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Very Specific Terrorist Warning Named NamesL. A. Times – by E. Lichtblau, J. Meyer – May 24, 2002
WASHINGTON -- A Phoenix FBI agent who wrote a memo last year warning about suspicious Middle Easterners at flight schools had developed detailed information before Sept. 11 linking Arizona students to Osama bin Laden and to a radical British Islamic group, and he shared some of his concerns with the CIA, law enforcement sources said Wednesday.
Agent Kenneth Williams suspected that a group of about eight Middle Eastern men in the Phoenix area were not merely studying at flight schools but also had shown a keen interest in airplane engineering and airport construction and security, according to sources familiar with the closed-door briefings Williams gave members of Congress this week.
His review also determined that one of the Arizona flight school students appeared to have communicated through a middleman with one of Bin Laden's top aides, Abu Zubeida, and that several of the students under suspicion had links to a radical group called Al-Muhajiroun. The Britain-based group is dedicated to the establishment of a global Muslim state and has vocally supported Bin Laden and other terrorists.
The still-secret memo that Williams prepared in July, warning that the FBI should canvass flight schools around the country for possible terrorist ties, has become Exhibit A in the eyes of some members of Congress who accuse the Bush administration and the intelligence community of missing possible warning signs before Sept. 11. Scrutiny has focused on who knew about the Phoenix memo and why the document never made it above middle FBI management before the attacks on the World Trade Center and the Pentagon.
Vice President Dick Cheney, asked Wednesday on CNN's "Larry King Live" whether Williams was prophetic, said: "I think he was." Cheney acknowledged that "there's a lot we can do" to improve the flow of intelligence information, but he said much of the recent criticism connected to the Williams memo represents "Monday morning quarterbacking."
Indeed, administration officials say they had no tangible warnings that could have led them to predict that an attack was imminent. And Rep. Porter J. Goss (R-Fla.), who is helping lead the congressional inquiry into the attacks, said in an interview after a classified briefing with Williams on Wednesday that "no smoking gun" has emerged to dispute that claim.
But the new details suggest for the first time that the CIA may have had advance knowledge of some of the suspicions generated from Arizona. And the details also appear at odds with authorities' contention that Williams was only pursuing "a hunch"--not actual evidence--in warning about the risk of flight schools.
"This was not a vague hunch," according to a congressional source familiar with a classified briefing Williams gave to lawmakers. "He was doing a case on these guys. He put in all the history about this pattern of radical Muslims and [Bin Laden having] links to Arizona. He talked about fatwas [religious edicts] targeting U.S. airports. He noted that one guy was asking about airport security--that's specific information, not guesswork." The memo "was very specific. It named names," the official said.
Officials at the FBI and the CIA declined to discuss the issue Wednesday.
But, asked about the CIA's role in the Phoenix case before Sept. 11, an official said "FBI headquarters requested some name traces on some Middle Eastern individuals that they had concerns about." While the details of that request remain unclear, "it could have been that they had some individuals in Arizona who came up on their radar screen that they were interested in," said the official, who asked not to be identified.
The CIA's knowledge of the case appears to have gone beyond a fairly routine request by the FBI for the CIA to come up with information on suspected individuals. Williams also discussed his concerns regarding the Arizona flight schools with field-level intelligence counterparts at the CIA, according to a government official familiar with what Williams told members of Congress.
The FBI's initial inquiries to the CIA last year regarding the Phoenix suspicions did not produce any positive links to terrorists, the official said.
But after Sept. 11, the CIA confirmed that at least two of the flight school students under suspicion in Arizona had links to Al Qaeda, and evidence indicated that one person had communication through a third party with "a very close associate of Bin Laden"--namely Zubeida, the official said. The nature of that communication was not disclosed.
Williams also told lawmakers that his interest in the flight school issue was piqued last year because Bin Laden had known ties to Arizona, the official said. This was an apparent reference to Egyptian Essam al Ridi, a Bin Laden operative who trained to be a pilot in the United States and purchased a used military aircraft in Arizona for Bin Laden in 1993 for $210,000. He then flew the Saber-40 twin-engine passenger jet to Sudan.
One focus of Williams' memo is the suspected link between Arizona flight students and the radical group Al-Muhajiroun, which loosely means "The Emigres," according to several sources familiar with the memo.
Authorities in Britain long have investigated the group and its leader, Sheikh Omar Bakri Mohammad, a London-based Muslim cleric who has dubbed himself the "mouth, eyes and ears of Osama bin Laden." Those investigations focused on whether Al-Muhajiroun was one of many front organizations for Al Qaeda and whether it had engaged in any terrorist activities, including recruiting and sending young Muslim militants to Al Qaeda training camps in Afghanistan. It has openly issued calls to arms against the U.S. and its allies.
A former FBI official who recently left the bureau said that, had the Phoenix memo not hit a dead end at FBI headquarters before Sept. 11, it could have led to significant information about Al Qaeda terrorist cells within the United States, including Al-Muhajiroun supporters.
