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July - Duke Energy Employee Advocate

Deregulation - Page 14 - 2002

Deregulation "was the greatest fraud ever perpetuated on the American consumer," - CA Senator

CA GOP Sought Donations From Enron

L. A. Times – by V. Ellis, C. Ingram - April 30, 2002

Requests brought in $50,000 during probe of the energy firm.

(4/29/02) - SACRAMENTO -- Republican legislative leaders solicited tens of thousands of dollars in campaign donations from Enron Corp. even as the state government was investigating the company and other producers suspected of price gouging and market manipulation during last year's energy crisis, according to internal Enron documents.

As state investigators probed Enron's business dealings, Sen. Jim Brulte and Assemblyman Dave Cox, the two GOP floor leaders, appealed to the company for contributions and were rewarded with checks, said the confidential company records obtained by The Times.

"Enron gave $50K to the Rep party at Brulte and Cox's request," wrote Enron's Sacramento lobbyist in an October 2001 memo. State records disclose that the funds arrived in August as lawmakers were wrapping up their energy legislation.

Brulte, of Rancho Cucamonga, denied Friday that he solicited money from Enron on the party's behalf. A spokesman for Cox, of Fair Oaks, defended the assemblyman's appeal for contributions as nothing out of the ordinary. Neither the contributions nor the solicitation of them is a violation of campaign-finance law.

Although the party reported the contributions as required by law, the documents detail a relationship between Republican leaders and the now-failed energy giant that neither the company nor the state GOP has ever publicly acknowledged. Indeed, during this spring's primary campaign, the Republican candidates for governor all criticized Gov. Gray Davis for accepting nearly $120,000 from Enron.

A memo to managers at Enron's landmark skyscraper headquarters in Houston said the donations given at Cox and Brulte's request would entitle company executives to a place at the table of an Oct. 29 luncheon that the generator industry planned for the two Californians.

"Expect Brulte and Cox to push us for another 75K," the internal Enron memo warned.

Enron executives in Texas were urged to attend because the political picture in California was changing rapidly. GOP gubernatorial contender Richard Riordan, the former mayor of Los Angeles, appeared to be on the rise in opinion polls while Democrat Davis was in trouble over his management of the energy crisis.

"Given where Davis' numbers have gone recently, Riordan's imminent announcement and potential, and the fact that the R's [Republicans in the Legislature] have played it about as well as could be expected under the circumstances . . . this could be a useful gathering," said the memo by Jeff Dasovich, an Enron government relations executive.

Dasovich said the only Republican to speak out against the energy producers during the energy crunch was Sen. Bill Morrow of Oceanside. "We may want to bring [that] up with Brulte," he advised Enron colleagues.

The unpublicized private luncheon would have the added advantage of occurring far from Sacramento, he said. "And it doesn't require crossing the border into California, to boot."

Sen. Joe Dunn (D-Santa Ana) has alleged that Enron influenced GOP lawmakers, but they have denied it.

Enron, now in bankruptcy but once so powerful that its influence reached around the globe, played a pivotal role in California's calamitous 1996 decision to deregulate its energy market. The company's aggressive campaign to assert itself as a leader in the deregulated environment last year brought accusations from consumer advocates, Davis and other Democrats that Enron and others had "gamed" the newly deregulated market and gouged Californians with astronomical prices.

By soliciting contributions for their party rather than their own campaigns, legislators and other officeholders are able to obtain donations from unpopular interests without ever having to disclose their role in raising the money.

Karen Denne, an Enron corporate spokeswoman, said Saturday that she was unfamiliar with specifics of the $50,000 contribution and internal memos but she knew the company was being solicited for contributions as the Legislature and Davis wound up action on energy crisis bills.

She said she believed the appeals for funds by Brulte and Cox were no more "aggressive than those of other members of the Senate and Assembly."

A Republican Party spokesman confirmed that Cox and Sen. Ray Haynes (R-Riverside) traveled to Houston for the lunch. Brulte did not attend because of illness.

The affair was hosted by R. Steven Letbetter, chairman of Reliant Energy, another Texas-based producer, and was aimed at giving industry executives a political update on California. Enron officials, who by then were coping with the financial collapse of their company, did not attend.

"The event in Houston was not a fund-raiser per se," said GOP spokesman Rob Stutzman, "[but] we want to be clear that the hope was that the companies would contribute money."

He defended the decision to seek donations from energy companies, then a highly unpopular industry, saying that if any violated laws during the power crisis, state and federal investigators would take the appropriate action.

"Until the laws are changed, generators are still part of the solution to keeping our lights on," Stutzman said. "We think it would be foolish to treat them as pariahs."

Brulte said in an interview Friday that he never solicited contributions specifically from Enron. He said it was a party aide who approached the company for donations.

He said it was part of his duties as a party leader to raise money for the GOP. He and Cox regularly appear at fund-raising events staged by the party and have so far raised about $3 million, Brulte said.

Cox was reported unavailable for comment on this story. His spokesman, Peter DeMarco, said he was unaware of the details of the timing of the Enron contribution, but defended Cox's role.

"The generators are doing business in California. Part of the world of the leaders is to go and secure funds for their candidates," DeMarco said. He denied as "mischaracterization" the notion that Cox pressured Enron for donations.

