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Cantwell to Seek New Inquiry in Enron Case by Dan Richman Seattle Post-Intelligencer, February 4, 2005

Agency is stalling on ruling, senator says

Enron's scams and bogus transmission deals were running up the cost of power years before the Texas energy trader's actions led to a West Coast energy crisis four years ago, according to audio transcripts and other documents released yesterday by the Snohomish County Public Utility District.

The documents were released in a continuing effort by the utility to dodge a $122 million bill from the failed energy company. And in that regard, the utility also yesterday won a pledge from Sen. Maria Cantwell, D-Wash., to ask congressional regulators to investigate the federal agency it says is stalling on ruling whether the public utility district should have to pay.

Cantwell announced her intentions during an Everett press conference at which the utility released what it called new evidence of wrongdoing by Enron.

"We have now provided so much documentation (of Enron's alleged wrongdoing) that, frankly, I am going to ask now that the Government Affairs Committee of Congress investigate the Federal Energy Regulatory Commission," Cantwell said by phone from Washington, D.C. "They are not doing their job in upholding the Federal Power Act."

The utility, one of the largest in the state and based in Everett, said it had submitted to the FERC a set of audio tapes and transcripts that the utility's assistant general counsel, Eric Christensen, said "show the motives and intents to coordinate Enron traders to defraud."

In the past, Christensen said, the FERC has tried to discount the importance of the three sets of audio tapes unearthed and transcribed by the Snohomish utility, saying records must be examined to show patterns of deceit. But "these tapes show a valuable contribution to proving what Enron was doing," he said.

In January 2003, Enron filed a claim against the utility in a New York bankruptcy court alleging breach of contract after the utility in November 2001 stopped paying on a contract it held with Enron. Now Enron is trying to enforce a clause that imposes a $116 million fine, plus nearly $2 million per month in interest.

The utility will be excused from paying that fine only if the FERC concludes that Enron acted fraudulently, violating the Federal Power Act, so that the contract is invalid. The FERC has been deliberating that question since August 2000, Christensen said.

Enron filed as many as 60 similar claims against other utilities and customers.

The Snohomish PUD won't try to recover the $16 million it paid Enron under its contract, even though it didn't get its money's worth because of Enron's manipulations, Cantwell said.

"While we may never get a dime out of the bankruptcy court, we sure don't want to pay another dime in," she said.

Companies have avoided moving to Snohomish County because its power rates are high -- the after-effect of the Enron debacle, she said.

The evidence that the Snohomish PUD unveiled yesterday indicated that by November 1997, Enron knew of loopholes in California's ill-advised deregulation plan and that by May 1998, a month after the plan took effect, Enron was already falsifying transmission schedules to inflate prices.

"Beyond the illegal nature of Enron's gaming of the energy market, its insensitivity to human suffering is reprehensible," PUD lawyer Michael Gianunzio said.

The utility obtained much of its most recent evidence in one of Enron's Houston warehouses and has been using its meager resources to transcribe thousands of hours of phone conversations involving Enron traders -- a job it says should have been done by federal regulators long ago. It has spent $2 million over the past three years on its investigation, an official said.

The utility found a November 1997 e-mail on the computer of Portland-based Enron trader Tim Belden referring to loopholes in California's soon-to-be-implemented power deregulation plan. Belden pleaded guilty in October 2002 to wire fraud for participating in trading schemes to game the California market. Two other former Enron traders, Jeffrey Richter and John Forney, later pleaded guilty to similar charges.

The year 1997 also was when former Enron finance chief Andrew Fastow created the company's first off-balance-sheet partnership to funnel millions of dollars in kickbacks to Fastow. The partnership was wrongly portrayed to investors and regulators as independent of Enron. Though unrelated to the trading allegations, the partnership was one of the first steps toward similar financial moves to hide debt and inflate profits, which fueled Enron's downfall in 2001.

Last year, the utility first released transcripts of conversations that showed Enron traders openly discussed manipulating the California power market and joked about stealing from grandmothers during the power crisis. Conversations that involve Forney, Belden and Richter appeared throughout those transcripts.

