New evidence: Enron scamming years before energy crisis

EVERETT, Wash. - Disgraced 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 public utility district in Everett, about 30 miles north of Seattle, 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.

It hopes 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 schemes well before rolling blackouts darkened California and drove up prices, helping Enron make at least $1.6 billion.

The 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 implemented power deregulation plan. Belden pleaded guilty to charges of involvement in fraudulent trading schemes, and acknowledged that wrongdoing dated to 1998, but this is the first evidence of what the company was doing.

In May 1998, an internal Enron memo between energy traders makes reference 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 Chief Executive Jeffrey Skilling's calendar on at least two dates, and recorded phone conversations between project leader John Lavorato and Belden show 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."

Canadian officials raided Enron's Alberta office, but the investigation petered out.

Enron collapsed in late 2001 after a web of fraudulent accounting was uncovered. Skilling, ex-Chairman Kenneth Lay and former top accountant Rick Causey are scheduled to face trial in Houston in September.

The district obtained much of its most recent evidence in one of Enron's Houston warehouses.

Some of the most damning evidence arises from taped phone conversations involving Enron traders. Traders typically record conversations as a way of keeping track of oral contracts.

One newly transcribed conversation reveals that Enron and a 50-megawatt plant in Las Vegas, LV Cogen, conspired to take the plant off line on Jan. 17, 2001 - the same day rolling blackouts hit an estimated 1 million customers in California. Taking the plant off line was in direct violation of an order by U.S. Energy Secretary Bill Richardson requiring generators to send their energy to California.

In the conversation late on Jan. 16 that year, an Enron worker identified as Bill told a plant worker identified as Rich not to take notes because "this is going to be a word-of-mouth kind of thing."

Bill: "Ah, we want you guys to get a little creative."

Rich: "OK."

Bill: "And come up with a reason to go down."

Rich: "OK."

Bill: "Anything you want to do over there? Any ..."

Rich: "Ah ..."

Bill: "Cleaning, anything like that?"

Rich: "Yeah, yeah. There's some stuff we could be doing."

The plant went off line, compounding California's crisis.

In another conversation, a worker named Matt Goering complained about fraudulent record-keeping by company traders: "I mean, I might get fired for marking the book correctly, but I'll go to jail for cooking it."

"Beyond the illegal nature of Enron's gaming of the energy market, its insensitivity to human suffering is reprehensible," said PUD lawyer Michael Gianunzio.

Sen. Maria Cantwell, D-Wash., who has long insisted that FERC should have done more to protect consumers from Enron, said the transcripts added insult to injury. She said she would ask the Senate's Government Affairs to investigate Enron's response.

"At the very least, FERC needs to ensure that the victims who paid the price for Enron's schemes the first time around aren't forced to pay a single penny more," Cantwell said.

FERC spokesman Bryan Lee said the Snohomish PUD only knew the Enron tapes existed because of the agency's ongoing proceedings against the company.

"We understand the desire to take Enron out and hang them from the nearest tree. That is Western justice, after all," Lee said. "But the courts tend to like due process."

Enron spokeswoman Jennifer Lowney said only that the company is cooperating with federal investigations.