At their state convention in February, Republicans assailed Davis for accepting $119,500 in Enron contributions over the last five years. They demanded that he return it. Davis refused, saying that he took his last contribution of $10,000 from Enron in May 2000, a few months before the power crisis began.

Asked at the time about the $50,000 donation to the California GOP, Party Chairman Shawn Steel said he would strongly recommend that the money be returned. "I don't think we should keep their money at all," he told reporters.

The party has never returned the money.

"To do so requires an action by the board of directors of the party and the board has not taken such action at this time and I do not believe intends to at this time," spokesman Stutzman said Friday.

One consumer advocate who lobbied during the energy crisis, Douglas Heller, recalled that Republican lawmakers pushed for legislation embraced by energy producers, including relaxing environmental regulations to encourage more power plant construction, a move Davis later agreed to.

Heller said he believed at the time it was a political mistake for the Republicans not to put more distance between themselves and the energy producers.

"They pointed fingers at Davis while continuing to present Enron's policy argument as their own," said Heller, who represented the Foundation for Taxpayer and Consumer Rights. "The Republicans were given a free ticket to escape culpability for the deregulation debacle because it fell on Davis' watch and he bumbled his way through it. They refused, however, to stand with consumers and fight the energy companies."

In testimony to Congress earlier this month, Dunn, who heads a committee investigating alleged price gouging, said confidential records from Enron's governmental affairs department suggested a "very close" relationship between the company and unnamed leaders of the Legislature.

"On the one hand, California's legislative leaders appealed directly to Enron for contributions and on the other received explicit instruction about specific legislation," Dunn testified.

He refused to elaborate Saturday, citing confidentiality restrictions. But he said the legislative leaders he had in mind were "primarily from the Republican side of the aisle. I'm not aware of any Democrats that made such an appeal to Enron."

Dunn refused to discuss his allegation that Enron issued orders to lawmakers on bills. He said he hopes to reach agreement with Enron soon on resolving confidentiality conflicts and intends to publicly disclose evidence to substantiate his allegation.

Regulators Don't Like Duke’s Morro Bay Plans

L. A. Times – by John Johnson – April 28, 2002

(4/27/02) - Plans to replace an aging power plant in Morro Bay hit a potential snag this week when state regulators recommended against using seawater to cool the plant.

Duke Energy wants to expand and update the 47-year-old plant, which can produce enough energy for 1 million homes.

But a staff report by the California Energy Commission says pumping hundreds of millions of gallons of seawater through the plant each day, as Duke proposes, would kill too many fish and other organisms in the bay. Instead, the report suggests using giant fans to cool the plant. Duke has expressed doubts about the feasibility of so-called dry cooling. Company officials said it would require construction of huge buildings to contain the fans and add $39 million to the estimated $800-million plant replacement cost. They also said it would be noisy and an even bigger eyesore than the current plant, whose towers loom over Morro Bay's central tourist district.

Duke spokesman Pat Mullen reiterated those objections Friday, but said he is confident the company can turn the decision around when the full Energy Commission begins hearings on the plant application in June.

To operate the plant, Duke needs permits from the Energy Commission and the state water board.

"We've already been working with the [water board] on habitat restoration" to minimize damage to the marine environment, Mullen said.

Although Mullen did not sound overly concerned, project opponents celebrated the staff report as the most important development in the project's three-year struggle.

"We are elated that the [Energy Commission] staff ... has concluded that this national estuary should not be subjected to the great and possibly permanent harm that a new and larger power plant would inflict," said Henriette Groot of the Coastal Alliance on Plant Expansion.

The group said the new plant could kill a third of the bay's fish, larvae and eggs each year.

Mullen disputes that. He said studies show the fish population has not been affected by the current plant, which already uses seawater for cooling. He said screens over the intake system prevent anything larger than 3/8 of an inch from being drawn in, so only fish larvae would be endangered.

Construction is expected to take nearly two years.

Previous Morro Bay article:

Duke Shredded

The Enron ‘Dead Peasant’ Policies

Houston Chronicle – by L. M. Sixel – April 25, 2002

A real incentive to work you to death!

(4/24/02) - When workers at Portland General die, there's a little more money to spend on the top executives of the Enron subsidiary.

The utility has bought life insurance policies on the lives of its rank-and-file employees where the company is the beneficiary when an employee dies. That money goes for special compensation and retirement benefits for its top executives and directors.

That's a galling realization for workers, many of whom bet their retirement on Enron stock, which cratered last year as the Houston energy giant slid into bankruptcy.

The company says its use of this life insurance program is legal in Oregon and was properly disclosed to employees.

But workers sounded surprised when told about it Tuesday.

"Good God!" shouted Tim Ramsey, a 56-year-old power tester who was reached by phone in Portland.

Ramsey is one of the many workers who has sued the company after he lost $1 million in his 401(k) account because he had put most of it in Enron stock.

The fact Portland General bought such policies isn't extraordinary.

Many companies have bought corporate-owned life insurance, which is also known as "dead peasant" or "dead janitor" insurance. The nicknames reflect the fact that these policies are on low-ranking employees, rather than the top-ranking executives whose death could be a financial blow to the company.

