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Statement of Congresswoman Barbara Lee Urging House Investigation of Enron's Role in Electricity Price Fixing in Western Markets and Continuation of FERC Price Mitigation Plan


The California Democratic Delegation held a press conference yesterday to urge extention of the Federal Energy Regulatory Commission's (FERC) price mitigation plan in the West and to continue to call for a House investigation of Enron and other powersellers' market manipulation in the Western Energy Market.

The Delegation sent a letter to Speaker of the House Dennis Haster (R-IL) and Energy and Commerce Chairman Billy Tauzin (R-LA) urging a House investigation. A letter was sent also to Pat Wood, Charman of FERC to extend the price mitigation.

Congresswoman Lee's statement at the press conference follows, as well as the text of both letters.

Statement of Congresswoman Barbara Lee Urging House Investigation of Enron's Role in Electricity Price Fixing in Western Markets and Continuation of FERC Price Mitigation Plan

We have learned a lot about Enron's greed and mismanagement over the past months. The FERC documents released in May confirm what we've been saying for months.

Enron apparently deliberately manipulated the energy market in the Western states, gouging California's customers. And this appears endemic of the energy industry.

We believe the Energy and Commerce Committee has an obligation to investigate this alleged price fixing.

This was not a victimless crime. Small businesses went under. The elderly and people with health problems were put at grave risk. Schools had to sacrifice educational goals in order to pay their utility bills. The fifth largest economy in the world was damaged. California's businesses and consumers not only faced escalating prices, they experienced blackouts that endangered health and safety and the regional economy, and we must hold Enron responsible for their actions.

This is even more troubling when there is evidence that the Administration's energy plan incorporates a vast majority of Enron's policy recommendations. We must learn more about the role of Enron and other producers in the formulation of the Cheney Energy Plan.

We are representatives of a 'government by the people for the people,' not a government for corporations against the people. It's time we started acting like it. The House Energy and Commerce Committee must hold full and balanced hearings on Enron's role in gouging California's consumers and manipulating energy markets in Western States.

We are making headway to ensure that another crisis of this proportion does not happen again. California and its neighbors are making significant progress to address the issues within their jurisdiction that will ensure that a future crisis does not occur.

But, if the Commission lifts the Western Price Mitigation Plan, put in place last year, uncertainty will continue. We've had concerns that FERC's actions have not gone far enough to help California and the other Western states. Now is not the time to do even less.

We must have reforms to ensure reasonable supply at reasonable prices, and to reduce incentives for withholding and gaming the system. We must prevent "megawatt laundering" in the West. FERC must extend the existing package of mitigation measures without weakening modifications to begin to bring some justice to Californians. It is crucial that FERC avoid implementing new, untested rules on an unrealistic and arbitrary schedule.

Californians deserve a hearing on this issue, and our energy system needs reform to ensure that this never happens again.

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June 5, 2002



The Honorable J. Dennis Hastert

Speaker of the House of Representatives

H232 Capitol

Washington, DC 20515



The Honorable Billy Tauzin, Chairman

Energy and Commerce Committee

2125 Rayburn House Office Building

Washington, DC 20515



Dear Speaker Hastert and Chairman Tauzin,


We urge you to initiate a full investigation of the business conduct and pricing practices of the Enron Corporation and other energy suppliers in California and the West during 2000 and 2001 at the House Energy and Commerce Committee. Many Members have been asking for such an inquiry for more than three months and we've never received a reply to our requests.

In the House, we've had critical and exhaustive hearings on the accounting practices of Enron. The investigations and our hearings have led to an important debate about the accounting industry and accounting practices.

Enron, however, is an energy marketer not an accounting company. Despite a conclusive record that Enron engaged in deceptive business practices to turn debts into profits in its annual report, there seems to be disbelief that Enron gouged consumers. Indeed, the House has ignored reports that Enron and other energy companies gamed the energy market, charging astronomical prices in violation of the "just and reasonable" standard of the Federal Power Act. We have dealt with the aspects of Enron's business that harmed investors...it is now time to examine how Enron and others hurt consumers.

On May 15, 2002, the Senate Commerce Subcommittee on Consumer Affairs, Foreign Commerce and Tourism held a hearing on Enron's deceptive practices in the West in 2000-2001. At that hearing, Senators heard from the company's lawyers how Enron used deceptive schemes called Ricochet, Death Star, Inc-ing, Get Shorty, and Fat Boy to gouge consumers throughout the West. These practices were detailed in a December 6, 2000 memorandum written by Enron's lawyers.

