Feds Re-Open Enron Investigation

A small indie paper is reporting that FERC is re-opening its investigation into Enron’s west coast energy trades. I’ve not seen it anywhere else, so I am waiting for confirmation, but this is what the Houston Press says:

There are some (a lot?) of former Enron traders and execs in town who might have thought they had safely weathered the investigation into whether that company manipulated electricity prices in California in 2000, causing a crisis.

They may have to think again.

FERC (the Federal Energy Regulatory Commission) has reopened the investigation, according to an order issued Monday, as part of an eventual response to a federal appellate ruling that said FERC’s initial investigation had been too narrow.

As one electricity-markets expert explained it to us:

Initially, FERC looked at a specific time period during the West Coast power crisis to search for market manipulation. The 9th US District is pushing the Commission to look at the ENTIRE time period. Even if no additional culprits are found, it will do more than beat a dead horse — it will no doubt repeat more egregiousness from the usual suspects. And most of those usual suspects (Reliant, Enron, Dynegy, etc) were either HQ’d or had offices in Houston trading the West.
A good majority of the players are still in the business. Almost all has been forgiven, if not forgotten (by the smaller utilities forced under duress to sign contracts for power for many years in the future at 20x the going rate).

A spokesperson for FERC tells Hair Balls, however, that she is not sure how far-reaching the order is. “It was issued in the context of cases that had not been completely resolved,” Mary O’Driscoll said.

Still, some people should be at least nervous.

The California crisis was where Enron traders were heard laughing about what was going on in recorded calls found by investigators, including this exchange:

Employee 1: “All the money you guys stole from those poor grandmothers in California?
Employee 2: “Yeah, Grandma Millie man.

Employee 1: “Yeah, now she wants her fucking money back for all the power you’ve charged right up, jammed right up her ass for fucking $250 a megawatt hour.”

Enron: Not missed.

Some utilities have settled their claims; the litigation obviously drags on for others.

Interesting. After eleven years though, isn’t it time to make this just a memory?

Dear FERC, Thanks For The Classified Enron Information

Dear FERC,

I understand that as a federal agency you probably can not hire the “best and the brightest” so I forgive a lot of the asinine stuff that you issue forth like a Dutch dike on a warm summer evening. I am in an especially forgiving mood when the error works in my favor as it did this evening.

This evening, as my “friend” and I were on the way to have dinner, I checked my mailbox and was pleased to discover a big fat package from you in my box. (You’re welcome.) I had sent a FOIA request some months ago and had largely forgotten it. The FERC return address reminded me that I was furious over your handling of the Enron investigation. I got back into my friend’s car, set the package aside, and did not think much more about it.

When we returned back to my place, just now, I opened the package and found a big fat stack of CLASSIFIED ENRON MATERIAL. I was standing at my bar while the friend was kissing my neck and trying to make me hurry up with the infernal mail. Well, thank you, FERC because I have never in my entire life been so completely consumed with lust as I was that moment. Still, before I gave in to my prurient desires, I had to make sure I was seeing what I thought I was seeing. I handed my friend – who, by the way, was a senior executive at Enron so he knows what’s what (at least about some things) – the package. I asked him, with awe and hope dawning in my eyes, “Is this…?”

He confirmed that it looked like investigation material (what your lawyer folks will call “work product”; you should look into this) from the Enron investigation. The materials are stamped with various warnings, including: DO NOT DISTRIBUTE, CLASSIFIED and even one document that has the spooky and much-beloved phrase EYES ONLY. There are some things censored out – but very few things.

Now, I understand that the Enron collapse and investigation was a long time ago. Oh I remember those days of lawless pleasure-seeking, the freedom of the early 00s. But even someone as careless as I would not be THIS careless.

But I forgive you because, as I said, this is great for me. The friend and I are hitting Kinkos in the next two minutes to make copies. Lots and lots of copies. Lots.

So anyway, I think I need to give in to the friend because he’s been very patient watching me type this out, being willing to go to Kinkos with me, etc. etc. I will rock his world this evening – but for now, FERC, I want you to know that it is you who is rocking my world.

Love and kisses,

Cara Ellison

Return address:

I’m blocking my address but wanted to show that it was indeed a package directed to me, in Houston Texas.

“The Fat Package” with the only stuff that is blanked out.

One of the bureaucratic warnings that were ignored (thank you).

My big ole package of classified Enron material.

Today In Enron History

June 5, 2003, a San Francisco grand jury indicted former Enron trader John M. Forney, accusing him of manipulating California’s electricity markets from 1999 to 2001.

John Forney was indicted on 11 counts of conspiracy and fraud. He originally sought to fight the charges but eventually pleaded guilty to one count of wire fraud.

He was known for creating several trading strategies that were later greatly demonized by the media, including Ping Pong, Forney’s Infinite Loop, and Get Shorty.

Another Enron Whistleblower Nobody Ever Heard Of

New York Daily News investigates the possibility of “Enron-style” manipulation of N.Y. electric bills. Apparently, the investigation has turned up another “Enron whistleblower” that nobody has ever heard of (Paging Lynn Brewer: your position as most outrageous Enron fabulist is about to be ursurped.)