While Texas law bans "dead peasant" coverage on most workers here, Oregon is one of the many states that allow it. While employees said they'd never heard of the company's program, Portland General spokesman Kregg Arntson said its employees signed consent forms allowing the company to insure their lives.

That didn't make a big impression with Gary Kemper, a foreman at the company's maintenance center.

When asked if he'd been told about company-owned life insurance, he said, "I don't know a thing about it." Kemper, who lost $200,000 in his 401(k) plan when Enron stock plunged, has also sued the company seeking compensation for his retirement savings plan loss.

The Portland General fund has set aside nearly $80 million for two purposes:

  • About three-quarters of the money goes for a long-term compensation plan for managers, directors and top officials.

  • The rest helps pay for supplemental executive retirement payments.

This approach is used by Portland General to reward top executives with more than just their 401(k) and the traditional defined benefit pensions that are allowed by federal pension laws, which cap how much the company can contribute to the benefits.

Money from its "dead peasant" policies fund what are known as nonqualified deferred compensation plans. The advantage of these plans is that the limits on 401(k) and pension plans don't apply.

"Corporate-owned life insurance enables companies to recover the cost of nonqualified benefit plans that provide additional income and benefits to key and highly compensated employees," boasts Northwestern Mutual's Web site, which has a section promoting them.

And the cash value component of the company-owned plans -- which build up value like a whole-life insurance policy -- is an asset that can be used to offset liabilities, like promises to make enhanced executive retirement payments, according to the Travelers Life & Annuity Web site promoting them. The company-owned life insurance, and the nonqualified compensation program, go back to the mid-1980s.

Arntson wouldn't reveal the details of the compensation packages, saying they're "internal employee matters."

The insurance policies, which are now called "Trust Owned Life Insurance," are currently in effect and also continue to cover the lives of ex-employees, he said.

Scott Simms, another Portland General spokesman, said the money was put in a trust and cannot be moved to compensate employees who lost money in their 401(k) accounts. Besides, Simms said many senior executives also suffered big losses on Enron stock.

The Internal Revenue Service has sued several companies that bought company-owned life policies, challenging their deduction of the interest cost. In each case, when the companies have sued the IRS to recover the money they had to pay in back taxes, the courts have said the insurance was a tax dodge, said Mike Myers, a lawyer with McClanahan & Clearman in Houston. He has sued Wal-Mart on behalf of Texas families seeking to collect the insurance proceeds that went to the big retailer.

But one of the companies that ran into tax trouble with the IRS is annoyed that it is lumped in with the "bad guys" when it used this life insurance strategy to fund another type of benefit plan.

American Electric Power in Columbus, Ohio, bought company-owned life insurance policies in 1990 to deal with the surging cost of medical benefits for retirees.

AEP spokesman Pat Hemlepp said the utility was faced with the choice of either eliminating the benefits or raising electric rates if it didn't use this approach. AEP has extensive properties in Texas.

Utility officials discussed the options in public meetings with representatives of the state agencies that regulate the utility, sent letters to all employees and did an article about the policies in its in-house paper.

"We were not trying to hide it," said Hemlepp.

While the policies are no longer in effect, the utility announced it would include $317 million reflecting six years of back taxes in its earnings for 2000. The company has appealed to the 6th U.S. Circuit Court of Appeals.

"Our heart was in the right place," said Hemlepp

CA Wins Power Price Concessions

Associated Press – by Paul Glader – April 25, 2002

SAN FRANCISCO (AP) - California will save $3.5 billion on its long-term energy pacts under reworked terms on eight contracts with four power companies, including San Jose-based Calpine Corp.

Calpine and Baltimore-based Constellation Energy Corp. also agreed to pay $8.5 million to settle complaints filed with federal regulators that the companies charged illegal prices during California's power crisis, state officials said at a press conference here to announce the renegotiated contracts.

The settlement ends the state's investigation into Calpine and Constellation, "who were willing to renegotiate their long-term contracts," Attorney Bill Lockyer said in a statement. The two companies "were found in our investigation to have committed smaller violations compared to other energy companies." In total, the state trimmed eight contracts with four companies that were originally worth $15 billion, reducing that amount by about 23 percent to $11.4 billion.

The new contracts include stronger language that will ensure new power plants get built, said Barry Goode, Gov. Gray Davis' chief counsel. In Calpine's contracts, for example, the state can withhold grants or even terminate one deal, if the company doesn't meet construction milestones.

Calpine's chief operating officer Jim Macias said the new agreements "resolve questions and uncertainty surrounding our contracts."

Calpine curtailed its ambitious expansion plans recently after a sharp decline in electricity prices, coupled with the fallout from Enron Corp.'s bankruptcy, saddled the company with a deteriorating credit rating. The company ended last year with $12.7 billion in debt, according to a U.S. Securities and Exchange Commission filing in March.

Calpine's four long-term deals were worth $11.7 billion and made up about 25 percent of the power the state arranged under the contracts. The longest deal, a 20-year contract with Calpine, will be cut to 10 years.

The state signed 56 long-term power deals last year at the height of the power crisis. The California Department of Water Resources began buying energy in January 2001, after three utilities amassed billions of dollars in debts due to high wholesale costs and couldn't buy energy for their customers. Davis has credited the long-term deals with taming the market and provide reliable supplies.

