FERC Failed To Examine Tapes of Energy Market Manipulations In Investigation of Enron Trading Practices

WASHINGTON – Governmental Affairs Committee Ranking Member Joe Lieberman, D-Conn., and Senator Maria Cantwell, D-Wash., Wednesday called for Senate hearings to examine the thoroughness of the Federal Energy Regulatory Commission’s investigation of Enron’s abusive energy trading practices.

The two Senators also asked FERC Chairman Patrick Henry Wood, III to reopen FERC’s investigation into Enron’s trading practices during the 2000-2001 Western energy crisis and to explain how the agency will respond to new evidence of “extensive and deliberate” trading manipulations, particularly in the context of disputed energy cost refunds and long term energy contracts to which Enron was a party.

In separate letters to Governmental Affairs Committee Chairman Susan Collins, R-Me., and FERC Chairman Wood, Lieberman and Cantwell said FERC’s failure to review thousands of hours of audio recordings that provide evidence of the abusive tactics used by Enron traders to inflate electricity prices during the 2000-2001 Western energy crisis cast doubts on the results of the FERC investigation, concluded in March 2003.

“This new evidence of abusive practices raises significant questions about the thoroughness of FERC’s own investigation into the trading practices of Enron and other market participants during this period,” the Senators wrote to Chairman Wood, “as well as FERC’s actions with regard to the many related issues which arose as a result of market problems, such as the refund of unjust and unreasonable prices, the validity of long term contracts entered into by Enron and other market participants, and enforcement actions against market participants who engaged in abusive practices.”

The Snohomish County, Wash., Public Utility District discovered the existence of the tapes, which have been in the custody of the Department of Justice. Although the recordings reveal traders openly discussing how to evade regulators and inflate prices by withholding energy, FERC apparently never obtained these recordings, and, in fact, sought to block Snohomish’s efforts to obtain and use this evidence in FERC proceedings related to the energy crisis.

For example, an Enron trader is recorded describing plans to make it appear as if transmission lines are overloaded with electricity so that additional power cannot be sent, a benefit to Enron because it will be compensated for not sending electricity.

Mallory: If the line’s not congested….. Then I just look if I can congest it…. That’s a money maker no matter what….

When confronted by the newly revealed evidence, FERC agreed only to review the nine hours of recordings specifically submitted by Snohomish, but has thus far ignored the other 2,800 hours of tape obtained by Snohomish, and the thousands upon thousands of additional hours of recordings that remain in the custody of the Justice Department.

In 2002, as part of its investigation into the Enron debacle, a majority staff report of the Governmental Affairs Committee found a “shocking lack of regulatory vigilance” by FERC. It also concluded that “over and over again, FERC displayed a striking lack of thoroughness and determination with respect to key aspects of Enron’s activities – an approach seemingly embedded in it regulatory philosophy, regulations, and practices.”

Lieberman and Cantwell said in their letter to Collins that hearings on FERC’s response to the taped evidence would be an appropriate follow-up.

“If the Commission and the FERC staff continue to take such a narrow view of the issues that may be raised and the significance of the continuing stream of evidence about Enron’s abusive market practices, any review of current proceedings may well be merely perfunctory,” the Senators wrote to Wood. “The additional evidence of market abuses uncovered by Snohomish, and likely contained in the remaining Enron recordings, warrant a thorough reassessment of the Western market proceedings and the relevance of Enron’s abusive practices to those markets.”