The former FBI official said Al-Muhajiroun itself was not under active investigation but that anyone associated with it had drawn FBI scrutiny because of their suspected ties to other radical organizations, including Al Qaeda.
"It is a radical group with radical ideological leanings," the former official said. "So it would be naive to think that, even if the group says it engages just in political or public relations activity, that that's all it does and that none of its members are involved in other types of logistical, financial or direct support of terrorist activity. You can be a member of Al-Muhajiroun and it would be very likely that you were a member or supporter or sympathizer of Al Qaeda."
Steven Emerson, a terrorism consultant to Congress, said the group recruits young militants in England and claims to provide them with military training there and elsewhere. Efforts to reach the group, which has a Web site filled with virulent anti-American rhetoric, were unsuccessful.
The detailed nature of the case laid out by the memo is likely to intensify questions from members of Congress about whether the intelligence community missed warning signs that could have headed off a possible attack. But Goss, who chairs the House Intelligence Committee, cautioned against any rush to judgment.
"I haven't got any smoking gun. I haven't even got a cap pistol," he said. In general, Goss said, "I have not found a single instance of omission yet where someone had something they should have sent to someone else or anything that is an obvious failure. The next question is, were the procedures in the FBI appropriate, and I can't answer that question. All those questions are going to be answered in our report" later this year.
Goss refused to discuss the substance of the briefing his panel got from Williams and the FBI but said that "our time this morning was astonishingly well spent."
Congress Subpoenas White HouseReuters – May 24, 2002
WASHINGTON (Reuters) - A Senate committee on Wednesday subpoenaed the White House's records of its interactions with Enron Corp., and the White House turned over some material showing numerous contacts with former Enron Chairman Kenneth Lay.
In a 9-8 party-line vote, the Senate Governmental Affairs Committee approved the first congressional subpoenas of the Bush administration. They were requested by committee Chairman Sen. Joseph Lieberman, a Connecticut Democrat and potential 2004 election challenger to Republican President Bush.
The move escalated Congress' battle with the administration over the reach of their respective powers. Lieberman said he was forced to act after the White House stalled on his two-month-old request for information about its ties with now-bankrupt Enron .
Later on Wednesday, White House counsel Alberto Gonzales sent Lieberman seven pages of material detailing some White House interactions with Enron, and said he expected to make more information available ``as further work is completed.''
But administration officials insisted they had intended to release the information even before the subpoenas were issued.
The material revealed many links with former Enron chief Lay, who was a major Bush campaign contributor and served on a transition committee that searched for people to fill energy-related positions in the administration.
``Mr. Lay recommended a total of 21 individuals for appointment in the administration, of whom only three ultimately received appointments,'' said the White House document, a summary of Enron contacts submitted by Gonzales.
Lieberman's spokeswoman said the senator was not satisfied with the White House submission, noting that Gonzales' letter said he was releasing only material that was ``ready for disclosure.''
``It appears that the White House is still providing only what it thinks is relevant, rather than what the committee asked it for,'' spokeswoman Leslie Phillips said.
Before the subpoena vote, Lieberman denied he was accusing the White House of anything, but said information was needed to see if the government could have prevented the Enron debacle.
``I have finally concluded that we were being slow-walked ... at least, and stonewalled at worst,'' Lieberman said.
Republicans accused the committee's Democratic majority of conducting a fishing expedition aimed at pinning the blame for Enron's collapse on the Republican Bush administration.
``There has been no indication that the executive office of the president has had any involvement in any of these matters,'' said ranking Republican Sen. Fred Thompson of Tennessee. ``This is nothing more than a decision to have a look-see to see if something might possibly turn up.''
The two subpoenas, which went to the offices of Bush and Vice President Dick Cheney, ordered disclosure by June 3 of any contacts with Enron concerning eight agencies that regulate corporations and energy, or concerning Bush's energy plan.
PERPLEXED BY THE SUBPOENAS
The White House said it was perplexed by the subpoenas, and said it was cooperating with Lieberman. ``They have issued a subpoena without even having a chance to review the information that we're sending,'' Bush spokesman Ari Fleischer said.
``Our inquiry disclosed no instance in which Enron approached anyone in the executive office of the president for financial help prior to their bankruptcy,'' Fleischer added.
The material Gonzales released showed Lay attended meetings with administration officials up to and including Bush, who dropped in on a gathering of about 20 business leaders that included Lay on Feb. 7, 2001.
Lay and Enron's chief Washington lobbyist Linda Robertson also met the executive director of the administration's task force on energy policy on Feb. 22, 2001, and they had a half-hour meeting with Cheney on April 17 -- a session the vice president already has acknowledged.
The White House summary also described conference calls held in late October 2001 among Treasury Department and White House officials to discuss the potential energy and financial-market impacts of an Enron bankruptcy.
And it said that at one lunch of senior economic policy officials in October or November, ``Undersecretary of the Treasury for Domestic Finance Peter Fisher may have mentioned that he had received a call from former Treasury Secretary Robert Rubin inquiring about the possibility of the Treasury Department providing assistance to Enron.'' The administration says no such assistance was provided.
