During the spring of 2001, a California State Senate committee, investigating suspected price gouging in the California electricity market, found eight power sellers in contempt for failure to produce subpoenaed documents about their production and pricing practices. The committee subpoenaed Enron and seven other generators in April, insisting that they turn over millions of records relating to bidding strategies, prices, energy availability, and documents dealing with possible antitrust issues, including out-of-state transactions. Six of the companies sought to have the contempt citations cleared by agreeing to hand over the records. Two companies -- Enron Corporation and Reliant Energy -- refused to turn over documents. (Los Angeles Times, July 20, 2001)

Enron refused to let the committee inspect its records, contending that the Federal Energy Regulatory Commission was the only regulatory entity that can legally investigate and control the wholesale electricity market in California. Enron and other power suppliers also argued that their most closely guarded trade secrets would be put at risk of exposure to competitors if they were given to the committee, even under confidentiality agreements proposed by the panel.

The committee recommended that Enron be found in contempt and fined for refusing to disclose top-secret business records. The committee, investigating whether generators had manipulated prices to drive up profits during the state’s energy crisis, urged that Enron be fined an initial $1,000 and that the cumulative sum be doubled for each day the company continues to defy the panel.

Enron officials tried to downplay the importance of releasing documents. Karen Denne said the committee’s recommendations took the company by surprise. She said that Enron had been working in “good faith” with the committee to provide the information, but now was being exclusively targeted for punishment. Denne added, “No one else has been singled out by the committee. Why is Enron being singled out?” When asked about complying with the committee’s request to hand over documents, Denne answered that the request had been honored, saying, “That’s far more than anyone else has turned over.” But she conceded that the records did not detail out-of-state transactions, which the committee also had subpoenaed. (Los Angeles Times, July 20, 2001)

In late 2000 and early 2001, after the electricity crisis in California, EES suffered big losses as energy prices spiked, former employees said. One former manager, Margaret Ceconi, sent Enron board members a memo in August alleging that more than $500 million in losses were being hidden in the firm's massive Wholesale Services Group. She alleged the transactions made EES look more profitable to investors.

The memo, first reported last week by the Houston Chronicle, did not allege that White knew of or approved the loss reassignment, which she also reported to the Securities and Exchange Commission. Her attorney said it is unclear whether anyone inside Enron or at the SEC acted on her complaints.

According to internal Enron documents written in December 2000, the energy trader drove up electricity prices during the California power crisis through questionable techniques that company lawyers said “may have contributed” to severe power shortages. (Los Angeles Times, May 6, 2002)

The documents showed that traders used strategies code-named “Fat Boy,” “Ricochet,”" “Shorty,” “Load Shift” and “Death Star” to increase Enron’s profits from trading power in the state. The techniques also added to electricity costs and congestion on transmission lines, according to the documents. The documents also described “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.” (Los Angeles Times, May 6, 2002)

In one trading strategy described in the December 2000 documents, Enron would buy electricity from a state-run power exchange for $250 a megawatt-hour -- the maximum under price caps imposed within the state -- and resell it outside California for almost five times as much. “Thus, traders could buy power at $250 and sell it for $1,200,” according to one memo. In that document, the Enron lawyers acknowledged that such activity could be playing a big role in causing electricity shortages in the state, but they suggested that was not a significant concern. (Los Angeles Times, May 6, 2002)

The “Death Star” strategy, as described in the memos, allowed Enron to be paid “for moving energy to relieve congestion without actually moving any energy or relieving any congestion.” (Los Angeles Times, May 6, 2002)

The “Load Shift” strategy allowed Enron to generate about $30 million in profits in 2000 using techniques that, according to the documents, included creating “the appearance of congestion through the deliberate overstatement” of power to be delivered in one part of the state. (Los Angeles Times, May 6, 2002)

According to outside lawyers, Enron was aware of possible criminal liability for its trading ploys in the deregulated California energy market in late October 2000. The document was far more specific than previously released memos about the kinds of state and federal laws Enron could have violated. Enron apparently continued to use some of the questionable practices for several weeks after receiving the legal advice. (Los Angeles Times, May 31, 2002)

