! (collecting records is a bit of a hobby I have picked up) I envision a world where the community plays a much larger role in people's lives. I feel that there is too much of an emphasis on individualism and individual success in our society. Freedom of thought, choice, and personal sovereignty are things that I cherish in my life, and I feel that America is a place that has allowed me to develope my own lines of thinking and idea formation without too much interference. I love where I'm from and it have given so much. But I would be lying if I didn't think that my country, and my planet can do better. I will dedicate my life to creating spaces for these improvements to take place. I am excitied about the time