Ken Lay leaves California in the dark -- again

Barbara Boxer
Tuesday, February 5, 2002
©2002 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/02/05/ED218673.DTL


THE ENRON story is a story of corporate irresponsibility, greed and worse.

That is why I was looking forward to Kenneth Lay, the former chairman of Enron, testifying yesterday before the Senate Commerce Committee.

As a committee member, I felt that this encounter represented an opportunity to get to the bottom of this debacle. But much to my dismay, Lay canceled only hours before he was scheduled to arrive, leaving my questions unanswered.

But this isn't the first time that Lay and his company, Enron, have left Californians in the dark. As it turns out, Enron's employees were not the first to fall victim to this scandal. Californians were.

As we connect the dots, it is becoming increasingly clear that California's sky-high electricity prices were brought about by Enron's methodical plan to free itself from all government oversight to hike up energy prices in secret.

If I had been given the opportunity, I would have liked to discuss that plan with Lay.

I would have discussed how Enron used its influence to successfully lobby for deregulation of the California energy market and then manipulated that market. Deregulation allowed Enron to buy and sell electricity behind closed doors in an effort to trade up the price of energy through futures contracts before it reached the consumer.

Meanwhile, deregulation also gave Enron's traders access to real-time California electricity needs -- demand and supply, allowing them to drive up prices at a moment's notice.

I would have discussed how Enron moved to exempt itself from federal oversight. At the end of the first Bush administration, the Commodity Futures Trading Commission ruled 2 to 1 that it would no longer regulate Enron's energy trades.

But Enron didn't stop there. It also petitioned and won from the Securities and Exchange Commission (SEC) exemption from the Public Utility Holding Company Act.

In December 2000, a hidden provision was written into a spending bill brought before Congress to allow Enron to trade completely away from any regulated marketplace like the New York Mercantile Exchange (NYMEX).

Enron was free from government regulation, but one obstacle remained: the Federal Energy Regulatory Commission (FERC). According to its charter, FERC must protect against unjust and unreasonable prices. So when California turned to FERC for relief from exorbitant electricity prices, Enron turned to the Bush administration for protection from FERC, which brings me to another question.

I would have asked Lay about his meeting with Vice President Dick Cheney in April 2001 to discuss "energy" issues. According to a recent report in The Chronicle, Lay presented the vice president an eight-point memo, which stated in part: "The administration should reject any attempt to re-regulate wholesale power markets by adopting price caps or returning to archaic methods of determining the cost-base of wholesale power. Price caps, even if imposed on a temporary basis, will be detrimental to power markets . . ."

So much for the administration's insistence that Enron did not exercise its influence on policy.

The rest of the story now fits into place. Shortly after the meeting between the vice president and Lay, the administration came out in opposition to price caps thereby forcing California to keep Enron alive. It was only months later that FERC finally caved in to immense pressure by Congress and adopted temporary price caps. But by then, ratepayers had suffered to the tune $8.9 billion in overcharges. I wanted to tell Lay about that.

Deregulation kept the cash flowing while insiders unloaded and unsuspecting employees who worked for Enron lost their jobs, their pensions, and their dreams.

Meanwhile, California faced the prospect of old people dying from lack of air conditioning, agriculture businesses losing everything due to loss of refrigeration and families having to choose between soaring energy costs and food for the table. This was a secret market. And Enron's friends in high places let the games continue.

Ken Lay has left us in the dark once more, but my colleagues and I will make certain that the facts in this case see the light of day with or without his cooperation.

U.S. Sen. Barbara Boxer, a California Democrat, is a member of the Senate Commerce Committee and author of a new bill to protect workers' 401(k)s by requiring diversification. She is also author of a bill to restore auditor independence.

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