[Congressional Record Volume 150, Number 78 (Monday, June 7, 2004)]
[Senate]
[Pages S6495-S6497]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MANIPULATION OF THE CALIFORNIA ENERGY MARKET
Mrs. FEINSTEIN. Mr. President, I rise today to discuss the callous
attitudes of Enron employees that were brought to light recently in
transcripts released by the Snohomish County Public Utility District in
Washington and broadcast on CBS News.
These tapes provide concrete evidence of the manipulation and fraud
that was perpetrated by energy companies in the 2000-2001 energy crisis
in California.
This manipulation resulted in the cost of energy in California
increasing from $7 billion in 1999 to $27 billion in 2000 and 2001,
respectively.
This type of price gouging and market manipulation can and will
happen again if the energy market is not restructured.
I urge the California State Legislature to take action on Speaker of
the Assembly Fabian Nunez's bill--AB 2006, the Reliable Electric
Service Act.
This bill would re-regulate the energy market and protect small
consumers served by utilities from this type of unethical behavior.
[[Page S6496]]
In more than a dozen taped conversations, the Enron power traders
show complete disdain for consumers throughout the West, and
particularly those in California.
While I cannot read the transcripts verbatim due to the coarse
language used by the traders, I would like to read to you some
excerpts: One trader sang: ``Burn, baby, burn. That's a beautiful
thing.''
This was in reference to a wildfire that shut down a major
transmission line, decreasing power supplies and raising energy prices.
Another trader said: ``Just cut 'em off. They're so [expletive]. They
should just bring back . . . horses and carriages, . . . lamps, . . .
kerosene lamps.'' (Expletives Deleted)
To have traders say these things shows a complete disregard for the
health and safety of Californians. And this was not an isolated
trader--this was a mentality apparently endemic to Enron employees.
The only thing these traders cared about was how much money they
could bleed from the California marketplace.
Let me read you a second excerpt: One trader complained: ``They're
[expletive] taking all the money back from you guys? All the money you
guys stole from those poor grandmothers in California?''
A second responded: ``Yeah, grandma Millie, man.''
The first responded: ``Yeah, now she wants her [expletive] money back
for all the power you've charged right up, [expletive phrase], for
[expletive] $250 a megawatt hour.''
To thumb your nose at a grandmother on a fixed income is completely
reprehensible, but it was how these traders operated--with no
compassion for those suffering from their behavior--that galls me the
most.
When I heard these tapes, I knew that we could not expect any ethical
conduct from traders in this energy market.
Let me read you another excerpt, this one illustrating the lengths
these traders would go to manipulate the market:
Tom: The headline before that is ``California Grid
Operators Call Stage 2 Power Emergency as Reserves Drop.''
Matt: Yeah. They're on the ropes today. I exported like a
[expletive] 400 megs.
Tom: Wow.
Matt: I bought it all. I'll see you guys--I'm takin' mine
to the desert.
Tom: [Expletive] 'em, right?
Matt: I think those gamblers in Las Vegas need the power
more than you.
Matt goes on to say that he and Enron were getting rich off of
exporting power out of California when Californians needed it most.
The transcripts prove that Enron intentionally congested transmission
lines and used its influence to delay wholesale price caps in order to
maximize its profits.
Other transcripts also prove that Enron traders made secret deals
with power producers, deliberately driving up prices by ordering power
plants shut down.
But Enron did not act alone in manipulating the California energy
market. In fact, this type of manipulation was pervasive among many
energy companies operating in California. Here are several more
examples.
Reliant, for instance, decided to game the market by deliberately
holding back power generation for two days at its facility near Barstow
in late June 2000. This is when the State needed power the most. Worse,
these decisions were made from the top. The vice-president of power
trading at Reliant directed traders to manipulate the market in this
manner.
At one point, Reliant charged the State of California $1,900 per
megawatt-hour for electricity, or approximately 6300 percent more than
the historic standard of $30 per megawatt-hour. Yet the Federal Energy
Regulatory Commission only fined Reliant $13.8 million and the company
did not have to admit any guilt or wrongdoing.
