All that is true enough, but hearings last thursday brought out a side that was crookeder than anything I knew about. It turns out that one use that Enron made of its hundreds of shadow corporations was to trade energy between them to bid up the price. This is patterned on a classic stock market swindle: two entities sell blocks of stock back and forth to each other at a steadily increasing above-market price, people see it moving up, they buy in at an inflated price, and at the right moment, you sell. By this practice, Enron apparently managed to jack up the price inflation of the electricity to quite a bit higher than even the flawed deregulation system would have otherwise pushed it. PUC chair Loretta Lynch called the practice "megawatt laundering". State Senator Joe Dunn called it "perhaps the greatest fraud ever perpetrated on the American consumer." (Actually, the eighties savings & loan collapse probably still holds that record.) They did this not only with electricity prices but with natural gas prices as well.
Lynch says the megawatt-hours were traded between different Enron affiliates that were all managed by mainly the same people, and one of those managers doing this trading was Thomas White, now Secretary of the Army. She also says that the trades created "phantom congestion" on the main transmission lines, enabling Enron to sell yet more overpriced juice to relieve the apparent backup.
One key difference this makes is that, unlike the form of non-collusive power withholding described above, you can't claim there's anything legal about it. So far, very little has been possible to do in court, because without behind-the-scenes collaboration between the different companies, no crime is committed.
S. David Freeman, chairman of California's Consumer Power and Conservation Financing Authority, testified that Enron leaned on the Federal Energy Regulatory Commission to take no action as prices rose.
One odd side-effect of these hearings is that the spokespeople
of Enron and the other companies that sold power at inflated prices are
now denying all responsibility for the price spiral, claiming that California's
state government brought the problem entirely on itself by creating such
a flawed pricing structure. There is certainly some truth to this...
but who created this pricing structure? Who lobbied for it -- who,
in all likelihood, got it passed by greasing legislators' palms?
Enron's Ken Lay is at the head of that list. Right behind Enron is
PG&E (whose people may be feeling rather stupid now that their own
pricing system slurped a lot of their profits into other pockets).
There are several other stories to cover briefly. In a previous entry I discussed the abuses that Enron committed with their Dabhol power plant in India. Now there's a new wrinkle: Raghu Dhar, the business editor of Zee TV, India's biggest network, says Enron offered him a job for $1,000,000 a year to tell their side of the story instead of running stories critical of them. The story is going on 60 Minutes tonight. The story will include coverage of how not only the Dubya administration, but (less blatantly) the Clinton administration as well, assisted Enron's effort to get a crooked deal there.
Here's another story about energy companies looking for favors from Washington: several companies, led by the Southern Company, America's largest utility operator, are looking for exemptions that would allow their dirtiest power plants to keep running indefinitely without ever doing something about their emissions. Many of the companies joining in with Southern are those that have gotten into legal trouble for their pollution -- the government is using civil suits to try to get them to clean up their smokestacks and refineries. The rule that bothers them is called the New Source Review, which requires that if you add new stuff to your power plant, you have to update your pollution control stuff too. In other words, you can't keep using the age of your plant equipment as an excuse to keep polluting, if you modernize other parts of it. They want the rule removed. They haven't got it quite yet, but they probably figured it wouldn't be that hard, since the practice of "grandfathering" polluting industries so they never ever have to clean up, even if the law originally allowed them only a few years to do so, is common practice in Texas and, as governor, Dubya was someone they could count on to keep those old plants running.
The documents released by Spencer Abraham -- the 11,000 pages of censored internal material related to last spring's energy policy -- show that eight days after these companies made a request for this change, Cheney's committee wrote a "possible revision" of the rule into their agenda. They claim that the timing was coincidence and "We didn't need anyone from the outside telling us that new source review needed to be studied." They wrote a recommendation into the final report to "reconsider" the rule, Bush agreed, and the decision is now up to the Environmental Protection Agency. The EPA and the Department of Energy have been bickering over various things for months, and this has slowed down the decision. Many expect the rule to be weakened, which even if the change is not large, could demolish all current lawsuits (started by Clinton in 1999 against 36 coal-fired plants) based on the old rule. This, according to some, is what the lobbyists are mainly looking for now. The administration says it's "speculation" that the lawsuits would fall apart.
The mini-scandal with Army Secretary Thomas White's use of military aircraft for private travel has widened to include the Secretaries of the Navy and Air Force. Secretary White, when asked, says he sees no reason why he should resign. He says no hanky-panky occurred during his many phone calls back to Enron during the period when their stock plummeted downward. ''There was no information exchanged that was at all sensitive. Period." If you believe that... then, have I got an investment opportunity for you!
Andersen's Canadian branch is being sold off to Deloitte and Touche. The rest of Andersen has decided that they are not going to fight the Department of Justice's charges of obstruction of justice in court; they're going to admit wrongdoing by some employees and partners and reach a settlement... and start giving evidence against other offenders in the case. Again, they are showing themselves to be a classier act than any of the other guilty parties. Not that that's a very high recommendation.
Enron is still trying to sue Dynegy for backing out of the tentative deal to buy them out during the collapse. The trial just got moved to Houston.
The SEC is objecting to the way that Enron's executives allocated large bonuses for themselves with the last of the loose cash during the collapse. The bonuses total $140 million and Enron says they were "critical" for keeping key talent in the company so they could rebuild, because otherwise that talent wouldn't be compensated at "competitive market levels". PG&E tried this same crap in their bankruptcy and it was bogus then too -- the nature of the bankruptcy disproves that the "talent" is worth millions -- and this case is far more excessive. The SEC says they didn't submit nearly enough information to justify this move during a bankruptcy (when the money was no longer really theirs), and they want all the specifics about who got what, pronto.
Enron's new CEO, Stephen Cooper, told employees the other day that the company's total debt could reach $100,000,000,000. This is a bit more than what the company's total worth was at its peak stock price. We have no idea how much some of those pigs salted away in various overseas hidey-holes, but we're going to have to dig up every bit we can to begin to cover all the money they owe back to people already, even without any further legal judgements.
This bears repeating: Our duty in cleaning up the
Enron mess is not just to punish those who have done wrong, but to get
the money back. It hasn't vanished, a substantial amount still
exists out there somewhere. They didn't lose tens of billions by
it. We're guilty of criminal negligence if we allow all those billions
to just disappear, as happened during the savings & loan collapse of
the eighties (a mess probably even crookeder than this one, and a lot more
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