Since the contracts were signed, wholesale electricity prices have dropped to less than half the $69 per megawatt hour average of the long-term deals, leading critics to say the state was rolled by the power companies and stuck consumers with a decade's worth of high prices.

While the state gets more flexible terms in the restructured deals, Calpine will benefit from having solid contracts, Macias said. Additionally, the state will no longer seek refunds from Calpine through the Federal Energy Regulatory Commission and the myriad of state energy agencies agreed to not challenge the "reasonableness" of the new contracts.

S. David Freeman, chairman of the state's Power Authority, led negotiations on the first batch of power deals, and participated in the effort to improve them.

When the first contracts were negotiated, generators "had a gun to our heads," he said. The state's negotiators on the reworked deals "didn't have a gun they could hold to the generators' heads, but the terms they have worked for represent a vast improvement from what we did a year ago."

In a statement, Davis said he would still press federal regulators to investigate allegations that power companies manipulated the market in California.

Duke Must Reveal Secret Prices

Associated Press – April 25, 2002

HELENA (AP) - A state judge has decided that most details of power-purchase agreements negotiated by the former Montana Power Co. should remain secret, but has ordered some of the information to be disclosed.

Among the items District Judge Thomas Honzel said must be made public is the price the utility agreed to pay Duke Energy of Charlotte, N.C., for 111 megawatts of electricity. That is the only price in the package of power deals that was not disclosed earlier.

But in a decision Honzel made late Friday, he also said some items in a contract to buy power from a new gas-fired plant at Great Falls and the various bids received from generators cannot be revealed.

Honzel's decision was partial victory for both sides in a lawsuit over the secrecy afforded certain specifics of the contracts by the state Public Service Commission.

Montana Power, now called NorthWestern Energy, and some of its suppliers wanted information kept under wraps as trade secrets. A dozen news organizations challenged the PSC's order that kept information confidential.

Jim Strauss, executive editor of the Great Falls Tribune, said the news media will appeal Honzel's decision to the Montana Supreme Court.

The judge failed to explain what standard he used for determining what deserves protection as a trade secret, he said.

``He seemed to say that if a corporation defined it as a trade secret, he agreed with that,'' said Strauss, whose paper was among those filing the suit. ``The judge did not define what the standards were, so the companies can set their own standards.''

Marjorie Thomas, attorney for NorthWestern, acknowledged the ruling was more favorable to the company than to the news organizations. She said Honzel rejected the media's argument that the confidentiality of trade secrets must be balanced against the public's constitutional right to know what government is doing. That is a major problem with Honzel's reasoning, Strauss said.

``If you don't have to balance against the public's right to know, then the bottom line is that corporations have more rights than individuals,'' he said. ``I think that should be disturbing to all Montanans.''

The suit sought access to the contracts that will be used to determine the size of July rate increase for NorthWestern's 295,000 electricity customers.

At NorthWestern's request, the PSC last fall ordered much of the information contained in contracts be kept secret. The Butte-based utility released some details of some agreements in mid-February, but the full contracts remained confidential.

The contracts spell out the terms by which NorthWestern plans to buy its electricity supply starting in July, for up to 20 years. The company has said a 20 percent rate increase is needed to cover the cost of the portfolio.

The news organizations contended the documents are public records of the PSC, and its protective order violates the public's right to know under state law and the Montana Constitution.

The commission argued it was following established procedure in complying with NorthWestern's request to keep some details confidential.

Robin McHugh, chief PSC attorney, said the commissioners may discuss their next move Tuesday. The commission has set a May 31 deadline for deciding whether to approve all or parts of the contract portfolio.

In his ruling, Honzel said the Duke Energy contract price, which covers about a tenth of the power contained in the portfolio of agreements, must be made public because it is not a trade secret. He also said that the delivery point for the Duke electricity cannot be withheld in the contract because it already is disclosed in another document.

Power Rate Relief Sought

Dow Jones – April 25, 2002

(4/22/02) - NEW YORK (Dow Jones) -- Cash-strapped Sierra Pacific Resources will meet with power suppliers in Nevada on Wednesday to update them on the utility holding company's financial situation, Sierra Pacific spokesman Paul Heagen told Dow Jones Newswires Monday.

Sierra Pacific, pegged by some as the likely next victim of the western U.S. power crisis, is trying to figure out how to cover expensive power bills that will come due this summer after an unfavorable ruling by Nevada regulators.

"We've invited all of our major power marketers," Heagen said. "I don't now who all is going to be there, but we've invited the risk mangers and credit managers."

"We want to get everybody together in a room, help everybody understand what our position is, and get everybody's confidence that everybody is being treated the same," Heagen said. "It's not overtly an effort to renegotiate the contracts, but we're certainly open to any accommodations our marketers can make. That's in their interest as well as ours."

At issue are hundreds of millions of dollars in high-priced power contracts Sierra Pacific's two utility units signed at the height of the western U.S. power crisis. Sierra Pacific has expressed concern about its ability to pay for those supplies. Late last month, the Public Utilities Commission of Nevada rejected Sierra Pacific unit Nevada Power Co.'s request to collect from ratepayers more than $400 million in wholesale power bought for 2001, saying the purchases hadn't been prudent. The holding company's northern Nevada utility, Sierra Pacific Power Co., has a similar request pending at the commission, and both utilities have contracts covering supplies in 2002 as well.

