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Report: Enron Manipulated Market

Aug 14, 2002 | AP

Enron Corp. in two years earned tens of millions of dollars from energy deals as the result of questionable trading tactics and hidden relationships, a government report concludes.

Investigators found evidence of price manipulation and deceit by Enron as the energy trader aggressively sought ways to profit from California's volatile power markets, which saw prices soar in 2000 and early 2001.

The report issued Tuesday by the Federal Energy Regulatory Commission staff urged further investigation into "possible misconduct" charges against three Enron affiliate companies and two investor-owned utilities that did extensive business with Enron, including one that acted as a middleman to hide power transactions between Enron affiliates.

According to raw data from Enron, the Western power markets were highly profitable for the Houston-based energy trading company that collapsed in scandal and filed for bankruptcy last December. In 2000 and 2001 the company had accumulated profits from Western electricity trades "in the neighborhood of $1.8 billion," said the FERC report.

How much of that was related to price manipulation through various marketing and trading schemes — with names like Fat Boy, Ricochet and Death Star — and outright deceit and misinformation is unclear, the report said.

But the staff said Enron earned at least $120 million during the two years from power grid congestion charges, including cases where Enron deliberately created congestion to increase the value of transmission rights Enron had purchased.

One case, cited in the report, was especially lucrative. Enron in the summer of 2000 paid $3.6 million to reserve space on a major California transmission line. At the same time, Enron submitted fake schedules for power transmission, "adding unneeded confusion" to the overall system and adding to grid congestion. When the lines became clogged, Enron collected $33 million over two months in "congestion fees" on its $3.6 million investment.

The report described Enron as eager to "game the system" under California's flawed electricity deregulation. "Enron's corporate culture ... fostered a callous disregard for the American energy customer," said the report.

The staff urged the commissioners to begin additional investigations into the activities of Portland General Electric Co., Enron Power Marketing Inc. and Enron Capital and Trade Resource Corp., all Enron affiliates; Avista Corp., a Spokane, Wash., electric utility; and El Paso Electric Co., based in El Paso, Texas.

Avista allegedly served as a middleman for power transactions between Enron's trading company and Portland General Electric. Enron and El Paso Electric also had close ties.

The staff report said the alleged misconduct involving these companies included hiding the extent of their mutual business dealings, using middlemen to disguise transactions, failing to comply with federal rules on open transmission access and failing to have adequate operating reserves.

FERC Commissioner Nora Brownell said the report "certainly identifies companies that we know today were engaging in behavior that was manipulative or inappropriate."

But California Gov. Gray Davis called the preliminary report "a whitewash pure and simple" and complained FERC still "hasn't sanctioned anybody, it hasn't issued any refunds to us, it's done nothing to stop the manipulation which everyone agrees occurred here in California."

The investigation was ordered in February by FERC Chairman Pat Wood after repeated charges by California officials that energy marketers were gouging California's utilities and its customers.

Two months later, FERC obtained an internal Enron memo that described many of the trading strategies, including sham transactions and other schemes aimed at creating congestion on the Western power grids and forcing up prices.

California officials claim its utilities and, in turn, customers, were overcharged as much as $9 billion by wholesale electricity and natural gas marketers. Enron's energy marketing subsidiary was among a half dozen major players in the California market.

During the height of the power crisis in early 2001, the average daily cost of wholesale power in California topped $300 per megawatt hour, ten times what had been normal in previous years. At times wholesale prices spiked to as much as $3,800 per megawatt hour.

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