Mr. Richard Sanders, Assistant General Counsel for Enron Wholesale Services, told senators he was surprised not that the unethical and possibly illegal practices occurred but that the company's attorneys had memorialized the practices in a memorandum. Handwritten notes from an October 2000 meeting (part of the Senate hearing record) indicate that Enron's lawyers did not want a paper trail of how the company had gamed the market and gouged consumers.

A steady stream of revelations about the shady deals of other energy companies that figured prominently in the Western energy crisis have appeared in the press over the last week. With Members of the House about to enter into conference with the Senate on comprehensive energy legislation, we need to learn about the flaws in our energy markets.

The House of Representatives cannot be silent. California and the Pacific Northwest were brought to their economic knees by the schemes which some energy companies have now actually acknowledged. The American people deserve the full truth and have us consider the legislative remedies to this shameful debacle in our energy markets.



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June 5, 2002

The Honorable Pat Wood

Chairman

Federal Energy Regulatory Commission

888 First Street, N.E.

Washington, D.C. 20426

Dear Chairman Wood:

We are writing to request that you extend the Western Price Mitigation Plan implemented in Federal Energy Regulatory Commission's (FERC) June 19, 2001, Order ("June 19 Order") beyond the proposed September 30, 2002, termination date for at least one more year.

With the myriad disclosures of false and inflated trades and the outright confessions of manipulation in California's energy markets, FERC must act now to reassure California's businesses and families that they will be protected. At a minimum, it is essential that the basic price cap and "must offer" protections now in place are not removed. Vigilant FERC action is necessary to protect Californians who have suffered so much at the hands of the unscrupulous market manipulators.

Now FERC possesses undeniable proof that California's markets were systematically manipulated, causing artificial supply shortages and extraordinary and unjust prices. While you have finally begun to investigate a broader array of sellers, until all the illegal and unethical activity that occurred in California is revealed and understood -- and until FERC thoroughly explores all the regulatory and market safeguards that will be necessary to prevent that activity from recurring -- Californians are entitled to know that they will be protected.

Mr. Chairman, your recent comments to the U.S. Senate Commerce Committee are raising serious concerns in California. Your statements that you will not "drop the potato" but that you "are going to move forward with what is appropriate for the market and for the customers out there" provide cold comfort to Californians who endured blackouts and unconscionable prices. Raising further concerns, you also stated that "because there are a number of other tools, some of which I think were more effective than the price cap, that the price cap itself per se may not be the best tool to use in that market."

Although many of us have had concerns that FERC's actions have not gone far enough to help California and the other Western states, we all agree that now is not the time to do even less. Californians need and deserve the full compliment of tools now in FERC's toolbox to protect us from the manipulators. You simply must continue all the protections that are now in place. In your testimony, you highlighted the "must offer" order as key and critical. We agree -- but it alone cannot protect Californians from blackouts -- as was demonstrated last year when May blackouts occurred even with the "must offer" order put in place on April 26, 2001. That bitter experience -- and the new revelations of market manipulation -- demonstrates that you must not relax any of the current protections.

At a minimum, the Commission should retain the June 19 Order with the following features:

1) West-wide price mitigation,

2) a requirement that marketers be price-takers in western spot markets,

3) a "must-offer" requirement,

4) mitigated bidding rules, and

5) the mitigated market clearing price methodology and resulting price cap.

We believe that the "must-offer" requirement and mitigated bidding rules are essential, as they collectively require suppliers to offer available supply at reasonable prices and reduce the incentive to engage in physical and economic withholding. Equally important, the West-wide scope of the order and the price-taker obligation ensure that suppliers cannot evade reasonable price requirements through "megawatt laundering" between markets within the region.

Now is also not the time to design an entirely new system to impose of California. Your recent comments suggest that FERC is moving full steam ahead on market reform and on redesigning California's markets before you even know to what extent and how they were manipulated.

To inflict untried and untested new theories and systems on California this year, before you get to the bottom of the fraud and manipulation that has occurred, is more than irresponsible. Recently, prices in the California ISO's real time energy markets have exceeded published reports of Western prices, and they have frequently risen to the level of the existing price cap despite lower regional prices.

In addition, plant outages in California have been unusually high in recent months (as much as 14,000 MW off-line). These market conditions bear a strong resemblance to those that contributed to the market meltdown in 2000-2001. In order to suppress the unreasonable prices that accompanied similar conditions last year, FERC must at a minimum extend the existing package of mitigation measures without weakening modifications. It is crucial that FERC avoid implementing new, untested rules on an unrealistic and arbitrary schedule.

We look forward to an immediate response and your assurance that FERC will maintain and strengthen -- not weaken -- protections for California's electricity market.


Thursday, June 6, 2002

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