The company has asked the Federal Energy Regulatory Commission to abrogate its contracts with American Electric Power Co., Allegheny Energy Inc., BP PLC, Calpine Corp., Duke Energy Corp., El Paso Corp., Enron Corp., Mirant Corp., Morgan Stanley, and Reliant Resources. FERC told the parties to try to negotiate a settlement. Sierra Pacific is also suing the commission over its rejection of purchased-power costs.

How Enron Made a Killing in California

CBS MarketWatch – by Russ Britt – April 17, 2002

(4/16/02) - LOS ANGELES (CBS.MW) -- In late 2000, electricity prices were soaring in California. Politicians were scrambling to find energy. Consumers were being warned the lights could soon go off.

And Enron Corp. was making a killing, charging more than twice what its rivals charged within the state while pushing more than four times as much energy through the power grids that included California's, according to a study of federal energy documents.

Enron's power marketing group charged more than double the average of what the next four largest energy traders were charging, according to documents filed with the Federal Energy Regulatory Commission, known as FERC. It was also charging more than double what it charged for pacts outside California. The secret, experts say, was Enron's virtual control of the markets at the time.

"Talk about price leadership -- they were bordering on dominance," said Robert McCullough, a Portland, Ore.-based energy consultant, who testified in a U.S. Senate hearing last week that California energy prices dropped after Enron declared bankruptcy in December.

That dominance shows up in the energy documents as well. They show how Enron's volume in megawatt hours of electricity sold in deals that included California power grids was more than quadruple that of the other four energy providers combined during that quarter.

The data may not be the smoking gun that regulators seek in their quest to determine whether Enron was responsible for driving the prices up in California. However, it does provide a few key pieces of the puzzle, regulators say.

It indicates Enron spearheaded the driving up of energy prices even though the company has claimed in the past that it sold very little energy directly to the state, officials say.

"They were sort of the nucleus of the atom," said State Sen. Steve Peace, who helped draft laws deregulating the energy industry in the state but now is opposed to it in its current form. "Everybody's making it far more complicated than it needs to be. Every trading floor was a subset of Enron."

Enron spokesman Eric Thode declined to respond to the study's conclusions, saying he hadn't seen the documents. Despite cries from officials that Enron is withholding information, Thode insisted that the company is cooperating with federal and state legislative bodies that are investigating whether it manipulated prices. He said there has been no evidence uncovered to show the company manipulated prices.

Deregulation force

Enron was a key player in getting energy deregulation passed in California in 1995. The company spent heavily on the campaigns of lawmakers, contributing to the campaigns of 70 percent of the current sitting Legislature, as well as those of Calif. Gov. Gray Davis and Attorney General Bill Lockyer.

The Houston-based energy giant also spent heavily on lobbying efforts in an effort to get deregulation passed. Lawmakers, many of whom say they had no idea Enron was contributing to their campaigns, now are turning their guns toward the fallen energy company.

Enron's pricing figures came from the quarterly filings that each energy trader must submit to FERC. Each report outlines the electricity contracts bought and sold, the parties involved, a range of the prices paid and over which electric grids the electricity was sent.

The findings showed that Enron charged an average of $264.59 per megawatt hour for contracts that included California power grids for the fourth quarter of 2000. Dynegy was a distant second at $166.02, Williams Cos. came in third at $123.47, Reliant Energy ended fourth at $120.71 and Duke Energy was fifth at $92.68.

That means Enron's price was 63 percent above Dynegy, 114 percent higher than Williams, 119 percent more than Reliant, and 185 percent greater than Duke's, nearly triple the price.

"By that point, Enron had the market power to dictate those kinds of prices," said California State. Sen. Joseph Dunn, who is heading up a special committee looking into price manipulation during the state's energy crisis.

It was in 2000 that Enron more than doubled its worldwide revenue, growing it to $101 billion from $40 billion in 1999. That launched the company into the No. 7 spot among the largest U.S. companies, where it remained until it collapsed into bankruptcy in December, leaving thousands of investors and its own employees with massive losses on its shares. used the following methodology to determine Enron's pricing average in comparison with other top traders:

  • Contracts were singled out in which Enron or another trader sold power that was sent over four key Western hubs serving California. In many cases, those contracts also included power transmitted outside California in addition to deals within the state, but there usually was no breakdown provided either by FERC or the energy trader.

  • Since Enron's prices seemed out of line with others, an analysis was done on the company's contracts that did not include those four Western hubs during the 2000 fourth quarter. The study showed that Enron's price on California-related contracts was 145 percent higher than the $108.19 charged for electricity that did not pass through those Western hubs.

  • Since only a range of prices was provided on each pact, the mean of each contract's range was used to develop the average price. If a contract had a price range of $100 to $200 per megawatt hour, the mean of $150 was used.

  • All the mean figures of each contract were added together and then averaged out.

Consultant McCullough said he has made similar findings in analyses he's conducting on Enron's pricing activity, based on the same reports. He said, though, the meager information provided does not lend itself to a scientific study.

"I think they (energy providers) file them out of charity," he said. "But it's certainly an indication of price leadership."

Some officials point out that Enron was primarily an energy trader while the others were just breaking into that market. But at the beginning of 2000, before anyone dreamed there could be an energy crunch, Enron's pricing was right with the rest of the pack.

