A little over a year ago on March 28, 2001 PBS’s Frontline interviewed Enron CEO Jeff Skilling about the California energy “crisis”. In the interview Skilling was asked if Enron had “gamed” the deregulated energy markets. His answer was quick, “no” he then explains “everybody was working extremely hard to get every possible electron into the California market”. In light of the memos released in early May of this year we can see that there is a shred of truth in this statement. Prior to the memos, the most popular theory on how Enron had “gamed” the system was that they had simply manipulated the supply of electricity by creating an artificial shortage (by keeping power plants offline, etc). We should have known better. The memos prove that their strategy in California was every bit as complicated, sophisticated and (dare I say) evil as their accounting, political lobbying and international operations (outlined in the last issue of Left Turn). The company that brought us offshore partnerships in far-flung tax havens with colorful names like “Jedi”, “ChewCo”, and “LJM1 and LJM2” does not disappoint in the memos. The energy trading tactics all bore clever little code names such as “Death Star”, “Ricochet”, “Fat Boy” and “Get Shorty”.

The “Death Star” tactic involved deliberately over burdening transmission lines and getting paid “congestion relief payments” from the State of California to redirect power over alternate transmission lines. The hand written note in one Enron memo states “No MWs (megawatts) flow, just call in schedules”. In other words, they got paid for doing nothing. This tactic is being blamed for destabilizing the system, causing blackouts.

In the “Ricochet” tactic, Enron bought power at a capped price in California, sold it into Oregon (often to their own subsidiary, Portland General Electric), bought it back again and sold it back into California at a much higher price. Portland General Electric (PGE) (which received “parking fees” for holding onto electricity for a few minutes) is now under investigation about its role in this “megawatt laundering” tactic.

The cleverness and sophistication of these schemes should not surprise us coming from the infamous Enron, but it now appears that Enron and other energy giants were given a helping hand by a company bearing the name of another infamous Texan billionaire, H. Ross Perot. Perot Systems, founded and chaired by the former presidential candidate, created the technology used to manage trades of electricity under California’s newly deregulated market. Investigators have found that Perot Systems produced and distributed a presentation detailing weaknesses in California’s deregulated market. In a rare glimpse into the world of corporate collusion, the presentation states, “gaps in the protocols” of California power regulators “provide opportunities for increased profits”. What’s incredible is that California paid $35 million to Perot Systems in 1997 to develop the technology that ultimately left them with rolling blackouts and paying much higher rates for electricity. It is also fun to look back to see what “Mr. Free Market” Jeff Skilling said to Frontline when they asked him if he thought the government should run regulation. Skilling answers “No, I would prefer that you would have a private entity operate the grid because I think they will do a better job”. Ah, the irony!

If you thought the Enron memos on the California “crisis” were bad, “they’re going to seem positively G-rated compared with the sex and anti-Semitic revelations that may come out as the Enron investigations go deeper”, says California State Attorney General Bill Lockyer. Certain Enron execs where apparently famous for their wild sex antics at after-hour parties and strip bars. Also according to Lockyer, there was an energy trading group that Enron worked with that was predominantly Jewish, when that group didn’t sell enough they would get slammed with anti-Semitic jabs. I’m not sure, but I think you would have to go back to the Roman ruling-class or the pre-Revolutionary French aristocracy to find people so depraved and drunk on power and privilege. Stay tuned as we explore how low corporate capitalism will go in the Enron debacle.