The Whistleblower #24
Foundation for Taxpayer & Consumer Rights Corporateering
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The Whistleblower

The Whistleblower #24 - May 10, 2002

Now can we put someone in jail? Federal investigators recently got hold of a smoking gun: an internal Enron memo illustrating the energy industry's techniques for gouging Californians. The memo demonstrates that there was no energy shortage in California, no supply crisis -- longtime readers of our newsletter have heard this for over a year. The Californian energy crisis was, in fact, a crisis of greed. Back in December of 2000, corporate lawyers with Enron explained, in internal memos, schemes in which Enron traders would "artificially increase the load on the schedule submitted to the ISO [the state's grid manager]." Enron also had a policy of moving power out of California only to sell it back at higher prices. According to Enron: "This strategy appears not to present any problems…[except that] such exports may have contributed to California's Stage 2 Emergency yesterday." Oh yeah, that problem. And, along with 8 other pages of outrageous strategies for manipulating the markets there is the kicker: "Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving congestion."

FTCR is sponsoring legislation to hold executives, corporate directors and other higher ups personally liable when they withhold information about financial fraud. If convicted, these white-collar criminals could sit behind bars. Look for more information on this plan next week.

It's not just Enron. In the smoking gun memos uncovered earlier this week, Enron acknowledges that the manipulation of the market is standard practice. In fact, the power traders across the industry colluded in order to game the system using secret code words like "Death Star" and "Fat Boy," to describe different schemes. Thursday's Wall Street Journal reported that Dynegy --another big Texas power company -- set up sham trades to make themselves look more of a market player than the company really was. Beyond the obvious point that these power companies used deregulation to create false information for consumers as well as investors is the lesson that electricity should never again be left in the hands of unregulated, private corporations. There is no room for compromise on this. As recent disclosures (as well as the entire energy crisis) indicate, if these companies are given a market, they will abuse it.

Cal. Governor Davis and FERC should not make any new deals with power companies over long-term energy contracts that were signed while these companies were defrauding the state. With all that is coming out these days, and with the feds demanding more documents from power companies, Governor Davis should halt all negotiations with energy firms concerning overpriced long-term contracts. Federal regulators should also dismiss settlement talks concerning California's challenge to the contracts while investigations into market manipulation move forward. Last month, Governor Davis signed "re-negotiated" contracts with some power companies and released the firms from liability for market abuse. The Governor should be shredding these contracts, not renegotiating them.

PUC: Public Utilities Charade. In papers filed with the California Public Utilities Commission today, the Foundation for Taxpayer and Consumer Rights denounced as a "sham" a hearing called by the CPUC on the PG&E bankruptcy plan it submitted to a federal bankruptcy judge. The sharply worded letter from FTCR called the hearing a "sham" and a "fool's errand," saying "the CPUC's conduct is a supreme act of contempt for the public that was left in the dark, the Legislature whose refusal to bail out the utilities the CPUC now presumes to overrule, and the courts whom the CPUC unconscionably seeks to mislead. FTCR refuses to play along in this charade." FTCR has filed a lawsuit asking the California Supreme Court to order the CPUC obey all state laws, including those that require public hearings on all rate issues.



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