May 26, 2006 in City

Enron conspiracy cost Northwest millions

By The Spokesman-Review
 

The convictions of former Enron Corp. chief executives Kenneth Lay and Jeffrey Skilling on Thursday may cap the company’s criminal episode, but Enron’s legacy in the Northwest may well be its role in manipulating electricity markets that cost Washington residents and businesses hundreds of millions of dollars.

In Spokane, think Kaiser Aluminum Corp. – which took advantage of the soaring market and sold electricity rather than use it to make aluminum – as well as Avista Corp. and the public utility districts that have bumped energy rates in recent years, in part to recover from the episode.

Houston-based Enron was a political player that lobbied for deregulation in the mid-1990s.

The successful deregulation efforts first led to a drop in the price of electricity, seemingly making good on the promise that deregulation would offer broad customer choice and ultimately lower prices.

But power companies didn’t keep up with building new plants to meet the growing needs of an expanding economy increasingly reliant on electricity.

When drought lingered in the Pacific Northwest, the conditions were such that prices began to rise on a perceived shortage of power, said Ed Mosey, spokesman for the Bonneville Power Administration.

Part of the problem was of Enron’s making. The company’s electricity brokers employed trading gimmicks with names such as Fat Boy and Death Star that artificially inflated prices. The result was the West Coast energy crisis of 2000 to 2001.

The frenzied market climate ensnared Avista Corp., whose energy trading activities caused it to just about run out of cash after having to buy electricity at soaring prices. The company narrowly avoided bankruptcy and remains in recovery mode even today.

Courts and regulators have consistently ruled in favor of Avista in myriad lawsuits, though appeals are pending, according to the company’s financial filings with the federal government.

The BPA, the power marketing agency that sells and delivers electricity generated from federal dams in the Northwest, lost $700 million during the crisis.

The agency is just now emerging from a financial hole dug five years ago when it had to purchase power to meet customer needs and contract requirements.

Now in bankruptcy, Enron still is trying to collect $120 million from Snohomish County Public Utility District over a contract termination fee. The PUD has said Enron artificially juiced prices and therefore shouldn’t be able to collect.

Enron’s financial fraud, for which Lay and Skilling were convicted, and its activity during the electricity crisis have been considered separate issues.

Yet Washington Sen. Maria Cantwell seized on the convictions as evidence of a connection.

She called Enron “the biggest criminal enterprise in American history” and linked the financial fraud perpetrated by executives to the manipulation of energy markets.

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