Using the same methodology, records show Enron's average California contract in the first quarter of 2000 went for $37.93. Dynegy's price was higher during that time, averaging $40.65. The rest were in the $30 to $40 range.

Big California player

In response to concerns that it helped perpetuate the energy crisis, Enron long has said that it was not a significant player in California, pointing out that it sold very little electricity to the major utilities, the state's now-defunct power exchange or to the California Independent System Operator.

Behind the scenes, however, Enron was a massive player, controlling about 30 percent of the electricity traded at the four Western hubs, according to a study by McCullough's research firm.

FERC documents show that those four hubs - electricity clearinghouses called COB, Palo Verde, NP-15 and SP-15 - also were included in contracts for more than 144 million megawatts of power sold by Enron during the 2000 fourth quarter. That represents roughly 80 percent of Enron's overall power sales of 178 million megawatts during that time.

Even though some of Enron's largest competitors had the same, or in some cases, more electricity contracts that they sold during that time, the actual number of megawatts they handled paled in comparison.

Duke sold roughly 15.4 million megawatts, Williams handled 7.5 million, Reliant had 6.6 million and Dynegy marketed 3.4 million.

"One of Enron's PR claims they made was 'Don't blame us. We are a bit player in the California energy market,'" said State Sen. Dunn.

Enron often had individual contracts that were greater than the total take of its main rivals during that time, handling 10 million to 20 million megawatts at a time. A megawatt can power 1,000 homes.

And the energy that was traded often was bought and sold between Enron and the other companies.

Enron sold more than 10 million megawatts to Duke at prices up to $725 per megawatt. Another 3.1 million went to Dynegy for up to $600. Reliant got 6.4 million for up to $801.56 while Williams paid up to $350 for 10 million megawatts. Another energy trader, American Electric Power, bought nearly 20 million megawatts from Enron.

But one of Enron's best customers was itself. Fourth-quarter figures show that Enron got anywhere between a nickel and $1,100 per megawatt for 5.8 million megawatts that the company sold to its energy services division.

That's the division where current Army Secretary Thomas H. White worked as vice chairman. White, who joined the Bush Administration in early 2001, is reportedly being investigated by the FBI for possible insider trading in connection with Enron shares last October as they were plummeting in advance of the company's collapse.

Ricocheting prices

It is Enron's trades with itself that are capturing the attention of lawmakers. They believe Enron ping-ponged electricity contracts back and forth between itself and its numerous divisions, thus enabling it to drive up the price.

"They got a lot of share for themselves when they ricocheted up the price," said S. David Freeman, chairman of the California Power Authority. "They fed the market and were a leading participant in it."

State Sen. Peace said Enron had extra incentive to drive up the price other than making money. In 1999, Enron bet big that California electricity prices would skyrocket and positioned itself to take advantage of that.

When prices didn't go up, Enron was left holding the bag, Peace said. It had to find ways to boost prices during 2000. So Enron simply took control of the market, he added.

"Enron had a need to be the most aggressive in driving those prices up," Peace said. "Enron had to do that. They were in trouble. They were the most exposed."

Enron started boosting its sales prices rapidly in the second quarter that year. After charging an average of $37.93 in the first quarter, prices shot up to $243.35 in the second, according to the FERC documents. They settled back to $182.91 in the third, but then quickly rebounded to reach $264.59 in the fourth quarter.

During 2001, Enron's prices still were above the $200 level in the first quarter, but settled back as the year wore on. By the time the company declared bankruptcy in December, pricing had returned to below $80, the FERC records show.

State Sen. Dunn points out that by having the kind of market control it did, Enron easily could have taken advantage of the deregulation parameters it helped craft.

"There's a number of ways they drove up the market," Dunn said.

In order to bridge gaps in electricity supplies, the now-defunct California Power Exchange paid what is known as a market-clearing price for power. It would accept bids for, say, 100 megawatts of power on a given day, starting with the lowest bid and working its way up.

The price was determined by the last bid used to fill the 100-megawatt order. That is, all providers received the price that the last bidder offered - the highest bid of the day.

Enron built its market dominance by creating market volatility, as did other energy providers, officials say.

"The issue is not whether they broke the law. It's the rules they lobbied into existence," said the power authority's Freeman. "The fact that it may have been legal doesn't make it right."

Lawmaker: Enron Destroyed Evidence

CBS MarketWatch – by Rex Nutting – April 12, 2002

Sham trades pushed prices higher, witnesses say

WASHINGTON (CBS.MW) -- A California state lawmaker told the Senate Commerce Committee that Enron engaged in "willful" destruction of evidence contained in e-mails sought by a state legislative investigation.

"We're going to go to war with them again," said state Sen. Joseph Dunn, D-Orange County. Dunn told the Senate Commerce Committee that Enron had not been cooperative in providing documents. He urged the Senate to subpoena the same documents.

Dunn said his committee's experts believe Enron deliberately removed key e-mails from nine disks of e-mails provided to the committee. He said computer experts had been able to retrieve some of the documents from the disks.

"We are demanding absolute, unfettered access to their main hard drives," Dunn said.

