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New Evidence: Enron was Scamming Years Before Energy Crunch by Gene Johnson, Associated Press Seattle Post-Intelligencer - February 3, 2005

SEATTLE -- Disgraced energy giant Enron Corp. was running scams to drive up the cost of power years before the West Coast energy crunch, according to audio transcripts and documents unveiled Thursday by a small public utility district north of Seattle.

It's the first evidence that Enron appears to have been honing its fraudulent schemes well before the power crisis of 2000-01, when rolling blackouts darkened California as the company made at least $1.6 billion.

By November 1997, Enron apparently knew of loopholes in California's ill-advised deregulation plan, and by May 1998 - a month after the plan took effect - Enron was already falsifying transmission schedules to inflate prices, Snohomish County PUD officials said.

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 Jeffrey Skilling's calendar on at least two dates, and recorded phone conversations between project leader John Lavorato and Portland, Ore.-based Enron trader Tim Belden show they knew it was illegal. Belden has since pleaded guilty to charges of involvement in fraudulent trading schemes.

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."

Enron collapsed in the fall of 2001 after its extensive misdeeds surfaced. Skilling, ex-Chairman Kenneth Lay and former top accountant Rick Causey are scheduled to face trial in Houston in September.

The Snohomish County Public Utility District in Everett, about 30 miles north of Seattle, 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.

The PUD is hoping to prove that an exorbitant contract it entered with Enron in January 2001, at the height of the crisis, should be considered fraudulent because of Enron's manipulation, and that the PUD shouldn't have to pay the $122 million that Enron claims it owes.

Last summer, the PUD's efforts began to pay off when it discovered phone conversations in which Enron traders joked about ripping off "those poor grandmothers" in California and about how dams in the Northwest were killing endangered salmon to produce extra electricity to send to that state.

The PUD obtained much of its most recent evidence in one of Enron's Houston warehouses. PUD lawyers filed the evidence with the Federal Energy Regulatory Commission this week.

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

One newly transcribed conversation reveals that Enron and a 50-megawatt plant in Las Vegas, LV Cogen, conspired to take the plant off line on Jan. 17, 2001 - the same day rolling blackouts hit an estimated 500,000 customers in California. Taking the plant off line was in direct violation of an order by U.S. Energy Secretary Bill Richardson requiring generators to send their energy to California.

In the conversation late on Jan. 16 that year, 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.

In another 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."

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

Sen. Maria Cantwell, D-Wash., who has long insisted that FERC should have done more to protect consumers from Enron, said the transcripts added insult to injury.

"At the very least, FERC needs to ensure that the victims who paid the price for Enron's schemes the first time around aren't forced to pay a single penny more," Cantwell said.

A spokeswoman for Enron did not immediately return a call seeking comment. In the past, Enron has repeatedly refused to comment about new allegations of fraud, except to say that it is cooperating with federal investigations.