The Enron You've Never Heard Of

from SmartMoney.com

BY NOW, IT seems like a familiar story. A certain energy company stands accused of gleefully bilking consumers out of millions of dollars during the Western electricity crisis of 2000 and 2001. As evidence, prosecutors point to telephone transcripts showing the company's traders discussing allegedly bogus energy deals. No, the company isn't Enron — it's Spokane, Wash.-based energy concern Avista Corp. (AVA) , one of several companies accused by California Attorney General Bill Lockyear of illegally manipulating the wholesale electricity market during the crisis. Avista partnered with Enron in illegal trading schemes with ominous codenames like Death Star throughout the crisis, Lockyear alleges. Lockyear isn't the only one to accuse energy companies of misdeeds. According to a February 2002 study of the California power markets by economists Paul Joskow and Edward Kahn of Harvard and MIT, respectively, wholesale electricity prices during the summer of 2000 were 500% higher than they were during the previous two summers. A significant proportion of the spike resulted from manipulation of the deregulated electricity market by power-trading companies and energy providers, the study concluded. Yet while the state of California has brought more than 60 separate lawsuits against various energy companies, the Federal Energy Regulatory Commission, or FERC, hasn't pursued the matter with nearly as much zeal. FERC, which oversees the nation's energy markets, is supposed to ensure that they operate smoothly and without manipulation. Lockyear says it has failed in this critical task — and he's challenging a number of FERC's decisions in the Ninth Circuit Court of Appeals. In an April white paper, Lockyear castigated FERC for allowing energy companies operating in California essentially to run amok. "FERC's performance...was abysmal and marked by an abject failure to protect the public interest," he wrote. Beginning in 2000, California state officials, including former Governor Gray Davis, repeatedly called on FERC to institute price caps to stem the bleeding, but FERC waited until June 2001 to do so. Shortly thereafter, the crisis subsided. The recent "Grandma Millie" telephone transcripts of Enron traders gloating about cheating Californians on their electricity bills during the crisis have only fueled Lockyear's outrage (more about that later). California officials say the tapes add to mountains of evidence showing that energy companies reaped billions in illicit gains while FERC sat idly by. For its part, FERC now acknowledges that some manipulation did occur. But it sticks by its longstanding contention that the crisis was mostly the result of California's dysfunctional deregulation scheme and drought conditions in the hydroelectric-dependent West. FERC Chairman Pat Wood replied to the California attorney general's white paper in April with a statement arguing that "it is important to acknowledge that [the energy crisis] was fundamentally a supply problem, which was worsened by a flawed market design." This is no mere semantic argument; billions of dollars hang in the balance. California alone is seeking $8.9 billion in refunds from the power companies (among them, Enron, Avista, El Paso (EP), Mirant (MIRKQ), Reliant Resources (RRI), Duke Energy (DUK) and Dynegy (DYN)). FERC has concluded that the state is owed just $3.2 billion. Several other Northwestern municipalities, which so far have received minimal compensation, are also suing for reparations. The Port of Seattle, the city of Tacoma, Wash., and Snohomish County Public Utility District in Washington, which released the latest Enron tapes, have filed lawsuits in federal courts seeking hundreds of millions of dollars. There's no telling how much compensation these states and municipalities will ultimately receive. What's clear to many, however, is FERC's reluctance to reprimand certain companies charged with wrongdoing. Perhaps the clearest example of this was FERC's decision not to take any enforcement action against Avista relating to the manipulation of Western energy markets. FERC contends that Avista was merely an innocent bystander. But Avista's dealings with Enron suggest otherwise.

lots more here.