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CounterPunch
February
3, 2003
Another Slap on the Wrist
How Reliant
Energy Withheld Power from California Consumers
by JASON LEOPOLD
One of the most damning pieces of evidence in
the federal government's investigation into California's energy
crisis emerged Friday that proves beyond a shadow of a doubt
that energy firms took part in a yearlong 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, a 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, was released by the FERC Friday.
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 theey'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&E 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.
Jason Leopold
can be reached at: jasonleopold@hotmail.com
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