The eight-page memo explored concerns that Enron’s trading strategies could result in charges including wire fraud, markets fraud, and racketeering. The memo warned that it was “imperative” that Enron understood what evidence existed concerning its California conduct as well as the intent of participants “and whether there were any redeeming purposes for the conduct in question.” (Los Angeles Times, May 31, 2002)

The October 30 memo also cited specific legal cases that could be used against Enron but also noted that “if the company has profited solely because of its skill, by accident or the result of a regulatory scheme created by others, it is unlikely that these legal theories will be successful ultimately.” (Los Angeles Times, May 31, 2002)

A memo dated December 6, 2000 discussed trading schemes that included bypassing in-state price caps by sending power outside the state and then reselling it back into the California market. This created congestion on transmission lines so the company could be paid to relieve it.

Another ploy involved submitting inflated schedules of power needs to the California Independent System Operator so that the company could reap payments when it suddenly was able to supply extra power.

The December memo also listed potential violations of market rules, and the outside lawyers who wrote it warned Enron that month that the practices might be deceptive or even illegal. (Los Angeles Times, May 31, 2002)

After an investigation of California’s energy crisis, the GAO concluded that federal regulators failed to set up measures to protect consumers, when they approved the state’s deregulation scheme.

The GAO report said FERC lacked the expertise and clout to protect consumers from price gouging and other maneuvers, despite “hopeful” changes under its new chairman. “FERC is not adequately performing the oversight that is needed to ensure that the prices produced by these markets are just and reasonable, and therefore, it is not fulfilling its regulatory mandate.” (Los Angeles Times, June 18, 2002)

The GAO found that FERC was adept at monitoring electric utilities in the previous era of government-regulated prices but that it never made the transition to being a watchdog body in an era of unregulated markets. Nonetheless, the GAO report said, FERC gave its approval to the deregulation plans of California and other states. The agency’s regulatory weaknesses meant that the states would be on their own if they got into trouble. That was precisely exactly what occurred in California.

Thirty-seven percent of FERC enforcement staffers told GAO investigators that their agency was ineffective in detecting monopolistic abuses in wholesale electricity markets. Among enforcement staffers, 33 percent said the agency did a poor job of analyzing market data to determine if prices are inflated, compared with 28 percent who said FERC performed adequately. Thirty-nine percent said the agency’s top management had failed to give clear and concise directions. Nearly three-fourths of the staff told the GAO that FERC’s previous major effort to reinvent itself -- a 1997 reorganization called “FERC First” -- had been of little or no help in making it a better watchdog. (Los Angeles Times, June 18, 2002)

Enron executives always denied charges that they manipulated the market to take advantage of California’s energy crisis. But in June 2002, six former managers and executives testified that Enron used undisclosed reserves to keep as much as $1.5 billion in trading profits off its books during the California energy crisis. These 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 dipped into the reserves in hopes of damping the political firestorm. Furthermore, Enron manipulated the reserves to help it report steady profit growth to Wall Street and credit rating agencies. (New York Times, June 23, 2002)

Judy Leon, Skilling’s spokeswoman, said that money was set aside mainly in credit reserves to protect Enron from the risk that California’s utilities could be bankrupted by the crisis and left unable to pay their debts. Leon said, “At no time did Mr. Skilling have any knowledge of inappropriate or illegal activity in the reserve account.”

Enron’s use of the reserves was approved by Arthur Andersen and by Richard Causey, the company’s chief accounting officer. His lawyer, J. C. Nickens, said that Mr. Causey -- who left the company after its collapse -- told Enron’s board that the company was using a combination of credit and prudency reserves. (New York Times, June 23, 2002)

W. Neil Eggleston, an attorney for the independent directors who have left the board since Enron's collapse, said, “If the management of Enron was using reserves to manipulate the profits of the company, the board was completely unaware of it.” Kelly Kimberly, the spokeswoman for Lay, said that both the growth of the prudency reserves and their subsequent release into the company’s profit stream were appropriate. (New York Times, June 23, 2002)

PLEADING GUILTY TO PRICE-FIXING. Timothy Belden, Enron’s chief energy trader in the West and a corporate vice president, pleaded guilty in October to a federal conspiracy charge for rigging California’s electricity markets during the power crisis. By doing so, Belden gave the state powerful ammunition in its claim for $9 billion in refunds from energy companies.

