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Wednesday, May 08, 2002
Copyright © Las Vegas Review-Journal

Official: Disclosure of Enron price fixing may help Nevada overturn pacts

WASHINGTON -- President Bush expects vigorous pursuit of an investigation that prompted Enron Corp. to acknowledge it drove up electricity prices during California's energy crisis, a White House spokesman said Tuesday.

Meanwhile, Nevada officials said the disclosure of price manipulation could help their efforts to persuade federal regulators to overturn wholesale price contracts with Enron. Enron is one of several power suppliers with contracts that Nevada Power Co. and the Public Utilities Commission want the Federal Energy Regulatory Commission to void, based on claims the wholesale power market wasn't functioning properly.

"Clearly, this type of evidence bolsters that case that the prices paid and to be paid under that contract were not just and reasonable," said Don Soderberg, chairman of the PUC.

Sonya Headen, a spokeswoman for Nevada Power, said: "All we have today is a press report and that is not enough to draw conclusions. However, we have had a long-standing concern about how dysfunctional the power markets have been, and we will be watching this issue with great interest.

"In the meantime," Headen added, "our FERC filing is moving forward based on our concern that the prices we paid were unjust and unreasonable."

On a national level, Bush has faced criticism for his close ties to the collapsed energy giant, which has been the single biggest financial supporter of his political career.

But Tuesday, the administration took credit for a Federal Energy Regulatory Commission inquiry that demanded the company turn over documents revealing its practices during California's crisis.

"(The documents) were released by FERC, an independent agency of this government ... as part of an ongoing investigation launched by this administration," White House spokesman Ari Fleischer said.

FERC opened the inquiry in February.

"(The revelation is a development) the president has noted, and he expects the investigation will be vigorously pursued wherever it may go," Fleischer said.

He used the disclosures to renew the White House call for tougher penalties for violations of the Federal Power Act.

But Fleischer wouldn't say whether Bush backs a call from Sen. Dianne Feinstein, D-Calif., that Attorney General John Ashcroft and the Justice Department open a criminal investigation into Enron's possible manipulation of the state's electricity market.

Justice Department spokeswoman Barbara Comstock did not respond directly to Feinstein's request.

"The Enron Task Force is continuing to actively investigate a wide variety of matters concerning the conduct of Enron Corp. and individuals and entities associated with it," Comstock said in a statement.

A memorandum, written by Enron lawyers in December 2000, outlined practices similar to those described by California officials who allege the energy trading company created phantom congestion on electricity transmission lines and engaged in sham sales among its affiliates to increase electricity prices.

Describing one such strategy called "Death Star," the lawyers wrote: "The net effect of these transactions is that Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion."

Another practice, called "Ricochet," allowed Enron to send power out of California and then resell it back into the state to avoid price caps that applied to transactions solely within California.

"To us, this is really the smoking-gun memo," said Sean Gallagher, a staff attorney with the California Public Utilities Commission. "It's Enron's own attorneys admitting that Enron is manipulating the California market."

Enron turned over the documents to FERC, which made them public Monday.

Review-Journal writer John G. Edwards contributed to this report.