Are New Yorkers really being ripped off to the tune of more than $2 billion a year on their electric bills?

Energy expert Robert McCullough thinks so. And he has a track record of sniffing out hanky-panky in the power grid.

McCullough, a consultant based in Portland, Ore., was among the first to blow the whistle on the Enron scandal – correctly diagnosing the brazen market manipulation that triggered spikes and brownouts across California in the late 1990s.

Correctly diagnosing….? Wait, even if that were true – and it’s not – but even if that were true, how does that make him a whistleblower?

Later, after the company collapsed, he headed an investigative team that turned up the infamous Enron tapes, on which traders had a good laugh about how easy it was to steal from the unsuspecting customers they called “Grandma Millies.”

False. They didn’t talk about “stealing” from Grandma Millies. They said Grandma Millie should pay for her electricity. That’s called Capitalism, though I do understand the ignorance in this political climate.

Additionally, those tapes were turned over to FERC in their investigation into the energy markets in California… sorry, I’ve yet to find a truthful line in this crappy article. But even if it was true (sorry, that’s funny), how does obtaining tapes AFTER THE COMPANY COLLAPSED make him a whistleblower?

So we should all listen up when he says he detects similar hijinks behind the scenes of New York’s power grid – which uses the same complex auction system as California’s grid to set the price of electricity.

Bill Hammond of the New York Daily News, I appreciate that you’re trying to bust the NY power companies. But listening to “Energy expert Robert McCullough” is not the way to go about it. You only make yourself seem uninformed.

Enron West Coast Trading Primer: Get Shorty

Get Shorty was an arbitrage strategy used by Enron traders. Enron would sell (“naked sell” to use the short-seller terminology) electricity that it did not own on the “day ahead” market, and then buy the electricity back at a lower price on the “hour ahead” market.

There was nothing illegal about this. The only thing remarkable about it is that it’s ingenious.

Enron West Coast Trading Primer: Death Star

The only explanation I can conjure up for Death Star is that Enron traders got lazy. If there was any wrongdoing at the hands of Enron traders, I believe it happened exclusively under Death Star – and I also know for a fact these trades were extremely limited.

Enron would receive payments from California’s Independent System Operator, which runs the state’s energy grid, “to relieve congestion without actually moving any energy or relieving any congestion,” according to Enron’s own internal memo.

There were several ‘sub-programs’ under Death Star, including Small Death Star, Black Widow, Big Tuna, and the LOOP.

Enron West Coast Trading Primer: Fat Boy

According to Bill Lockyer and other anti-Enron types, Fat Boy was less a trading strategy than just a plain old lie: Enron traders would tell electricity officials that it was going to use more power than it actually intended to use. That way, Enron would reap extra payments by appearing to deliver more power on a high-demand day when, in fact, it was merely using less power than promised. [Thin Man, a little known strategy, reversed Fat Boy and took advantage of days when overall electricity demand on the grid was lower than anticipated. At those times, the price paid in an advance market known as the PX might be higher than the price in the Cal-ISO last-minute market.]

Fat Boy seems like such a minor strategy, particularly when taken in context of the whole mess that was California’s semi-deregulated market, that I tend to think this was a case of prosecutors piling on instead of any genuine wrong-doing on the part of Enron traders.   And besides, I can determine there were only 106 Fat Boy trades (there may have been more, but I’ve only identified 106.) Since I can’t upload an excel sheet to prove the trades were minuscule, rare, and inconsequential, you will have to take my word for it.  However, if you would like a copy of the excel worksheet, please feel free to ask and I’ll be happy to send it your way.

Enron Executives As Children: Jeff Skilling

In the end, Jeff Skilling felt more relief than joy. It had taken years to lobby the California Chess Commission to deregulate the chess industry. And now, with the letter in his hand inviting his team to compete in the first national chess tournament in California under new unregulated rules, a solid sense of righteousness and relief flooded through him. Throwing the letter down with his backpack on the kitchen table, he yelled upstairs for his brothers, but nobody was home. Just as well. He wanted to think about the chess tourney, playing against the best chess teams in the USA. As Captain of the chess team, he knew his men: the aggressive players, those who were more risk-conscious, those few who were the most fierce chess players he’d ever seen, looking at the board, watching, waiting, mean as little sharks.  Now that the new rules had been instituted, the game would be better for all players.  They simply could not lose.

Jeff decided to do homework later. After hours at school, his lean body was itchy for exercise. He quickly changed into shorts and sneakers and went outside for a run.  He was less than a mile from home, jogging down a narrow road, when he saw a car turn a corner too fast. Jeff jumped out of the way but it was too late. The car struck him. From the side of the road, he blinked up at the driver who had stopped and was now looking down at him.

“Are you okay?”

Jeff shook his head. “Call an ambulance, asshole.”

