Evidence shows early Enron power scams
EVERETT — Fallen energy giant Enron Corp. was running scams to drive up the cost of power years before the 2000-01 West Coast energy crisis, according to audio transcripts and documents unveiled Thursday by a public utility north of Seattle.
By November 1997, Enron apparently knew of loopholes in California’s ill-advised deregulation plan, and by May 1998 — a month after the plan took effect — Enron was already falsifying transmission schedules to inflate prices, Snohomish County Public Utility District officials said Thursday as they unveiled new evidence at a news conference.
The utility in Everett, about 30 miles north of Seattle, obtained much of its most recent evidence in one of Enron’s Houston warehouses and has been using its meager resources to transcribe thousands of hours of phone conversations involving Enron traders — a job it says should have been done by federal regulators long ago.
The district is hoping to prove that an exorbitant contract it entered with Enron in January 2001, at the height of the crisis, should be considered fraudulent because of Enron’s manipulation, and that the utility shouldn’t have to pay the $122 million that Enron claims it owes.
The material the utility released Thursday is the first evidence that Enron appears to have been honing its fraudulent trading schemes well before rolling blackouts darkened California and drove up prices, helping Enron make at least $1.6 billion.
The Snohomish County utility found a November 1997 e-mail on Portland, Ore.-based Enron trader Tim Belden’s computer referring to loopholes in California’s soon-to-be implement power deregulation plan. Belden pleaded guilty in October 2002 to wire fraud for participating in trading schemes to game the California market. Two other former Enron traders, Jeffrey Richter and John Forney, later pleaded guilty to similar charges.
1997 also was the year former Enron finance chief Andrew Fastow created the company’s first off-balance-sheet partnership to funnel millions of dollars in kickbacks to Fastow. The partnership was wrongly portrayed to investors and regulators as independent of Enron. Though unrelated to the trading allegations, the partnership’s creation was one of the first steps toward similar financial moves to hide debt and inflate profits that fueled Enron’s downfall in 2001.
The utility first released transcripts of Enron trader conversations last year that showed they openly discussed manipulating the California power market and joked about stealing from grandmothers during the power crisis. Conversations that involve Forney, Belden and Richter appeared throughout those transcripts.
Documents released Thursday include a May 1998 internal Enron memo between energy traders that refers to a “PHONY import.” The note also says California’s independent system operator “will call and tell us we’re out of balance, so tell them we intend to correct the imbalance in the ‘hour-ahead’ market. In fact, we really intend to do NOTHING…”
By keeping power transmission imbalanced, Enron increased the price of electricity and thus its own profit.
Also in 1998, Belden wrote to a supervisor as part of a performance review: “California gaming — we always say that we need to increase this activity, yet we never do.”
In another scheme, believed to have been nicknamed “Project Stanley” in honor of the Stanley Cup hockey trophy, Enron traders in Alberta conspired with other companies to artificially inflate energy prices in Canada in 1999. References to “Project Stanley” were discovered on former Enron CEO Jeffrey Skilling’s calendar on at least two dates, and recorded phone conversations between project leader John Lavorato and Belden released by the utility suggest they knew the scheme — similar to those later used in California — was illegal.
Lavorato: “I’m just, ah, (expletive), I’m just trying to be an honest camper so I only go to jail once.”
Belden: “Well, there you go. At least in only one country (laughs).”
Lavorato: “Yeah, (expletive), this isn’t a joke. … Nobody else seems to be concerned anymore.”
Lavorato, Belden’s former supervisor, has been named as a defendant in various Enron-related lawsuits, but has not been charged with any crimes. Attempts to locate a home number for him or contact his lawyer were unsuccessful Thursday.
Canadian officials raided Enron’s Alberta office, but the investigation petered out.
Enron collapsed in late 2001 after a web of hidden debt, inflated profits and fraudulent accounting was uncovered.
Skilling and former top Enron accountant Richard Causey have pleaded innocent to more than 30 counts each of insider trading, fraud, conspiracy and others.