Belden became the first person convicted of a crime in connection with California's 2000-01 energy crisis. He also agreed to cooperate with investigators in a widening probe that could lead to charges against executives at Enron and other companies.

The guilty plea -- which also required Belden to forfeit $2.1 million in “criminally derived” compensation from Enron -- was vindication for California Governor Gray Davis and other state officials who have alleged criminality was at the root of the crisis. Previously, Vice President Cheney had suggested California was to blame.

The initial analysis from May 2001 showed that Enron overcharged California more than $6 billion. But the study only blamed Enron for a small portion -- about $28 million. The study noted, however, that Enron consistently bid high prices for electricity it was selling into the market, showing it “clearly exercised market power to inflate prices.” The overall claim of market overcharges was later increased by the state, but a new company-by-company breakdown has not been produced. (Los Angeles Times, October 18, 2002)

California Deputy Attorney General said the revenues brought in by Belden increased sixteenfold over a three-year span ending in 2001. Thompson said, “During the period of the ... conspiracy, Enron's revenues from Belden’s trading unit rose from $50 million in 1999, to $500 million in 2000, to $800 million in 2001. A portion of these increased revenues was due to the execution of these schemes.” (Los Angeles Times, October 18, 2002)

Separately, California sought $9 billion for alleged overcharges by Enron and other power sellers. Those claims were based on an analysis of market data by the state’s power grid operator done before the extent of Enron’s questionable trading strategies was known.

According to documents released in March 2003, the city of Glendale, California knowingly helped Enron traders rig the California energy market -- even going so far as to quiz its own utility employees on “Fat Boy,” the nickname for one of Enron’s notorious trading schemes to create artificial shortages.

In addition, a ploy to sell phantom backup power during the California energy crisis was discussed in a trading strategies tip sheet obtained from Glendale Water and Power by the California attorney general’s office. City officials had previously acknowledged participating in a profit-sharing pact with Enron to sell surplus electricity from the city’s power plant in times of shortages but said an inquiry in 2002 found no wrongdoing. (Los Angeles Times, March 29, 2003)

Municipal utilities serving Los Angeles and half a dozen other California cities also were targeted in the Energy Regulatory Commission report, which said their activities appeared to constitute market “gaming” in violation of state tariffs. But Glendale’s utility, which served about 78,000 businesses and households, stood out by the volume and detail of the evidence presented against it.

The FERC report implicated Glendale in ploys that involved creating false congestion on electricity transmission lines, inflating demand and selling nonexistent backup energy through partnerships with Enron and Coral Energy, both based in Houston. The report also said the Glendale utility engaged in speculative trading that took advantage of varying power prices in different parts of the state.

The documents appeared to show that Glendale Water and Power managers incorporated the Fat Boy strategy into training. Fat Boy was the name for a ploy devised by Enron traders to falsely create the appearance of power shortages, leading to higher prices. (Los Angeles Times, March 29, 2003)

More evidence that Enron manipulated the power sector emerged in the summer of 2004. Enron manipulated the energy market nearly every day during the 2000-01 power crunch and gouged Western customers for at least $1.1 billion, according to audiotapes and documents. (Chicago Daily Tribune, June 16, 2004; (Seattle Times, June 16, 2004)

Washington state’s Snohomish Public Utility District asked an administrative law judge to order Enron to surrender up to $2 billion, while California politicians wanted Enron to reimburse customers there at least $8.9 billion. (Chicago Daily Tribune, June 16, 2004; Seattle Times, June 16, 2004)

The documents showed that Enron manipulated the market on 473 days from January 2000 to June 2001. Enron made $222,678 in three hours by shipping power from California to Oregon, masking the original source of the power, and then selling it back

The state of California sought nearly $9 billion in refunds for overcharges by dozens of companies stemming from the energy crisis, when wholesale energy prices hit record highs. In July 2005, Enron agreed to settle claims for up to $1.5 billion for gouging California and other Western states during the energy crisis of 2000-2001. The settlement also called Enron to pay a $600 million penalty to three states. (New York Times, July 15, 2005)