The Justice Department has indicted Enron's auditor, Andersen LLP, for its alleged role in destroying evidence sought by the Securities and Exchange Commission. Andersen may be close to a settlement of those charges, The New York Times reported.

No charges have been filed against anyone at Enron, although several investigations continue.

Witnesses at the hearing detailed how Enron purportedly manipulated California energy markets in 2000 and 2001 to push prices higher and to make their trading system seem busy and vital.

California's electricity deregulation "was the greatest fraud ever perpetuated on the American consumer," Dunn said. "They never, ever intended to deliver on lower prices."

Dunn's prepared remarks detailed evidence of price manipulation by Enron. He said his committee has uncovered evidence that Enron began to bet in 2000 that the price of electricity and natural gas would go higher, even as the company had more electricity to sell

"Staggering shifts, a veritable sea change, from short to long positions are found in Enron's own books," Dunn said.

Enron, one of the main backers of California's deregulated wholesale power markets, was also one of its biggest players. But many of its trades were self-dealing trades within the company.

"Enron was selling the same megawatts back and forth," said Loretta Lynch, president of the California Public Utility Commission. "These were sham transactions."

In the fourth quarter of 2000, Enron traded more than 11 million megawatts with its own affiliates, representing more than 30 percent of its trades, Lynch said.

"By selling energy to itself at inflated prices, Enron pushed energy prices higher," said Wenonah Hunter of Public Citizen. "They were able to move money from its profitable energy division to unprofitable divisions, and they made it seem as if the company was more stable than it was."

Four More Energy Companies Sued

Associated Press – by Jennifer Coleman – April 10, 2002

California Attorney General Bill Lockyer sued four energy companies Tuesday, accusing them of overcharging the state for electricity during the state's recent energy crisis.

Lockyer's suit names Mirant Corp. of Atlanta, Williams Energy Marketing and Trading Cos. of Tulsa, Okla., Coral Power LLC, a subsidiary of Shell, and Powerex Corp., a Canadian firm.

Between the four companies, Lockyer said at a Sacramento press conference, there are hundreds of thousands of transactions in which they charged the state illegal prices. He is seeking $2,500 for each violation, which could total more than $1 billion in fines.

Lockyer is suing under the state's unfair business practices law. He has accused the energy companies of charging unreasonable prices and of failing to report their rates to the Federal Energy Regulatory Commission, as required under federal law.

"We've got hard evidence that they were ripping us off," Lockyer said.

Mirant, Williams and Powerex are accused of overcharging the state between $500 million and $1 billion each in 2000 and 2001. Coral Power, said Ken Alex, supervising deputy attorney general, was a smaller player in California's market.

"Just because it's only in the tens of millions, that doesn't make it right," Alex said.

Under FERC rules, energy wholesalers who qualify to sell at market rates must file reports that list their prices in the last quarter. Those reports either haven't been filed, Lockyer said, or the information is incomplete.

With prices in an open market changing every 10 minutes, that would require "deforesting North America with the paperwork," said Jan Smutny-Jones, executive director of the Independent Energy Producers. "It's just unworkable."

Nonetheless, it is required, Alex said. "They have to record that price. Every single price is a contract."

Williams spokeswoman Paula Hall-Collins said the company had only done a preliminary review of the suit, but "we believe these charges are unfounded.

"More importantly, we believe these types of charges really do nothing to solve the energy problems the state faces. Our hope is that California will begin to focus on solutions," she said.

An official with Powerex declined to comment until the company's attorneys could review the filing.

Mirant spokesman Patrick Dorinson said the company had properly filed all required paperwork with FERC and "we've never heard from FERC to the contrary.

"Suing energy companies might make great election-year politics, but it makes horrible long-term energy policy" by driving energy companies away from investing in California, Dorinson said.

Lockyer, a Democrat, is seeking re-election against Republican Sen. Dick Ackerman of Fullerton.

He denied his actions were politically motivated.

"We don't run a political operation here," Lockyer said. "We did a thorough investigation. We've got them, and we're not going to let them go."

Last month, Lockyer filed four other lawsuits against energy companies he accused of double-billing California for electricity purchases. That suit named Mirant, Williams, and Reliant Energy Inc. and Dynegy Inc., both of Houston.

He has also filed a complaint with federal regulators, seeking at least $1.8 billion in refunds. That complaint also involves accusations that energy companies haven't sufficiently reported their rates.

Generators filed a response to that complaint Tuesday, calling the attorney general's action unfounded. Smutny-Jones, with the Independent Energy Producers, said the state should stop the lawsuits and complaints and focus on rebuilding California's energy market.

Lockyer said he expects to file additional lawsuits on Friday, but declined to give further details.

Companies Knew Deregulation Would Hurt Public

Associated Press – April 8, 2002

SACRAMENTO (AP) - Enron executives have been cooperating with a Senate committee investigating the state's energy crisis, under threat of a Senate vote to find them in contempt of a legislative subpoena, the committee's chairman said Wednesday.

Sen. Joe Dunn, D-Garden Grove, said Senate investigators have gone to Houston to review documents there, and plan a trip to Enron's Portland, Ore., office, which is the energy trader's West Coast hub.

Investigators have unearthed evidence that energy companies, which pushed deregulation as a way to lower consumers' costs, knew the state's experiment with deregulation would result in a volatile electricity market, Dunn said.