Enron, once the world's biggest energy trader, filed for bankruptcy on Dec. 2 amid revelations of losses from off-the-books partnerships.
Before its spectacular failure, the company spent heavily on lobbying to deregulate electricity markets and to limit efforts to regulate financial derivatives trading. It sought government assistance for various overseas projects.
The dispute is only one of several between the executive and legislative branches of government over the reach of their powers. The investigative arm of Congress, the General Accounting Office, has sued Cheney's office to try to learn what role energy companies like Enron played in the development of the administration's energy policy last year.
Bush's Enron Documents DemandedNew York Times – by Richard A. Oppel Jr. – May 19, 2002
(5/17/02) – WASHINGTON, May 17 — Senate Democrats investigating the collapse of Enron are turning up the heat on the White House, with Senator Joseph I. Lieberman saying today that he plans to subpoena the Bush administration about its contacts with the company, which was once highly influential politically. The Justice Department task force leading the criminal investigation into Enron is, meanwhile, considering whether to expand its inquiry to include the company's energy-trading practices, according to a government official close to the task force.
The prosecutors have begun informally to gather information about the Enron executives and traders who helped shape trading strategies in California and to assess whether those strategies might have violated any laws, this person said.
Prosecutors may also examine the actions of other power producers and traders in California, according to the official.
In addition to determining whether other companies used strategies similar to those described in internal Enron memorandums released last week, the task force is looking for evidence that traders at different companies colluded to force power prices higher. Federal antitrust law bars working in concert to set prices.
On Capitol Hill, Mr. Lieberman, a Connecticut Democrat and chairman of the Governmental Affairs Committee, said that he had grown frustrated that the White House appeared unwilling to turn over all the information that Congress had sought.
Democrats on the committee — until now through informal means — have asked for records of all communications since 1992 between White House officials and Enron regarding the company's dealings with eight federal agencies, as well as details of contacts between the White House and officials at those agencies regarding Enron.
Alberto R. Gonzales, the White House counsel, said today that the administration had been gathering information to begin turning over to Mr. Lieberman later this month. "Quite frankly, we're pretty perplexed that the chairman felt the need to threaten a subpoena at this point," Mr. Gonzales said.
He declined to say how the White House would respond if it were issued a subpoena.
The subpoena threat represents a significant escalation for Senate Democrats in their dealings with the White House on matters related to energy politics. Earlier this year, they decided not to subpoena records of Vice President Dick Cheney's energy task force, opting instead to let the General Accounting Office sue to obtain the information.
Mr. Lieberman's pending request for information from the White House also covers contacts between the Bush administration and Enron about the national energy policy, which was formulated by the task force. Mr. Lieberman said that he would hold off issuing a subpoena at a committee meeting next Wednesday only if the White House quickly agreed to turn over by the end of the month all the information that the committee requested in a letter on March 27.
In a letter delivered Thursday evening to Mr. Gonzales, Mr. Lieberman, a potential presidential candidate in 2004, said that he had given up hope that the White House would provide the information the committee requested despite "extensive efforts to resolve these issues with you and our extreme patience in waiting almost two months before demanding a response."
"Indeed," Mr. Lieberman said, "the only material you have sent us is copies of letters responding to other Congressional inquiries and a transcript of a presidential press conference. These documents are inadequate on their face even as a partial response to the committee's request."
The ranking Republican on the Governmental Affairs Committee, Senator Fred Thompson of Tennessee, said this afternoon that he hoped the committee was "not tempted to pursue a fishing expedition into the personal communications of the president based on nothing more than the hope that it might turn up something."
"Someone will have to explain to me what this has to do with Enron's financial collapse," he added. Mr. Gonzales said that there was no way the White House could commit itself to turn over all the documents that the committee has requested, without knowing the content of those documents. Some information about communications with President Bush might be withheld as privileged, he added.
"I'm not talking about an outside communication from Enron with the president, but a communication by someone on the staff to the president, about policy that might affect Enron, is something that we would of course look at very carefully before releasing that," he said.
Mr. Lieberman has complained that the White House has inquired into the contacts of only about 200 staff members regarding Enron, instead of the roughly 2,000 people employed in the executive office of the president. This afternoon, White House officials offered to extend their review to all staff members if Mr. Lieberman withdrew his subpoena threat.
An aide to Mr. Lieberman said last night that the senator was observing the Jewish holiday of Shavuot and had not yet considered the offer from the White House. The aide added, however, that Mr. Lieberman would be unlikely to agree to the arrangement unless the White House also committed itself to deliver all the nonprivileged information requested by the end of the month.
Of the people who have already been asked about the contacts, a "small percentage" have either said they had Enron-related contacts or have asked to discuss the matter with White House lawyers, Mr. Gonzales said.
He added that it made little sense to survey lower-level staff members. "If Ken Lay is going to call the White House, he's going to call someone pretty senior or someone midlevel," Mr. Gonzales said, referring to the former Enron chairman.
