FERC Gives Another Energy Company A Slap On the Wrist For Ripping Off California
Latest Smoking Gun Evidence Shows Reliant Energy Withheld Power From Consumers During Height of Energy Crisis
One of the most damning pieces of evidence in the federal government’s investigation into California’s energy crisis
emerged Friday, proving 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 left 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 chairman 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 was released by the FERC Friday. It
consists of 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. The tactic worked. It caused power prices to reach
“unjust and unreasonable” levels in California, which under the Federal Power 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,” McCullough 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 the full copy of
its report.
How could FERC keep this smoking gun concealed for a year?
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 instead 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' 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 in the process."
When asked whether it was possible whether 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 Congressman 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’ cries for help in May of 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 yearlong 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.
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- Jason Leopold is a freelance journalist based in California, he is currently finishing a book on the California energy
crisis. He can be contacted at jasonleopold@hotmail.com.