Enron Lawyer Saw Deception

Enron Corp.'s energy trading practices in California were deceptive and possibly illegal, a lawyer hired by the company to review its activities in the state said Wednesday.

In testimony before the Senate Commerce consumer affairs subcommittee, Stephen Hall said he told Enron officials of his concerns in a face-to-face meeting in December 2000.

Hall was one of the authors of a memo written just before the meeting that described how Enron's strategies drove up power prices during the California energy crisis, which stretched into the first half of 2001.

Hall said his supervisor at the Stoel Rives law firm even edited his memo "to emphasize the deceptive nature of certain of these strategies."

Richard Sanders, Enron's assistant general counsel, told senators he quickly ordered the practices stopped even though he "was not confident that (Hall's memo) completely or accurately described many aspects of the trading practices."

Federal regulators released the memo last week and an additional Enron document in which other company lawyers questioned Hall's description of the strategies. Those memos prompted hearings Wednesday by the subcommittee and the Senate Energy and Natural Resources Committee.

Hall's memo said traders coined such colorful terms as "Death Star," "Get Shorty," "Fat Boy" and "Ricochet" for trading strategies that sought to maximize profits in California's newly deregulated electricity markets.

Describing "Death Star," Hall 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."

Sen. Max Cleland, D-Ga., said the practices showed the company was "like a lion on the prowl for unsuspecting prey."

Attorneys general from California, Oregon and Washington have supplied congressional investigators with handwritten notes on the practices taken by Tim Belden, head of Enron's West Coast trading operations.

California officials have said for 18 months that Enron and other energy companies took unfair advantage of California's deregulation by manipulating power supplies to force prices to all-time highs. Wholesale power rates increased tenfold.

The Federal Energy Regulatory Commission imposed region-wide caps on electricity prices in June, bringing calm and an enduring reduction in wholesale power rates to the volatile energy markets.

FERC Chairman Pat Wood said it's too early to draw any conclusions about whether Enron or any other energy companies manipulated the California energy market. But, he told senators, Enron's trading strategies are "not what I have in mind when I talk about the benefits of competition in the nation's energy markets."

On Tuesday, Sen. Joseph Lieberman, D-Conn., charged that FERC's initial investigation of Enron's online trading activities "failed to follow up on some of the most serious concerns." A more searching inquiry into Enron's trading practices was needed, Lieberman said in a letter to Wood.

Wood told reporters Wednesday that when he saw the report of FERC's investigation last September he found it interesting as an attempt "to get a better understanding" of how Enron's online trading worked but that it prompted no alarms.

Wood said the report was one of many such documents produced by the agency staff and regularly provided to the FERC commissioners.

"It wasn't a do-this type of document," he said.

It was the first public disclosure of such an inquiry having been conducted before Enron foundered last fall. In March 2001, the energy commission directed six power producers, including Enron subsidiary Portland General Electric of Oregon, to justify $55 million worth of wholesale power transactions they made the month before involving California.

Last November, FERC officials were concerned enough about Enron's shaky financial condition to raise the issue with the Federal Reserve, with President Bush's National Economic Council at the White House and with the company, Lieberman disclosed in the letter.

Enron officials in Houston didn't immediately return telephone calls seeking comment.

Wood, appointed by Bush, did not join the commission until June. A month earlier, FERC launched its probe, which concluded in August with "no reason for concern and no cause for action," Lieberman said.

FERC ordered a new investigation into possible price manipulation in February, following prompting from Western lawmakers.