The Journal of History     Fall 2003     TABLE OF CONTENTS

Former Employee Says Enron
Manipulated California Power Market
Summary of article

By Jason Leopold
February 24, 2002

California's wholesale electricity prices were manipulated according to a former Enron Corporation employee who worked at the company from 1997 to 2000. Governor Gray Davis alleged this also. He said that Enron and other energy companies withheld supplies to create an artificial shortage and then gouged utilities because they charged the companies ten times higher compared with other years. Senator Barbara Boxer was made aware of this in a letter.

G&E Corporation, a unit of Pacific Gas & Electric Company, had to file for bankruptcy protection last April because electricity prices were higher than what the utility was allowed to charge its customers. Edison International unit Southern California Edison was on the verge of bankruptcy but struck a deal with state regulators last year that will allow the company to begin paying its creditors in March.

It alleged that Enron had a "cozy" relationship with the federal Bonneville Power Administration, and knew when the agency had an abundant supply of water, used to produce hydroelectricity. BPA told Enron traders when they would dump water in order to make power. When the dams got full they would have to dump water, then Enron could get it for a low bid, and then they would resell it at a markup.

BPA denied claims that the agency gave Enron advance notice of the agency's activities. Senator Boxer's office confirmed that the senator had received the letter, but a spokeswoman said Ms. Boxer hasn't responded to it yet. An Enron spokesman wouldn't return calls for comment.

California is seeking $9 billion in refunds from generators, including Enron, for allegedly gouging utilities. The Federal Energy Regulatory Commission is investigating Enron's role in California's power crisis and expects to issue a decision on the refund case in the summer. Allegations that Enron manipulated the California power market in order to boost prices first surfaced in May 1999 .

(Note: they tripled prices to California the day Bush won election, a year and one half later.) California Power Exchange (CalPX), which has since gone out of business, spent a year investigating the case, the first of its kind since California deregulated its power sector in 1998. CalPX found in 2000 that Enron violated the state's rules for trading power in May 1999 because it submitted a bid for 2,900 megawatts on a transmission line that has a rated capacity of 15 MW.

CalPX found that Enron's conduct in the Day Ahead Market for May 25, 1999, constituted a violation of CalPX Scheduling and Control Protocol. Therefore, Enron agreed to pay CalPX $25,000 to settle the issue without admitting or denying the charges. Enron spokesman Mark Palmer said in 2000 when the story was initially covered that the settlement wasn't an admission of guilt, but rather a "contribution to CalPX costs for investigating the incident."

Governor Gray Davis, who has been criticized for his handling of the state's energy crisis, said the letter and allegations of market manipulation by Enron appears to be a smoking gun. For more than a year, Davis charged the energy companies with manipulating the market to drive up energy prices. This is a smoking gun from an ex-Enron employee. Governor Davis doesn't want to return to its flawed deregulation scheme.

Editor's note: Of course, this is 20/20 hindsight, but the reason for the recall of Governor Davis was because of his stand on deregulation and wanting to recoup the $9 billion from Enron. We know that Kenneth Lay, the president of Enron, is a member of the Trilateral Commission, (See first edition of this "magazine.") and we know that Arnold Schwarzennegger is a friend of Lord Rothschild, so we can analyze to see who is working for whom. Californians have been betrayed because when they voted in Arnold Schwarzennegger, they lost $9 billion.


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