Documents released yesterday include a May 1998 internal Enron memo between energy traders that refers to a "PHONY import." The note also says California's independent system operator "will call and tell us we're out of balance, so tell them we intend to correct the imbalance in the 'hour-ahead' market. In fact, we really intend to do NOTHING. ..."

By keeping power transmission imbalanced, Enron increased the price of electricity and its own profit.

Also in 1998, Belden wrote to a supervisor as part of a performance review: "California gaming -- we always say that we need to increase this activity, yet we never do."

In another scheme, believed to have been nicknamed "Project Stanley" in honor of the Stanley Cup hockey trophy, Enron traders in Alberta conspired with other companies to artificially inflate energy prices in Canada in 1999. References to "Project Stanley" were discovered on former Enron Chief Executive Officer Jeffrey Skilling's calendar on at least two dates, and recorded phone conversations between project leader John Lavorato and Belden released by the Snohomish utility suggest they knew the scheme -- similar to those later used in California -- was illegal.

Lavorato: "I'm just, ah, (expletive), I'm just trying to be an honest camper so I only go to jail once."

Belden: "Well, there you go. At least in only one country (laughs)."

Lavorato: "Yeah, (expletive), this isn't a joke. ... Nobody else seems to be concerned anymore."

Lavorato, Belden's former supervisor, has been named as a defendant in various Enron-related lawsuits but has not been charged with any crimes. Attempts to locate a home number for him or contact his lawyer were unsuccessful yesterday.

Canadian officials raided Enron's Alberta office, but the investigation petered out.

Enron collapsed in late 2001 after a web of hidden debt, inflated profits and fraudulent accounting was uncovered.

Skilling and former top Enron accountant Richard Causey have pleaded innocent to more than 30 counts each of insider trading, fraud, conspiracy and other charges. They face trial alongside Enron founder and former chairman Kenneth Lay, who has pleaded innocent to seven counts of conspiracy and fraud. At a Feb. 24 hearing in Houston, a judge will consider when to schedule the trial.

Some of the most damning evidence in the power-manipulation case arises from taped phone conversations involving Enron traders. Traders typically record conversations as a way of keeping track of oral contracts.

In one conversation, a worker named Matt Goering complained about fraudulent record-keeping by company traders: "I mean, I might get fired for marking the book correctly, but I'll go to jail for cooking it."

A FERC spokeswoman did not immediately return a call seeking comment. Previously, the agency has said its investigation into Enron's wrongdoing continues.

An Enron representative did not immediately return a call seeking comment. In the past, Enron has repeatedly declined to comment on new allegations of fraud, except to say that it is cooperating with federal investigations.

The committee Cantwell is calling upon to investigate, The Committee on Homeland Security and Government Affairs, is officially charged with "studying the efficiency, economy and effectiveness of all agencies and departments of the government." It has subpoena power.

"It's a powerful committee, and getting investigated by it is not something a federal agency would look forward to," said Cantwell spokeswoman Angela Becker-Dippmann.

Cantwell said she will also ask the committee to investigate what she called improper relationships between FERC and Enron.

"The federal regulators were pushed and supported by Ken Lay, so Enron actively lobbied on the behalf of some of these Federal Energy Regulatory commissioners," she said.

"They certainly have espoused Ken Lay's philosophy and continued to sing the praise of the deregulated markets that Ken Lay outlined. We will do everything in our power to make sure the commissioners correct this situation. If we can, we will show that they also are obstructing justice."

ENRON EVIDENCE

An Enron employee and an employee at LV Cogen, a 50-megawatt plant in Las Vegas, conspired to take the plant off line in January 2001 -- as rolling blackouts hit about 1 million customers in California, according to one of the transcripts released yesterday by the Snohomish County Public Utility District.

On Jan. 16, 2001, an Enron worker identified as Bill told a plant worker identified as Rich not to take notes because "this is going to be a word-of-mouth kind of thing."

Bill: Ah, we want you guys to get a little creative.

Rich: OK.

Bill: And come up with a reason to go down.

Rich: OK.

Bill: Anything you want to do over there? Any ...

Rich: Ah ...

Bill: Cleaning, anything like that?

Rich: Yeah, yeah. There's some stuff we could be doing.

The plant went off line, compounding California's crisis.