Mr. Lieberman's aides said a survey of lower-level staff members might turn up contacts with Enron lobbyists or other company executives.
Energy Report Steered Clear of CaliforniaNew York Times – by Richard A. Oppel Jr. – May 18, 2002
WASHINGTON, May 13 — As Vice President Dick Cheney's task force was writing its report on the nation's energy policy last year, the task force's deputy director told an official at the Environmental Protection Agency that officials were "desperately trying to avoid California in this report as much as possible," according to a partial e-mail message released today.
Representative Henry A. Waxman, Democrat of California, said the heavily edited e-mail message suggested that administration officials went out of their way to avoid a more serious discussion of the causes of California's energy crisis in 2000 and 2001. The message was sent on May 4, 2001, about two weeks before the report was released.
Mr. Waxman suggested that the message represented a different tack than the White House was publicly taking as it prepared its energy report. At the time, President Bush pointed directly to California as a rationale for the nation to adopt his energy strategy.
But the e-mail message released today did not provide clues as to why the administration did not want to address in greater detail the California energy crisis in its report.
The message underscores "the need for the administration to provide a complete accounting of its understanding of and approach to the energy crisis," Mr. Waxman said.
His comments, sent in a letter today to Mr. Cheney, were an effort to increase pressure on the administration as it fights a lawsuit that seeks information about meetings between task force officials and energy industry executives.
The White House said this evening that the letter "appears to be another politically motivated letter from Congressman Waxman." A White House spokeswoman, Anne Womack, said the energy policy report was meant to focus primarily on broad national issues and not single out problems of any one region.
Bush Terrorist WarningsTruthOut.org – by Congresswoman Cynthia McKinney – May 17, 2002
(5/16/02) - Several weeks ago, I called for a congressional investigation into what warnings the Bush Administration received before the terrorist attacks of September 11, 2001. I was derided by the White House, right wing talk radio, and spokespersons for the military-industrial complex as a conspiracy theorist. Even my patriotism was questioned because I dared to suggest that Congress should conduct a full and complete investigation into the most disastrous intelligence failure in American history. Georgia Senator Zell Miller even went so far as to characterize my call for hearings as "dangerous, loony and irresponsible."
Today's revelations that the administration, and President Bush, were given months of notice that a terrorist attack was a distinct possibility points out the critical need for a full and complete congressional investigation.
It now becomes clear why the Bush Administration has been vigorously opposing congressional hearings. The Bush Administration has been engaged in a conspiracy of silence. If committed and patriotic people had not been pushing for disclosure today's revelations would have been hidden by the White House.
Because I love my country, because I am a patriot, and because the American people deserve the truth, I believe it would be dangerous, loony and irresponsible not to hold full congressional hearings on any warnings the Bush Administration had before the terrorist attacks of September 11, 2001.
Ever since I came to Congress in 1992, there are those who have been trying to silence my voice. I've been told to "sit down and shut up" over and over again. Well, I won't sit down and I won't shut up until the full and unvarnished truth is placed before the American people.
Feds Knew of Price Manipulation in 2000Wall Street Journal – May 17, 2002
(5/16/02) - WASHINGTON -- Government investigators knew in late 2000 and early 2001 that energy traders were manipulating prices in the California electricity market, but they failed to step in and stop the practice, energy experts told Congress.
At about the same time, a team of outside lawyers hired by Enron Corp. of Houston prepared an internal report urging the company to stop its pricing strategies, concerned about civil and possibly criminal prosecution.
"It was like learning calculus in French," said Richard T. Sanders, an assistant general counsel for Enron's wholesale group, to a Senate Commerce consumer-affairs panel in a hearing on the California power crisis. He said the complex trades took advantage of many loopholes in the state-run electricity market. Another tactic, which took advantage of an industry rounding-up technique, allowed Enron to sell power for $23 a megawatt and ship only $22 worth. He said he stopped the tactic immediately and made Enron send the money back. "It wasn't anything other than dead wrong."
Authorities are still having trouble understanding which energy traders were gaming the market and how much money California consumers should be repaid. Federal Electric Regulatory Commission Chairman Patrick Wood III complained that his agency lacked the resources to follow California's electricity price spikes in sufficient detail.
Sen. Byron Dorgan (D., N.D.), chairman of the Commerce subcommittee, said he will call Army Secretary Thomas White, who formerly headed Enron Energy Services, to testify whether he knew about the strategies Enron's traders were using to achieve high-priced sales in California.
FERC's first probe started with a sharp rise in power prices that occurred in June 2000. By November of that year, its investigators had begun to identify various trading strategies with names like "Fat Boy" and "Ricochet" that sought to maximize profits in California's newly deregulated electricity markets.
Mr. Wood promised that a new Office of Oversight and Investigations at his agency will eventually identify and punish other market manipulators involved.
"We're not going to drop the potato," said Mr. Wood, who suggested that FERC might lift a cap it imposed on wholesale electricity prices on the West Coast when it expires Sept. 30. However the agency may use what he called "other tools," including an order that area power generators "must run" when they are able to sell electricity, to prevent shortages and keep market prices stable.
