A lawyer who worked for Enron Corp. told lawmakers Wednesday that he warned the company during the California energy crisis that its power-trading practices in that state were deceptive and perhaps illegal.
Lawyer Stephen C. Hall said he was alarmed in the fall of 2000 to learn that traders for the Houston-based energy giant were using financial gimmicks, to which they gave colorful names, that resulted in Enron being paid for electricity it didn’t provide.
“As I learned about Enron’s trading practices, I became increasingly concerned,” Hall said at a hearing attended by members of the Senate Commerce Committee. “As I learned of deceptive practices, I advised the traders with whom I spoke that such practices were deceptive and that they should stop such practices immediately.”
After Hall’s testimony, lawmakers unleashed scorching criticism of now-bankrupt Enron.
“It is disgusting corporate behavior without a moral base,” said Sen. Byron Dorgan (D-N.D.). He added that the trading schemes were evidence of “a culture of corruption” at Enron.
Dorgan urged appointment of a special counsel to probe the huge price increases for electricity that plagued the West Coast in 2000 and 2001. He also said he will seek to have Thomas White, the former Enron official responsible for the energy-trading unit during the California crisis, testify before Congress.
White, now the U.S. Army secretary, has been controversial for his Enron connections as well as his activities at the Pentagon, including personal trips he took on military jets.
Lawmakers focused much of their attention Wednesday on memos written by outside lawyers, such as Hall, who had done work for Enron. Hall wrote his memo after interviews with some of the company’s energy traders in October 2000. The contents of the memo were initially disclosed last week.
In the document, Hall revealed how one Enron practice, called “Death Star,” resulted in the company being paid, even though it did not transport electricity to relieve congestion in the power grid. Other strategies, known as “Ricochet,” “Fat Boy” and “Get Shorty,” similarly resulted in Enron reaping profits for providing little or no electricity. Meanwhile, the price that Californians paid for power skyrocketed.
Hall testified he thought that the practices, besides being deceptive, violated the rules of California’s energy-trading grid and possibly California laws.
Hall’s memo was co-signed by Enron’s former senior counsel, Christian Yoder, who had hoped that his signature would heighten the attention the memo would receive within Enron. After writing the memo, Hall said, he was told that the dubious trading practices had ceased. Hall subsequently worked directly for Enron for eight months.
California lawmakers said they felt vindicated by the memos. At the time of the shortages, Vice President Dick Cheney, for instance, blamed the sharp electricity price increases on Californians’ voracious appetite for power.
“Let me tell you what the scams did,” said Sen. Barbara Boxer (D-Calif.). “They caused great anxiety for the families of my state.”
In addition to enduring rolling blackouts, Californians were overcharged an estimated $8.5 billion for electricity, she said.
“They affected 30 million people out of the 35 million people in my state,” Boxer said. “And these memos prove what I and many members of our delegation have been saying for two years now: Something was rotten.”
While Boxer and other lawmakers blamed Enron and other energy companies, politicians and industry officials have said that Enron’s activities actually played a minor role in California’s power woes. More responsible, they say, was a lack of power generation in the state, a sharp rise in natural gas prices, high consumer demand and flaws in California’s energy deregulation plan.
Also testifying was Pat Wood, chairman of the Federal Energy Regulatory Commission. He said his agency would take a more activist role in monitoring energy markets.
Asked by Sen. Dianne Feinstein (D-Calif.) if Congress should make the trading practices described in the memos illegal, Wood said, “Yes.”
