David vs. Goliath in Evergreen State

EVERETT, Wash. – A small public utility district here with 290,000 customers has been catapulted into national prominence by lifting the curtain on Enron energy traders gleefully conspiring to steal money from “those poor grandmothers in California.”

After initially resisting a contract with Enron, the Snohomish County Public Utility District (PUD), like many other consumers of electricity in the West, was forced to bargain with Enron for energy in 2000-2001. In January 2001, Snohomish entered into a nine-year contract with Enron to buy power at $109 per megawatt hour, more than four times what the utility had paid in the past.

Eleven months later, Enron filed for bankruptcy. On Jan. 9, 2002, the Justice Department began a criminal investigation into Enron’s collapse.

In May of 2002, the Federal Energy Regulatory Commission (FERC) disclosed memos outlining strategies used by Enron to trade power in California. These strategies, with nicknames like “Death Star,” “Get Shorty” and “Fat Boy,” were cited by California as proof of market manipulation designed to drive up prices and profits.

An example of these manipulations was something known as “ricochet.” After California imposed an energy price cap in 2000, power generated in California would be exported out-of-state, often to Palo Verde, Ariz., then re-imported to California so that it was no longer subject to price caps, or could be sold to other Western buyers like Snohomish at sky-high prices.

In July 2002, Snohomish cancelled its $200 million purchase contract with Enron, accusing Enron and other power generating and marketing companies of conspiring to create artificial power shortages in 2001.

Energy traders routinely record conversations as a way of recording oral contracts. The Snohomish PUD then took the initiative and decided to pay the cost of converting audiotapes of Enron traders’ transactions to standard audio format, and then having about one-third of the tapes transcribed. The district’s lawyers also analyzed hundreds of pages of accounting sheets that document how Enron gouged Western customers for at least $1.1 billion during that period.

The most widely circulated trader conversation revealed by Snohomish’s investigation (as reported by the Oregonian and the Associated Press) is of two traders, identified as Kevin and Bob, discussing demands by California officials that electricity generating companies and traders pay refunds for price gouging. They also refer to the disputed presidential election (2000), which was still undecided at that time.

Kevin (an energy trader): “So the rumor’s true? They’re (expletive) takin’ all the money back from you guys? All those money you guys stole from those poor grandmothers in California?”

Bob (Enron trader): “Yeah, Grandma Millie, man. But she’s the one who couldn’t figure out how to (expletive) vote on the butterfly ballot.”

Kevin: “Yeah, now she wants her (expletive) money back for all the power you’ve charged jammed right up her (expletive) for (expletive) $250 a megawatt hour.”

Bob and Kevin: (Laughter)

Russ Campbell, a lawyer for Nevada Power, another utility fighting to recoup the losses, said of the tapes, “This is more than a smoking gun. It’s an audiotape of the gun being fired, the bullet hitting the victim, and the murderer standing over the victim laughing.”

Democratic Sen. Maria Cantwell of Washington State said, “For a little [public utility district] to spend $100,000 transcribing tapes that FERC and other people should have done, it’s just crazy.” She has demanded a new investigation by FERC and accuses the commission of having tried to block the utility district from getting access to the tapes.

Despite all the evidence of corporate skullduggery, in June 2003 the FERC upheld billions of dollars in long-term power contracts signed by Western utilities and California. Pressure is mounting on the FERC to instead intervene to recoup trading profits from Enron. Sen. Dianne Feinstein (D-Calif.) wrote to the FERC that “in my view, FERC has the clear authority to order remedies dating back to the time Enron’s violations began, or at least as of January 1, 2000.” She added, “I continue to be outraged by FERC’s inaction.”

The human energy of a small public utility district in western Washington may force Enron, a thoroughly crooked corporation, to abandon lawsuits to enforce hundreds of millions of dollars worth of contracts signed during the energy crisis of 2000-2001.

The author can be reached at pww@pww.org.