State Sen. Joseph Dunn, who heads an investigative committee in the California legislature, said his lawyers also saw early evidence of gaming. However they're still working out plans to prosecute the perpetrators, he told the subcommittee. One legal attack, he said, would be to use an "obscure" state misdemeanor law that forbids market fraud as the basis for a racketeering case.
Frank Wolak, an economics professor at Stanford University, said that while games like "Loadshift" -- which allowed Enron to collect money from California for removing transmission blockages it created -- have gotten most of the publicity, such manipulations caused only about 5% of the $10 billion California consumers paid in higher prices.
Most of the price increases, he said, were caused by generators who refused to sell at times when markets were extremely tight. "Electricity markets are extremely susceptible to exercises of market power," he explained, asserting that a company controlling only 5% of the available supply could increase prices "substantially" by holding back power. FERC, he said, still doesn't have a clear standard for ensuring "just and reasonable prices" in electricity markets. He doubted that withholding power that produced the biggest priced spikes would be found illegal under U.S. antitrust law.
Feds Block Cheney Aide QuestioningAssociated Press – May 12, 2002
WASHINGTON (AP) -- The Bush administration is asking a federal judge to bar questioning of a former top aide on Vice President Dick Cheney's energy task force.
In a lawsuit seeking information about the Cheney panel's meetings, the Natural Resources Defense Council subpoenaed Andrew Lundquist, who met with business executives and lobbyists in drafting the pro-industry White House plan.
Calling the subpoena ``wholly inappropriate,'' the Justice Department said Thursday in court papers that Lundquist, the task force's former executive director, doesn't have any information relevant to NRDC's lawsuit against the government.
It is too soon in the case to question him, said the Justice Department, which plans to ask for dismissal of NRDC's lawsuit before U.S. District Judge Gladys Kessler.
NRDC is suing the Energy Department, which had a key role in formulating the Cheney plan. Lundquist was an Energy Department employee detailed to the Cheney task force.
``The administration continues to deny the public information about what their government is doing,'' said NRDC attorney Sharon Buccino.
``Lundquist holds a critical missing piece of the puzzle about how the Bush energy plan was developed,'' said Buccino.
In turning over documents to NRDC in the lawsuit, the Energy Department produced nothing from Lundquist or other Energy Department employees who went with him to the Cheney task force.
NRDC wants to ask Lundquist about what kinds of records he kept and where they are now.
Cheney's task force, which has disbanded last year, called for increasing the nation's supply of energy through expanded oil and gas drilling on public land and rejuvenating nuclear power.
Lundquist recently left the government, but is being represented by the Justice Department in the NRDC lawsuit.
SEC Chief Under Fire at Own SummitAssociated Press – May 12, 2002
WASHINGTON -- Investors are expressing their concern to the Securities and Exchange Commission about company executives' stock options, about the accuracy of corporate financial reports -- and about the SEC chairman's own prior association with "pirates of Wall Street."
The fallout from Enron's collapse overshadowed the agency's first "investor summit," held Friday at its Washington headquarters and broadcast over the Internet and on cable television.
SEC Chairman Harvey Pitt, who presided over the event, has come under recent criticism for meeting privately last month with the chairman of KPMG, a big accounting firm that Pitt represented as a private securities lawyer and whose audits of Xerox Corp. are being investigated by the SEC.
The government watchdog group Common Cause said Friday that Pitt should resign because of "a pattern of actual and apparent conflict of interest ... (that) undermines citizen and investor confidence."
Eugene O'Kelly, the new chairman and chief executive of KPMG, said in an e-mail to employees last week that he had discussed with Pitt the SEC's investigation of the Xerox audits. He said he told Pitt the agency should not take any action.
Pitt has said he did nothing improper and did not discuss any enforcement matters in his April 26 meeting with O'Kelly, a 10-minute session for the two to get acquainted. Pitt said they also discussed KPMG's plans to acquire some operations of the embattled Arthur Andersen accounting firm.
Pitt said Friday, "The meetings I engaged in were proper. They were for the benefit of investors."
Several Democratic lawmakers this week told Pitt and O'Kelly that they have serious concerns about the meeting.
At the SEC summit, Pitt read a question from someone named "CA" who cited Pitt's former association "with the current pirates of Wall Street" and suggested there should be public representatives in top positions at the SEC.
As a prominent attorney before President Bush named him to head the SEC last spring, Pitt represented major Wall Street brokerage firms, including the New York Stock Exchange; all Big Five accounting firms, including KPMG and Andersen; and British insurer Lloyd's of London.
Answering the question Friday, Pitt said his past associations "have absolutely nothing to do with my intent to serve investors."
Enron, Others Under Suspicion for Some TimeDow Jones – by Bryan Lee – May 10, 2002
(5/3/02) - WASHINGTON (Dow Jones) -- Federal energy regulators were concerned that Enron Corp. (ENRNQ) could manipulate energy prices in California and neighboring states through its online trading system several months before launching a formal investigation of the matter in February under pressure from Western-state senators.