The now-bankrupt energy giant led the push for the state to deregulate its energy market in 1996, which was ``perhaps the greatest fraud ever perpetrated against consumers,'' Dunn said.

He spoke at a Capitol news conference with consumer groups who called on state and federal lawmakers to tighten regulations to prevent future business failures such as Enron's.

Energy companies wouldn't have pushed for deregulation, Dunn said, unless it would benefit their profits and ``that instead of competition driving prices down, there was no real competition and prices would go up.''

Dunn's committee has readied subpoenas for three former Enron employees, including former CEO Jeffrey Skilling. Those subpoenas have not been served, Dunn's staff members said, because the staff is working with the former employees to arrange voluntary testimony.

The Senate Select Committee to Investigate Price Manipulation in the Wholesale Energy Market delayed Wednesday's deposition of Jeff Dasavich, a former governmental affairs employee who worked in Enron's San Francisco office. Dunn said he was still gathering documents for that deposition and expected it to take place within two weeks.

The committee also plans to depose former executive vice president Steven Kean.

The committee, convinced that Enron has destroyed financial documents under legislative subpoena, voted in February to seek criminal charges against the company for concealing evidence and conspiracy.

Committee members also voted then to ask the full Senate to find Enron in contempt of two legislative subpoenas.

Since then, the energy company's officials have been cooperating with investigators, Dunn said.

Slow Illinois Deregulation

Employee Advocate – – April 5, 2002

The Journal Star reported that deregulation is moving slowly in Illinois. The problem is that there are few electric suppliers to choose from, and few likely to come into the area.

Businesses have been eligible to swap suppliers since 2000, but few have found little incentive to do so. Residential customers can switch suppliers on May 1, if they can find a place to switch to!

Some businesses have submitted the forms to switch, but have heard nothing back.

Deregulating was passed in Illinois in 1997, but new suppliers are not flocking in.

The rates will be unfrozen in 2005. Then it may be open season for price gouging.

Old Law Protects Electricity Consumers

Public Citizen – Press Release – April 4, 2002

Bill Would Invite More Enron-Like Rip-offs

Congress Should Strengthen -- Not Repeal -- Law That Protects Electricity Consumers

WASHINGTON, D.C. -- Congress should strengthen -- not repeal -- a 66-year-old law relating to electric utilities that contains key consumer protections, Public Citizen said today.

The Senate energy bill, currently being debated, contains a measure that would repeal the Public Utility Holding Company Act of 1935 (PUHCA), which provides important protections but has been eroded over the past decade through loopholes, many of which were created at the behest of the now- disgraced energy company Enron.

PUHCA prohibits utility holding companies from investing ratepayers' money in areas that will not directly contribute to low bills and reliable service, such as out-of-region power plants or non- electricity industries. PUHCA was enacted in response to the United States' first Enron-style energy crisis in the 1920s, in which a handful of energy companies, employing business strategies strikingly similar to Enron's, created complex, multi-state corporate pyramiding schemes. Not only were consumers overcharged, but investors were robbed because the holding companies' assets were inflated. The pyramiding holding companies finally collapsed, helping to bring about the stock market crash of 1929 and the Great Depression.

"It is unbelievable that after the California energy crisis and the collapse of Enron, Congress would still consider repealing this law," said Public Citizen President Joan Claybrook. "This whole energy bill is a treasure trove of giveaways to the energy, oil and nuclear industries. This is yet another section of the bill that leave consumers in the cold."

PUHCA has lost much of its teeth over the past decade as a result of deregulation, lobbying by energy companies -- primarily Enron -- and decisions by the Securities and Exchange Commission (SEC) to ignore the law. Congress undermined PUHCA by passing the 1992 Energy Policy Act, which permitted holding companies to invest ratepayer money in foreign power projects and divert resources away from American consumers. And the SEC made things worse when in 1994 it exempted power marketers such as Enron from PUHCA. As a result, power marketers - creatures of deregulation that don't own power plants but rather trade electricity contracts - are trading free from government oversight in deregulated markets across the country.

The combination of deregulated state wholesale electricity markets, federal deregulation of commodity exchanges and the weakening of PUHCA has removed accountability from energy companies and allowed companies like Enron to manipulate energy prices and supplies. The recent California energy crisis and Enron's collapse would have been impossible under a regulated system.

The solution is to close the loopholes and strengthen PUHCA, Claybrook said. Congress should:

Mandate that the SEC strictly enforce the act, and beef up funding and staff for the SEC so it can do its job;.

Prohibit holding companies from being allowed to invest in foreign countries, and ensure that power marketers are subject to PUHCA; and

Use PUHCA to address issues of market power. For example, Congress should grant federal and state regulators the authority to order holding companies to divest assets, expand anti-trust investigations and enforcement, and create non-profit, consumer-owned regional transmission councils to ensure non-discriminatory access to the grid.

"It is unfortunate that Republicans and Democrats alike propose repealing PUHCA," said Wenonah Hauter, director of Public Citizen's Critical Mass Energy and Environment Program. "The Enron disaster and the failure of electricity deregulation across the country illustrate how vulnerable consumers and investors are to impenetrable corporate structures and unaccountable markets. PUHCA's protections are needed now more than ever."

Deregulation - Page 13 - 2002