Enron - a matter of how much they could get away with in a deregulated, chaotic market.

Enron and the 2000-01 California Energy Crisis:

'via Blog this'

"Enron first came to public attention in late 2000 not for its accounting methods but as the leader of a group of companies, many based in Texas, that were profiting hugely as electricity prices soared in California. Enronand its peers vigorously denied wrongdoing, saying that the price increases were nothing more than the inevitable result of the state's shortage of power. [/] In June 2001, after the Bush administration imposed interstate power price caps that California had sought months before, the crisis suddenly eased, and prices in the state plunged. [/] Five months later, Enronfiled for bankruptcy protection." (Alex Berenson, "Mystery of Enron and California's Power Crisis", The New York Times on the Web, 09May02)
		"Electricity traders at Enron drove up prices during theCalifornia power crisis [2000-01] through questionable techniques that company lawyers said 'may have contributed' to severe power shortages, according to internal Enron documents released today by federal regulators. [/] Within Enron, the documents show, traders used strategies code-named Fat Boy, Ricochet, Get Shorty, Load Shift and Death Star to increaseEnron's profits from trading power in the state -- techniques that added to electricity costs and congestion on transmission lines. [/] The documents -- memorandums written in December 2000 by lawyers at Enron to another lawyer at the company -- also describe 'dummied-up' power-delivery schedules, the submission of 'false information' to the state, and the effective increasing of costs to all market participants by 'knowingly increasing the congestion costs.'... [/] The documents state that other power companies used similar techniques.... [/] In a letter sent by officials at the... Federal Energy Regulatory Commission... today... investigators... said the documents described how Enron traders were 'creating, and then "relieving," phantom congestion' on California's electricity grid. The documents also detail what investigators described as 'megawatt laundering,' in which Enronbought power in California, resold the power out of the state and then bought the power back and resold it back into California -- allowing Enron to circumvent price caps meant to clamp down on costs....
		"But Enron executives always insisted that absolutely nothing their traders had done contributed to the crisis. In an interview last year, Enron's former chairman,Kenneth L. Lay, dismissed accusations that manipulation was even partly to blame for California's troubles. [/] 'Every time there's a shortage or a little bit of a price spike, it's always collusion or conspiracy or something,' Mr. Lay said.... 'I mean, it always makes people feel better that way.'" (Richard A. Oppel Jr. and Jeff Gerth, "EnronForced Up California Energy Prices, Documents Show", NYT on the Web, 07May02)
		"The Enron Corporation used undisclosed reserves to keep as much as $1.5 billion in trading profits off its books during the California energy crisis, according to six former managers and executives who handled or reviewed the accounts. [/] The enormous reserves, which would have doubled the company's reported profits, were hidden in late 2000 and early 2001, as energy prices soared in California and politicians accused trading companies like Enron of price gouging. The former Enron officials said that the company swelled the reserves in hopes of damping the political firestorm." (David Barboza, "Former Officials Say Enron Hid Gains During Crisis in California", NYT, 23Jun02, p.A1)
		I tried to verify for myself some source documents on the Federal Energy Regulatory Commission (FERC) website. I found memoranda in which Enron seemed to be explaining how it was doing nothing wrong and was actually even helping the California energy situation. I found some seemingly incriminating sentences but did not recognize any "smokng guns". Basically, I wasn't understanding much of what I was reading, and I wasn't willing to take the time to try harder. Therefore, I cannot adduce solid evidence supporting what The New York Times reported and their interpretation of it. An article in the following day's NYT ("Californians Call Enron Documents the Smoking Gun", by Joseph Kahn, 08May02) said: "Documents showing that Enron manipulated California's power market were described today by politicians, lawyers and consumer groups as the smoking gun they needed to help recover billions of dollars they say the state was overcharged by Enron and other companies for electricity in 2000 and 2001.... [/] The disclosure... appeared to vindicate a long campaign by [California] Gov. Gray Davis... a Democrat, [who] battled the Bush administration and federal authorities for months... before regulators agreed to put caps on skyrocketing electricity prices. [/] 'About $30 billion was extorted from this state,' Mr. Davis said... today. 'Those who claimed that there was no price manipulation here were just plain wrong.'... [/] [T]he Enron memos seem to have stirred doubts once more about the integrity and longevity of the industry -- and the way energy is traded. [/] 'The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal,' said R. Martin Chavez, a former head of risk management in energy trading at Goldman, Sachs and chief executive of Kiodex, a risk management firm. 'I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at.'"
		What lessons can we with confidence draw from this mess? In an OpEd piece in the 11May02 New York Times, "Enron's Lessons for the Energy Market", Governor Davis writes: "Enron's own lawyers have written memos that suggest the company's actions may have contributed to severe power shortages throughout California. In one memo from December 2000, the lawyers describe one trading strategy as appearing 'not to present any problems, other than a public relations risk arising from the fact that such exports may have contributed to California's declaration of a Stage 2 emergency yesterday.' [/] To the Enron traders who came up with schemes they named Fat Boy, Ricochet, Get Shorty and Death Star, it must have seemed merely a matter of how much they could get away with in a deregulated, chaotic market. [/] After Enron's manipulation and the siphoning of billions out of California during the energy crisis, it will be impossible to make the argument that the energy market can function without diligent government oversight." (emphasis added)
		Surely only such scoundrels as Governor Davis here describes could object to the oversight he proposes, If Enron's executives such as Mr. Kenneth Lay and Enron's traders object that Governor Davis has mistakenly included themselves among these enemies of the people, then they will enthusiastically welcome and proactively support such measures, which will help protect them from ever having their good character unjustly so impugned again. It seems to me that intelligent social regulation of all areas of economic enterprise is similarly needed.
		HOUSTON (Reuters) - Former Enron Treasurer Ben Glisan on Wednesday [10Sep03] became the first executive sent to prison for his role in the scandal that brought down the giant energy trader, destroyed the accounting firm Andersen and tarnished Wall Street. (C. Bryson Hull, "Former Enron Treasurer Sent to Prison", Reuters, Wed September 10, 2003 01:39 PM ET)