A document obtained by Dow Jones Newswires shows that the Federal Energy Regulatory Commission a year ago, on its own volition, met with other regulators as part of an effort to determine if EnronOnline and other electronic energy-trading platforms allowed companies to manipulate prices during California's energy crisis.
In May, June and July of last year, FERC staff met with fellow regulators at the Securities Exchange Commission and the Commodity Futures Trading Commission to discuss "enforcement activities involving online trading platforms and internet Web pages," the document said.
It shows that FERC was concerned about the ability of Enron and other energy traders to use electronic trading systems to manipulate prices more than six months before Western-state lawmakers exacted a January pledge from FERC Chairman Pat Wood III to investigate the issue.
FERC subsequently formally launched its probe in mid-February.
The document was written by William Bennett, FERC's chief information officer, in response to an inquiry from the Senate Governmental Affairs Committee, which is conducting an investigation into Enron's financial collapse late last year.
Dow Jones Newswires obtained the heavily redacted document from FERC under the Freedom of Information Act.
While Bennett writes that he couldn't "recall whether the discussion specifically identified Enron," other FERC officials more closely tied to commission enforcement matters, who spoke on condition of anonymity, confirmed that Enron was a primary driver behind the meetings to gather SEC and CFTC regulatory insight and expertise.
The effort was "staff driven," according to a FERC source, and not something directed by the commission, then chaired by Curt Hebert, who resigned last August to work for Entergy Corp. (ETR).
"About that time, people started getting concerned about online trading in general," said the source, who attended the meetings. FERC staff was trying to decipher whether EnronOnline was "another way for Enron to take advantage" in energy markets, particularly for natural gas, the commission source said. In addition to Enron, the commission was concerned about other electronic trading platforms, such as Dynegy Direct (DYN) and IntercontinentalExchange, or ICE, the FERC official said.
The official offered little prospect that the pending FERC investigation will uncover any smoking-gun evidence that Enron was able to use its electronic trading system to manipulate prices during the energy crisis in California, which began in May 2000 and ended about a year later after FERC issued orders capping electricity prices.
Another FERC source familiar with the investigation indicated the probe has yet to uncover any evidence that Enron was able to use its electronic trading platform to control energy prices.
The official said that energy traders contacted by FERC indicated they had little trust that EnronOnline and other similar systems were fully independent and impartial. While traders used EnronOnline, they would check the system against other sources of price information and continued to do the bulk of their trading over the telephone, the official said. That helped to check against any market power Enron might have had.
Nevertheless, the investigation continues and Wood, the commission chairman, has promised to forward at least a progress report on the probe sometime later this spring or early this summer.
Sen. Dianne Feinstein, D-Calif, who was in the vanguard in urging FERC to investigate the concerns about possible EnronOnline-related market manipulation, hopes to pass legislation requiring tighter regulation of such electronic energy-trading systems by the CFTC.
Feinstein attempted to attach her bill as an amendment to the Senate energy bill. But the effort failed in the face of fierce lobbying by business groups and opposition from the Bush administration and Federal Reserve Chairman Alan Greenspan. FERC's Wood had written in support of Feinstein's bill, while the three other sitting FERC regulators also voiced support.
"Based on the information we've received so far, we believe that the online trading system Enron engaged in could have played a major role in the price escalation in California," said Howard Gantman, Feinstein's spokesman.
Feinstein is interested to know that FERC staff were expressing similar concerns last year and will contact the commission for further information, Gantman said. "We want to take a look at their concerns," he said.
In the meantime, Feinstein still hopes to advance her legislation to roll back regulatory exemptions under the Commodity Modernization Act of 2000 to the Senate floor for a vote this year, Gantman said.
The measure has been referred to the Senate Agriculture Committee, and its chairman, Sen. Tom Harkin, D-Iowa, has expressed interest in moving the legislation, he said.
But if the vote during the Senate energy-bill floor debate is any indicator, bringing the bill up for a vote will face obstacles even if Harkin's panel manages to report the bill later this year.
Sen. Phil Gramm, R-Texas, is ardently opposed to the measure. A bid to win the support needed to override a filibuster and hold a vote on Feinstein's energy-bill amendment failed to garner the requisite 60 votes.
The Manipulated California Electricity MarketPublic Citizen – Press Release – May 9, 2002
to Resign, Justice Department to Launch Criminal Probe
WASHINGTON, D.C. - In light of a memo indicating that Army Secretary Thomas White's former Enron division was involved in market manipulation and price-gouging during the California electricity crisis, Public Citizen today called for White to resign immediately and the Justice Department to initiate a criminal probe.
The internal company memo describes how White's division, Enron Energy Services, lied to California officials, enabling the company to charge prices far higher than should have been allowed. As a direct result of his division's fraud, White is a multimillionaire and California consumers still are paying far too much for their electricity.
The Dec. 6, 2000, memo from Enron attorneys describes how Enron Energy Services deliberately sought from the state's power broker far more electricity capacity than it needed. By doing so, Enron Energy Services, which was colluding with other Enron divisions, deceived the state into thinking that transmission capacity was full, enabling Enron to charge prices far higher than if capacity was not full.
