Californai schemin'
Enron scandal still deepening
By Scott Scheffer
Los Angeles
Recently released memos reveal that bosses at Enron Energy
Services carried out elaborate schemes that bilked California
consumers of at least $30 billion.
It occurred during months when California and several
neighboring states were suffering the devastating effects of an
acute energy crisis.
When the dust from this scandal finally settles, what many
already suspected will be confirmed: The crisis did not stem
from a shortage of energy supply or a lack of capacity to
transmit sufficient power. Instead it was manufactured by
thieving energy billionaires.
How many other energy trading companies and power producers
employed similar tactics is not yet known. But it's already
clear that this is a capitalist swindle of historic
magnitude.
Other energy firms that dominate California's market--like
Mirant, Dynergy, Calpine, and Williams--are falling all over
themselves to proclaim innocence. But Enron attorney Robert
Bennett asserts that the shorthand names used to describe the
schemes were known throughout the industry, implying that
others took part.
The memos detail strategies with catchy names like Fat Boy,
Death Star, Get Shorty and Ricochet. Fat Boy was the name for
buying in energy-strapped California--where price caps
prevented the selling price from going above $250 per
megawatt--and then reselling in neighboring states for as much
as $1,200 per megawatt.
One of the memos recording a discussion about the legal
risks concludes that it's safe: "This strategy appears not to
present any problems, other than a public-relations risk from
the fact that such exports may have contributed to California's
declaration of a Stage 2 emergency yesterday."
Death Star was how traders labeled the practice of
scheduling power transmission that didn't really exist. The
purpose was to create fake congestion in some areas of
California's power grid. Then they scheduled power transmission
in the opposite direction.
As a result they were paid a premium for relieving
congestion by Cal-ISO, the independent agency that operates the
grid.
According to a memo dated Dec. 6, "No energy, however, is
actually put onto the grid in either direction."
Similarly, "Ricochet" meant creating fake congestion as a
justification for buying more expensive power out of state,
then reselling it in California above the price cap of $250 per
megawatt.
During times of high congestion, Cal-ISO would also pay a
premium to traders who reduced their load. So another tactic
was to simply overstate the amount of power scheduled and
collect payment for a reduction that never really occurred.
The agency had no way of detecting how much power was really
scheduled to begin with. For "reducing congestion," Cal-ISO
paid the traders $750 per megawatt.
Too big to sweep under the rug
The Enron bosses are infamous for hiding mountains of debt
through financial interplay among all the firm's divisions and
offshore companies. Thus they kept the companies' share prices
artificially high to continue accumulating capital.
When their pyramid scheme collapsed in 2001, it caused the
biggest bankruptcy in history.
Just before Enron stock plummeted on the market, the bosses
dumped their shares to avoid losses. At the same time, Chief
Executive Officer Kenneth Lay, a close friend of President
George W. Bush and a big contributor to his campaign, lied in a
videotaped message to Enron employees about the company's
health.
The company savings plan mandated that employees buy Enron
shares. Thousands of Enron workers lost their life savings
while the executives held onto their fortunes.
Under the pressure of ongoing investigations into the Enron
debt-hiding scam, lawyers for the post-bankruptcy Enron bosses
came forward with the memos. But even some Wall Street insiders
are warning against limiting scrutiny to corruption at Enron or
even just to energy trading corporations.
In a May 10 opinion piecein the New York Times, Paul Krugman
wrote that "federal officials, from George W. Bush on down,
offered California nothing but sermons on the virtues of the
free market. The Federal Energy Regulatory Commission, which is
supposed to police these things, found no evidence of foul
play. Essentially, FERC asked energy companies whether they
were manipulating the market. 'Who, us?' they replied--and that
was that."
Krugman added: "The bigger story involves market
manipulation by a number of producers. ... if no smoking-gun
memos have yet come to light, what do you expect? The Enron
story shows just how easy it is for companies to cover their
tracks, especially when the regulators are in their corner. If
Enron hadn't lost its clout by going bankrupt, you can be sure
that we would never have heard about Fat Boy and Death
Star."
In 1996 California's energy system was the first to be
deregulated. Until that time the investor-owned
utilities--Pacific Gas & Electric, Southern California
Edison and San Diego Electric--controlled both production and
supply.
Under deregulation, they shed their generating and
transmission facilities to make way for giant energy traders
who buy energy in a huge open auction market from giant private
power producers.
The Bush administration has been a champion of deregulation.
The White House even opposed the price cap applied during the
worst days of the crisis.
A number of politicians wasted no time in calling for a
Justice Department investigation into the market manipulation.
Sen. Tom Daschle is even calling for jail sentences. Because of
the myriad connections between the Bush administration and
Enron, and because of their advocacy of unbridled capitalism,
this is a prime opportunity for Democrat demagogues to shellac
the Republicans.
So what's holding them back from nailing Bush and Cheney for
the Enron scandal?
On the one hand, the government is the steering committee
for the entire capitalist class. It is supposed to be
responsible for reining in excesses by individual banking and
corporate empires. Enron didn't just bilk customers, its
workers and shareholders. A lot of capitalists lost money in
the Enron mess and they're hopping mad about it.
On the other hand, this scandal comes at a time when the
Bush administration is popular with the ruling class because of
its massive military expansion and aggressive global policies.
As a result, the Enron mess hasn't stuck to the Bush
administration--not yet.
But some of the demagoguery from politicians emanates from
their fear that the Enron debacle could provoke a very
formidable reaction from the working class. And on that count,
they have every reason to be afraid.
As the legions of those struggling against capitalist
globalization and this endless imperialist war increase and
find common cause with each other, more and more people in this
country will see that the same U.S. banks and corporations that
are bleeding the workers and poor around the world for
mega-profits are also gouging the workers and poor from
California to Connecticut. And it won't take a capitalist
politician to make that connection.
Reprinted from the May 23, 2002, issue of
Workers World newspaper
This article is copyright under a Creative
Commons License.
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