Energy regulators launch latest investigation of Enron pricing
Reuters News Service


NEW YORK - Federal energy regulators said they launched an investigation today into allegations that bankrupt Enron Corp. unfairly boosted wholesale power prices during California's electricity crisis last year.

The probe was sought by West Coast Democrats, including California Sen. Barbara Boxer. Boxer also demanded that the Federal Energy Regulatory Commission provide a list of meetings and telephone calls between the agency and Enron executives.

The lawmakers contend the Houston-based firm manipulated wholesale prices last year to boost its profits at the expense of California residents. The power crisis unleashed a series of blackouts and forced the state to spend billions of dollars to buy power when utilities could no longer afford to do so.

Enron, until recently the world's biggest energy trader, has denied any wrongdoing.

Pat Wood, FERC chairman, told Reuters that his staff today began examining the allegations of price manipulation by Enron.

"Staff is looking at it today," Wood said after addressing a FERC-sponsored conference in New York on power supplies in Northeastern states.

The investigation is a "joint effort" between FERC's office of general counsel and office of market tariffs and rates, he said. He declined to elaborate on the scope of the probe.

Wood, a Texas Republican, was appointed FERC chairman last summer by President George W. Bush with the support of Enron.

Democrats have raised questions about Bush's close ties to Enron and its top executives, who were big contributors to his presidential campaign. They also have asked if Enron used influence in secret meetings with Vice President Richard Cheney or FERC officials to encourage a "do-nothing" approach to the state's soaring prices.

Enron was among a dozen power generators which were major players in California's wholesale electricity market.

Prices for power sold on the state's spot market rose tenfold in the autumn of 2000 and continued at high levels through spring of 2001. The sharp increase was blamed on California's failed deregulation law, which failed to encourage the construction of new power plants and barred utilities from passing through higher wholesale costs to consumers.

The state of California is demanding some $9 billion in refunds for alleged overcharges by Enron and other marketers during the crisis. The case is pending before a FERC administrative judge with no decision due for several months.

Boxer demanded that FERC provide a list of all meetings and telephone calls between agency commissioners and Enron executives from August 2000 through June 2001. Soon after Wood joined the commission in May 2001, the agency voted to impose caps on electricity sold in the California spot market.

Wood became chairman of FERC three months later.

"Every day more and more alarming information is revealed concerning Enron's role in prolonging the California electricity crisis," Boxer said in a letter to Wood.

Boxer cited news reports that former Enron chairman Ken Lay -- who opposed any federal caps to control runaway electricity prices -- met with Vice President Dick Cheney on April 17, 2001 and discussed the California power crisis. One day later, Cheney said he opposed price caps, the senator said.

Democratic Senators Dianne Feinstein of California and Maria Cantwell of Washington prodded Wood at a Senate Energy panel hearing this week to look into any wrongdoing by Enron.

The lawmakers pointed to a study by an independent consultant showing that California prices fell by 30 percent immediately after Enron declared bankruptcy in December.

Feinstein said a "key factor" in higher power prices was Enron's ability to deal in unregulated financial derivatives in the natural gas market while controlling a large share of the market. Natural gas is widely used in California to fuel electricity generating plants.

The FERC probe into Enron's role in California power prices joins more than a half-dozen other investigations into various aspects of the company's spectacular collapse.

Several House and Senate panels are looking at Enron's complex financial accounting practices, its relationship with accounting firm Andersen, and potential securities fraud. The Securities and Exchange Commission, the Labor Department and the Justice Department also have separate probes.

There was a consensus among the three other FERC commissioners, who were also at the New York power meeting, that an investigation of Enron was warranted.

"I am perfectly happy to do a California investigation," said Nora Brownell, a Republican appointed to FERC last year. Her nomination was endorsed by Enron, which supported her open market approach as a Pennsyvlania utilities regulator.

Democrats William Massey and Linda Breathitt, commissioners named by the Clinton administration, told Reuters they also supported a probe. "I think that when there is evidence of increased volatility that arises in correlation with particular events in the market, we ought to take a look," Massey said.