That and other memos, released this week as a result of an ongoing investigation by the Federal Energy Regulatory Commission (FERC), confirm charges Public Citizen has made for more than a year in reports and in testimony before Congress. The memos are available on the FERC Web site, www.ferc.gov.
"These documents show manipulation and deception so extreme that it borders on maniacal," said Public Citizen President Joan Claybrook. "Thomas White was in charge when California was being gouged by Enron. If he directed this activity, he shouldn't be head of the Army. And if this was going on under his nose and he didn't know, he's a terrible manager and also shouldn't be head of the Army. He should resign immediately."
When the memos are combined with data available in Power Marketer Quarterly Reports that Enron filed with FERC, it is clear that White's division was colluding with Enron's power marketing divisions to fool state and federal regulators. In the first three months of 2001 - the height of skyrocketing prices and rolling blackouts - White's division traded more than 11 million megawatts of electricity in the California market alone, making nearly 98 percent of these trades with other Enron divisions at astronomical prices up to $2,500 a megawatt hour (the standard price at the time was less than $340 a megawatt hour).
By selling power to itself at inflated prices, Enron helped cause prices to skyrocket in California's deregulated market. Economists refer to this manipulation as transfer pricing.
By trading such large volumes of electricity at such high prices with other Enron divisions, White's division was able to accomplish two things. First, it allowed the company to charge California utilities and consumers astronomical prices, thereby contributing to the Western electricity crisis. Federal and state regulators found it very difficult to trace Enron's trades because the company had four separate divisions interacting in the wholesale and retail markets, and with each other.
Second, engaging in transfer pricing allowed these various Enron divisions to overstate revenue and contribute to the accounting gimmickry that inflated the company's share price.
It is important to note that at the same time that Enron Energy Services was manipulating the California energy market, Enron paid the Washington, D.C., lobbying firm Quinn Gillespie & Associates more than half a million dollars in the first seven months of 2001 to lobby the "Executive Office of the President" on the "California electric crisis" according to the lobbying disclosure report filed with Congress on April 10, 2001.
The firm's co-founder, Ed Gillespie, was the former communications director at the Republican National Committee and a top Bush campaign advisor, and he ran the U.S. Department of Commerce for the first 30 days of the Bush presidency. Enron was lobbying against bipartisan efforts to re-regulate the Western electricity market by imposing price controls. As Enron was spending this money lobbying Congress and the White House against price controls, the Bush administration aggressively took Enron's position. On numerous occasions, President Bush, Vice President Dick Cheney, their various spokespeople and Cabinet officials took an aggressive stance against price controls.
White served as vice chairman of Enron Energy Services from 1998 until the Senate confirmed him as Army secretary in May 2001. When Bush nominated White for the post, he cited White's 11-year experience as a top Enron executive as a primary qualification. White earned tens of millions of dollars in salary, incentive-based bonuses and stock options during his Enron career. He earned $5.5 million in salary and cash bonus his last year alone.
As vice chairman, White was in charge of running day-to-day operations, including managing and signing retail energy contracts. During White's tenure, Enron Energy Services became one of Enron's fastest growing subsidiaries by using questionable accounting practices, with revenues climbing 330 percent from 1998 to 2000 (from $1 billion in 1998 to more than $4.6 billion in 2000). Using "mark-to-market" bookkeeping, Enron booked much of the revenue for long-term retail contracts up front - providing the company with inflated revenues.
White's former employees have publicly stated that he knew of the fraudulent accounting employed by the division. Glenn Dickson, an Enron Energy Services director laid off in December 2001, has been quoted in media reports as saying that both White and Vice Chairman Lou Pai "are definitely responsible for the fact that [Enron Energy Services] sold huge contracts with little thought as to how we were going to manage the risk or deliver the service."
North Carolina Textile SelloutPublic Citizen – Press Release – May 8, 2002
WASHINGTON, D.C. - With the first trade vote since Fast Track coming to the U.S. House of Representatives as early as tomorrow, North Carolina Reps. Robin Hayes, Cass Ballenger, Sue Myrick, Bob Etheridge and Richard Burr will be looking for promised language on textile trade. When these five textile caucus members voted for Fast Track last December, they were promised by House Speaker Dennis Hastert (R-Ill.) that a U.S. customs rule change protecting U.S. textile manufacturing would be in the next piece of trade legislation that was brought to the House floor. As of Tuesday morning, Wednesday's expected resolution on steel tariffs fails to contain any textile language.
"The very economic viability of textile communities is at stake with these trade deals," said Lori Wallach, director of Public Citizen's Global Trade Watch. "Despite the damage these trade deals are causing textile districts, these members switched from "No" to "Yes" on Fast Track to expand NAFTA because they were promised there would be a textile fix on the very next trade bill that came before the Congress. Well, the bill is here and the fix is not."
