Bert Caldwell: Justice still awaits Enron’s smaller players

Gratifying as it was to see former Enron Corp. Chief Executive Officer Jeffrey Skilling enter the federal penal system last week, there remains some critical unfinished business for Northwest residents.

The three energy traders most responsible for perpetrating massive fraud against West Coast utilities and their ratepayers have yet to be sentenced. Timothy Belden, in 2002, and John Forney, in 2004, each pleaded guilty to one count of conspiracy to commit wire fraud. Jeffrey Richter in 2003 admitted guilt to one count of conspiracy and to one count of making a false statement to a government agency. Translation: He lied to the FBI.

Regarding the fibbing, Richter told the judge “I made an error in judgment in my response.”

And a lot more errors besides.

Belden headed Enron’s Portland energy trading office during the 2000-2001 energy crisis. Forney and Richter were his lieutenants. Together, this crew concocted a witch’s brew of schemes that multiplied the effects of an electricity shortage caused by record temperatures and drought.

With “Ricochet,” for example, Enron traders bought electricity in California at prices capped by the state. They exported, then reimported the power back into California at market prices many times higher. Power that sold for $25 per megawatt in a normal weather and water year was worth as much as $1,500 some hours when the California grid teetered, and sometimes fell, into rolling blackouts.

“Forney’s Perpetual Loop” was a variation on Ricochet. He must have been proud.

Richter’s personal contribution was “Load Shift,” by which the traders submitted false transmission schedules to grid operators. Fearing system overloads, the operators paid Enron not to ship electricity it did not have. Load Shift and variations earned Enron about $33 million in July and August 2000.

Belden, as a utility policy analyst at the Lawrence Livermore National Laboratory before joining Enron, had anticipated some of the opportunities for electricity market manipulation. As a trader, he exploited them with a vengeance.

Trading revenues for the Portland office mushroomed from $50 million in 1999 to $800 million in 2001. As Belden testified in the trial of Skilling and Enron Chairman Kenneth Lay, those revenues were critical to a desperate effort to prop up company earnings by using trading revenues to paper over losses from other operations.

Analysts and journalists, meanwhile, were wising up. In December 2001, Enron filed what was then the biggest corporate bankruptcy of all time.

But not before utility ratepayers from Mexico to Canada absorbed electricity bills substantially higher than those they paid before 2000. Northwest utilities, Avista Corp. and the Bonneville Power Administration among them, are still recovering from the financial blows Enron and other trading companies laid on while chortling about the grandmothers who suffered from their cheating.

The indictments, trials, plea bargains and sentencings have brought some measure of justice. Skilling is settling in for 24 years of residency in a Minnesota prison. Lay died before he could be sentenced. Former Chief Financial Officer Andrew Fastow got off easy – six years – despite his central role in Enron’s numbers shuffling.

Belden, Forney and Richter await their fate, but indications are they might avoid the slammer. One former prosecutor has suggested the lesser offenders in the Enron cases might skate in return for their cooperation in the prosecution of their former bosses. Belden testified against Skilling and Lay. What Forney and Richter contributed to the prosecution is unclear.

And Richter’s falsehoods to the FBI might be more than the court can ignore.

All have agreed to fines, and Belden coughed up $2.1 million in ill-gotten gains to former Enron employees wiped out by the company’s bankruptcy. The other two have agreed to restitution, as well. Surely, they will be less wealthy men when all the litigation is over. But poor, like many of their victims? Unlikely.

Before justice moves on, the U.S. District Court in San Francisco might want to consider again the magnitude of the harm these three did to individuals, businesses, and the economies of small towns that lost their sawmills or aluminum smelters.

Not to do so would be another of those errors in judgment.