Dynegy also demonstrated manipulative behavior such as load shifting,
false reporting, and double selling. The company deliberately reported
false gas market data to publications and created bogus trades to drive
up the price of electricity.
Dynegy was only concerned with its bottom line in the first quarter
of 2001, the company posted a recurring net income of $137.5 million, a
73 percent increase in net income from the $79.4 million it reported in
2000 and a 102 percent increase from the company's reported first
quarter income in 1999.
For this manipulative behavior, FERC levied a fine of only $3
million, and, again, Dynegy did not have to admit any guilt.
In yet another instance, El Paso Merchant Energy and its affiliates
inflated the price of natural gas by reducing deliveries to the State.
In fact, El Paso withheld capacity from at least 21 percent of its
pipelines that delivered natural gas to the California border. It is
estimated that El Paso's price manipulation cost California's consumers
$3.7 billion.
FERC settled with El Paso, letting them walk away, again, without
admitting any wrongdoing, for a $1.5 billion fine. That is only a
fraction of the cost that California consumers were forced to bear due
to El Paso's misdeeds.
These companies used many deliberate strategies to manipulate the
market, which included: Death Star, Get Shorty, Fat Boy, Load Shift,
Black Widow, and Red Congo.
California is still suffering from this unethical conduct.
Californians are forced to pay higher prices for electricity because
of long-term contracts that were signed when wholesale prices were
artificially inflated by price manipulation.
And Californians still have not gotten the $9 billion in refunds they
deserve, which were overcharges as a result of Enron and other
companies' manipulation of the energy markets.
These tapes provide concrete evidence that there was intentional
manipulation and fraud perpetrated by energy companies during the 2000-
2001 energy crisis in California.
That is why I have joined my colleague, Senator Boxer, in calling
upon the Federal Energy Regulatory Commission to immediately refund
California the $9 billion that it is owed and to order a renegotiation
of the long-term contracts that were made under manipulated prices.
These transcripts further prove that the rates Californians paid for
electricity were not ``just and reasonable.''
Consumers are not served well by a deregulated marketplace where
traders from companies including Enron, Dynegy, Reliant, Mirant,
Williams, AES, CMS, El Paso Merchant Energy, and Duke can manipulate
the market in the grossest way.
Absent strong action, I have no doubt that this unethical, immoral
and illegal behavior will continue.
That is why I support re-regulating California's energy markets.
Speaker Nunez's bill would create a regulatory framework that will put
California back in charge of its energy future.
The bill would attempt to ensure reliable electricity at stable and
affordable rates for small customers; require California's utilities to
meet a renewable portfolio standard of 20 percent by 2010; and require
utilities to have enough generation capacity to meet the demands of
their consumers and have a significant reserve on hand in case of an
emergency.
This bill will provide Californians the protection they need from
exorbitant energy prices and energy traders with no ethical standards.
California was the first to experiment with de-regulation. Sadly, the
1996 deregulation was a total failure for consumers in California.
We learned the hard way that energy is not a commodity like pork
bellies or frozen orange juice, but is a public good.
California needs to put in place a new framework to take regulate the
energy market in order to ensure reliability and reasonable prices for
consumers.
In other words, consumers should be protected from price spikes,
market manipulation, and blackouts.
In closing, I cannot express how disgusted I am by the newest Enron
transcripts.
I wish we could have prevented the manipulative behavior in the first
place.
Congress still has not acted to pass bills that would prevent this
kind of unethical and immoral manipulative behavior in the energy
markets, such as those that were offered by me, Senator Cantwell and
others.
As a result, I feel that California must act on its own to control
its own energy supplies in order to prevent further manipulation of our
markets and keep our lights on.
CBS News is to be commended for bringing these tapes to light.
[[Page S6497]]
It is imperative that we learn as much as we can about Enron's
behavior--so that we know its impact on the western energy markets and
so that this type of fraud and manipulation can be prevented from ever
happening again.
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