The trade vote scheduled for Wednesday, Louisiana Rep. William Jefferson's (D-La.) resolution H. J. Res. 88, concerns the impact that tariff changes can have on local economies, namely port communities suffering sudden decreases in the volume of steel imports being shipped through local ports. The textile language Speaker Hastert promised would be fixed in the "next" trade vote as would the changes and inconsistencies in the Customs Service evaluation of apparel imports. Hastert promised to eliminate a unilateral change the Customs Service imposed on apparel imports from Andean nations and the Caribbean. The change would ensure that preferential import treatment would only be granted to apparel made with fabric dyed and finished in the United States.
"The North Carolina members who trusted the Speaker to address their concerns at a later date knew that past promises to get textile votes for NAFTA expansion were never kept," Wallach said. "Now the time has come to keep the latest Fast Track promise and - surprise, surprise - it is being broken."
Fast Track trade authority to expand NAFTA to 31 more nations passed the House in December by one vote (215-214). Along with promising the changes in customs rules, the House leadership and the president promised to refuse to accelerate the phase-out of the MultiFibre Agreement, not to expand Pakistani textile and apparel quotas and to increase funding for country-of-origin inspections. These promises have been ignored as well: The president authorized negotiations over apparel at the World Trade Organization; Pakistani apparel quotas have risen by one third; and no new inspectors were funded.
"The old adage says, 'Fool me once shame on you, fool me twice shame on me,' but is unclear on the third and fourth foolings," Wallach said. "How many textile promises will be broken before North Carolina's representatives stand up for their constituents, instead of party leaders, on trade?"
Why the Lockbox Won't DieWashington Post - E. J. Dionne Jr. – May 3, 2002
(Tuesday, April 30, 2002; Page A19) - Some political terms die from laughter. Lockbox -- that's the famous Social Security lockbox -- would seem to be one of them.
When Al Gore spoke to Florida's Democrats in early April, he joked: "I won't say I told you so, but if anyone is in the market for a 'never-been-used' lockbox, they should see me afterwards."
The laughter was loud and immediate. The words "Gore" and "lockbox" now go together like "Laurel" and "Hardy."
But hold on to your lockbox. It may be redesigned and renamed, but it will live on because it is a metaphor for the most important political act: the need to make choices.
That's its history. When former President Bill Clinton wanted to stop Republicans from converting the emerging budget surplus of the late 1990s into tax cuts, he proposed to "save Social Security first." The idea was to salt the surplus away by paying down debt to save the program for the baby boomers.
The Republicans wanted to make sure the surplus wasn't spent on new programs. So they proposed the Social Security lockbox. The lockbox may have been an accounting fiction, but its purpose was understandable and broadly popular.
It was popular across party lines because every voter in America understands that the baby boomers will begin retiring at the end of this decade. Their Social Security and Medicare expenses will loom large for more than a quarter-century thereafter. Most Americans who save for their own retirement think the government should prepare for the retirement of a whole generation.
Here is a case where American individualism is matched by an American belief in collective provision. It grows from the constructive social sentiment, "There but for the grace of God go I."
All of us hope we'll save so much that we won't need to rely on Social Security checks. But we can never be absolutely sure we won't need them -- what if your portfolio is bulging with Enron stock? -- so we're glad Social Security is there for everyone.
We'd like to think we won't get sick. But even the fittest in our ranks will need more medical care as they age. We subsidize and socialize health care for the elderly through Medicare because we know the dangers, as Franklin Roosevelt once put it, of having "a rich man's security and a poor man's security."
These programs, in other words, insure all of us, and insure society against having a large class of destitute elderly people.
And so I winced recently when my thoughtful and always provocative colleague Robert Samuelson wrote the following: "We should stop referring to Social Security and Medicare as 'social insurance' -- an inoffensive term -- and call these programs what they are: welfare. Social Security and Medicare do not differ much from food stamps. One group of people pays taxes to improve the welfare of another."
The implication here is that because one group pays to improve the welfare of another, the term "insurance" should be cast aside. But all insurance programs involve some people paying and others collecting.
I won't complain if I never collect a dime on my fire insurance -- I'd rather not have my house burn down -- and won't resent it if the people down the street rebuild their charred home courtesy of my premiums.
Similarly, I do not object to my elderly next-door neighbors using my tax money through Medicare to pay for their medical coverage. If, God willing, I grow old, I know I'll get the help I need too. Just because something is "social" doesn't mean it's not "insurance."
None of this is free. With the aging of the baby boomers, the cost of social insurance will rise, as Samuelson has argued. That brings us back to the lockbox.
Consider: The 2001 tax cuts would, if extended, take $4 trillion out of government coffers in the next decade -- exactly when social insurance programs will be strained.
Before we talk about big cuts in existing programs, we need to ask: Is the repeal of all inheritance taxes on wealthy families more important than a decent Medicare program? Are tax cuts for those earning more than, say, $250,000 a year more important than saving Social Security? To avoid a war of the generations, might the best-off Americans join a social compact to ensure a decent life for the less well-off elderly? Such choices lurk behind the laughter over lockbox jokes. They'll still be there after the laughter subsides.