Ripping Off California




O

ne
of the most damning pieces of evidence in the federal government’s
investigation into California’s energy crisis emerged recently
that proves beyond a shadow of a doubt that energy firms took part
in a year-long scheme to boost the price of electricity in the state
by withholding much-needed power from consumers.


This
latest smoking gun puts to rest, once and for all, the debate about
what caused California’s energy crisis. But, the Federal Energy
Regulatory Commission has punished the wrongdoing with a mere slap
on the wrist and consumers are still paying record prices for electricity.
The nation’s energy markets are in dire need of a massive overhaul
to ensure other states are not victimized like California. Already,
Texas and Arizona have filed complaints with FERC that they too
are beginning to see evidence of manipulation by energy companies.
But the Republican- dominated FERC, whose chair was appointed by
President Bush, is dragging its feet on the issue. Meanwhile, the
price of natural gas and electricity has reached record highs, which
adds further stress to the nation’s already troubled economy.


This
latest smoking gun in the ongoing investigation into California’s
energy crisis, a transcript of a conversation between a trader and
a power plant operator at Houston-based Reliant Energy in which
the two discuss shutting down some of the company’s power plants
in California between June 20 and 22, 2000 to create an artificial
shortage so the price of power would skyrocket, was released by
the FERC in January 2003. The tactic worked. It caused power prices
to reach “unjust and unreasonable” levels in California,
which under the Federal Energy Policy Act is illegal.


We
“started out Monday losing $3 million…. So, then we decided
as a group that we were going to make it back up, so we turned like
about almost every power plant off. It worked. Prices went back
up. Made back about $4 million, actually more than that, $5 million,”
the Reliant trader says in a tape-recorded conversation on June
23, 2000.


 Reliant
cut a deal with FERC, agreeing to refund California $13.8 million
to settle the issue and will not be penalized under federal laws.
State Senator Debra Bowen, (D-Redondo Beach), said the settlement
does not go far enough. Energy corporations such as Reliant, Duke,
Williams, and Enron have said publicly over the past two years that
they have acted “properly” and have laid all of the blame
on California’s crisis on the shoulders of state lawmakers.
We now know these corporations have been lying. There are likely
dozens of other smoking guns to be found that show the same type
of behavior during the peak of the energy crisis, said Robert McCullough,
an energy consultant based in Portland who has been assisting California
in its investigation.


“The
one thing that isn’t conceivably believable is that [Reliant]
only withheld two days,” Mc- Cullough said.


Shutting
down power plants in California to boost wholesale prices is not
a new issue. Last year, “CBS News” reported that Williams
Companies engaged in identical behavior around the same time as
Reliant. The evidence, also a transcript of a recorded conversation
between a Williams trader and a power plant operator in California,
showed the two conspiring to shut down a power plant for two weeks
to boost electricity prices and Williams profits. FERC kept the
evidence under wraps for a year and cut a secret deal with Williams
to refund California $8 million it obtained through the scam without
admitting any guilt.


FERC
released the transcripts last November after the

Wall Street
Journal

sued the commission to obtain a full copy of its report.


Had this evidence
been released 21 months ago, pre-Enron, it would have helped California’s
case. But it wouldn’t have jibed with Bush’s energy policy,
which was made public in May 2001. Around the same time, President
Bush was in California and met with Gov. Gray Davis about the state’s
energy crisis. Bush told Davis he would do nothing to help the state.


A
few weeks before the meeting between Bush and Davis, Vice President
Dick Cheney, who chairs Bush’s energy task force, was interviewed
by PBS’s “Frontline” for a special series on California’s
energy crisis. During the interview, Cheney flat-out denied that
energy companies ripped off California.


“The
problem you had in California was caused by a combination of things—an
unwise regulatory scheme, because they didn’t really deregulate,”
Cheney said in the May 17 “Frontline” interview. “Now
they’re trapped from unwise regulatory schemes, plus not having
addressed the supply side of the issue. They’ve obviously created
major problems for themselves and bankrupted PG&E in the process.”


When
asked whether it was possible that energy companies were behaving
like a “cartel” and if some of the high power prices in
California could be the result of manipulation, Cheney responded
with a resounding “no.”


It’s
highly unlikely that Bush, Cheney, and members of the energy task
force were kept in the dark about the Williams scam, especially
since the findings of the investigation by FERC took place around
the same time the policy was being drafted. According to evidence
obtained by Congress- person Henry Waxman (D-California) earlier
this year, the energy task force “considered and abandoned
plans to address California’s energy problems in its report.”


California’s
electricity crisis wreaked havoc on consumers in the state between
2000 and 2001, resulted in four days of rolling blackouts, and forced
the state’s largest utility, Pacific Gas & Electric, into
bankruptcy. California was the first state in the nation to deregulate
its power market in an effort to provide consumers with cheaper
electricity and the opportunity to choose their own power provider.
The results have since proved disastrous. The experiment has cost
the state more than $30 billion.


 For
nearly three years, California officials have pleaded with FERC
commissioners, President Bush, and Vice President Dick Cheney to
provide the state with some relief from soaring wholesale power
prices and investigate energy companies, including Enron, Williams
Companies, and Reliant, for allegedly manipulating the market.


Bush
and Cheney responded personally to California Gov. Gray Davis’s
cries for help in May 2001 by saying the crisis was the result of
California’s poorly designed power market, which left some
regulatory restrictions in place. Although that is partially true,
it’s now become apparent that energy companies bear most of
the blame.


It
wasn’t until Enron collapsed in October 2001 and evidence of
the company’s manipulative trading tactics emerged that FERC
began to take a look at the company’s role in California’s
electricity crisis. Since then, memos written by former Enron traders
were uncovered, with colorful names like “Fat Boy” and
“Death Star,” that contained the blueprint for ripping
off California.


Enron’s
top trader on the West Coast, Timothy Belden, the mastermind behind
the scheme, pleaded guilty in December to conspiracy to commit wire
fraud and has agreed to cooperate with federal investigators who
are still trying to get to the bottom of the crisis.


California
is demanding that FERC order the energy company’s to refund
the state $8.9 billion for overcharging the state for electricity
during its year long energy crisis. FERC is expected to wrap up
its investigation in March and decide whether the state is entitled
to the refunds. But an administrative law judge for the agency released
a preliminary decision in December that says California is due no
more than $1.2 billion in refunds because the state still owes the
energy companies $1.8 billion in unpaid power bills.