It wasn’t catastrophic. His leg was broken and he had a few bruises, but there was no permanent damage. The worst part of it was his parents would not let him travel from Houston to California to compete in the chess tournament.

“But I’m the captain!” Jeff said after he was already home. He had a cast on his left leg and he used crutches to get around. Surely he was not too disabled to play chess!

“You can advise them from home,” his mother replied.

“You can’t play chess over the phone!”

“Darling, do you want more jello?”

Jeff was absolutely furious. This was the most important event of the whole year to him. It was the event that would put his name on the plaque of the high school wall. It was the event that would catapult him and his team into chess legend.

But he could not go. His parents refused to sign the permission slip, and so he was forced to stay home. Still, he had a system worked out with his team. Every afternoon, they would call and update him on the tournament, and they would take pictures of the chess boards then email them to Jeff so if there was a problem he could try to advise them a way out of it. It wasn’t like being there in the heart and the belly and the nerve of the action, but at least he was kept in the loop.

The first day went beautifully. His team won all the preliminary matches. The second day went well too. The third day, there was a problem.

Jeff got a call from the school principal. “Your team is accused of cheating,” he said bluntly.

Jeff shook his head, but then realized the principal couldn’t see him. “That’s not possible,” he replied.

“Well, you can speak to the organizers but they’re threatening to send the team back home, permanently disqualified from playing chess in California.”

Jeff felt sick. This couldn’t be happening. He quickly got off the phone with the principal and called the California chess authorities.

“The Houston team is cheating,” a nasaly woman reported from Los Angeles. “They’re taking advantage of deregulation.”

One thing Jeff always tried to do was solve the problem as it came up. He didn’t like to get into deep philosophical discussions about whether or not the problem was “right” or “wrong”, he just wanted it solved. But this allegation was so egregious that he could not help but point out the obvious:

“Ma’am, you only deregulated the rules for cheating. If you allowed the teams to play chess under a full deregulation, you would not have any of these irregularities.”

The woman was not interested. “They’re cheating, and we’re sending them home. You will never play chess in California again!”

Poleaxed, Jeff hung up and looked around his room. Here in Houston, there was nothing he could do about the behavior of the players on the west coast. And besides, whatever the problems this lady was complaining about, he knew they weren’t cheating; they all had too much respect for the game to cheat.

But California didn’t see it that way.

The team was sent home to Houston, and everyone, including Jeff, was called to account in the Principal’s office. “How many games of chess has this team played this year?” the principal asked.

“I don’t know, I don’t have those records with me,” Jeff replied.

“Would it surprise you to know that you’ve played 23 games of chess, and you’ve won every one of them?”

“No,” Jeff replied, “that wouldn’t surprise me.”

“Don’t you think its odd that you never lose a game of chess?”

“Sir, I know that in the entire time I’ve gone to this school and been the captain of the chess team, I never did anything that was not in the best interest of the players and the students at this school.”

Around and around it went. After a long meeting, everyone was given scholastic probation and forbidden from playing chess for a year. As the team stood up to leave, the principal asked Jeff to stay. The door closed behind him and he looked back at the principal with wounded eyes. “What?”

“You’re the captain,” the principal said. “You should have known better.”

Jeff rolled his eyes. “They didn’t cheat! And even if they did cheat – which they did not – I wasn’t even there! I didn’t do anything wrong.”

The principal disagreed. While everyone else got probation, Jeff Skilling was forever banned from the game of chess by the high school principal and the entire state of California.

Jeff Skilling is currently appealing to the superintendent of the school.

Others in this series:

Enron Executives As Children: Sharron Watkins

Enron Executives As Children: Andy Fastow

Today In Enron History

Today in 2001, Jeff Skilling attended a conference in Las Vegas to speak about the ‘de-integration’ of business and ended up making a joke about the California energy crisis.

“Traditional business models are slow-moving, rigid and tightly vertically integrated,” said Skilling. “The next trend is de-integration, where companies will move to a business model more similar to Enron’s. This is happening in the energy industry and is spreading to other vertical industries. Enron’s primary business goal now is to create markets.”

Toward the end of the talk, he made a joke. He looked toward the cameras and said, “This is being filmed, I know I’m going to regret this but…What’s the difference between California and the Titanic?” he asked.  “At least when the Titianic went down, the lights were on.”

Attendees at the conference laughed. Some reporters didn’t.

In Skilling’s congressional testimony, Skilling explained, “As far as the joke related to the Titanic, all I can say is that was at a time of very, very frayed tempers as a result of the situation that was going on in the state of California. One week prior to that meeting in Las Vegas, where I made that statement, the highest law official in the state of California, Attorney General Bill Lockyer said – and let me quote – ‘I would loveto personally escort Ken Lay to an eight-by-ten cell that he could share witha tattooed dude who says, quote, ‘Hi, my name is Spike, honey.’”

In context, it’s not such a terrible comment. Heck, even without context, it’s not a bad comment. But reporters and others had a vested interest in portraying it as the very height of insensitivity.

In the end, I consider it just one more big nothing – an innocent incident that was blown way out of proportion.