Cantwell, Snohomish PUD, Area Businesses Protest Latest Attempt to Shortchange Ratepayers, Suppress Enron Evidence
Northwest consumers being pushed to settle with Enron; Cantwell rejects settlement calling it insult to injuryCantwell details evidence, audiotape showing Northwest was Enron’s biggest profit center
SEATTLE, WA – Monday at Ash Grove Cement in Seattle, U.S. Senator Maria Cantwell (D-WA) joined Snohomish Public Utility District and Pacific Northwest businesses to protest a recent proposal by federal energy regulators that would prevent new Enron evidence from ever seeing the light of day. In addition, this ill-advised deal would return less than $3 million—not even one percent of the money Enron took from the Northwest—to the region’s ratepayers. To demand fairness for the Pacific Northwest, Cantwell sent a letter to the Federal Energy Regulatory Commission (FERC) calling on the agency to reject the proposed settlement and produce something more just for Northwest ratepayers and businesses.
“We’ve been fighting for years to get justice for Northwest ratepayers, and now the same federal regulators who just hired a former Enron attorney are proposing a settlement that will give families and businesses less than one percent of what these corporate criminals took,” said Cantwell, a member of the Senate Energy Committee. “This is an insult to hard-working Northwest families overwhelmed by years of record-high energy costs. We need honesty and fairness from energy regulators. Northwest families deserve better than a settlement that pays pennies to the dollar.”
Cantwell and representatives from Ash Grove Cement, Snohomish and Grays Harbor PUDs, and the Port of Seattle detailed evidence showing the impacts of Enron’s market manipulation schemes on the Pacific Northwest. Cantwell also played Enron audiotapes showing that the Northwest was Enron’s biggest profit center, and demonstrating how the bankrupt energy trader manipulated power markets.
Despite this evidence, a joint settlement recently proposed by Enron and FERC’s trial staff would return less than $3 million to Northwest parties who have not yet settled their claims with the bankrupt energy giant. This compares to the more than $200 million Enron is slated to pay California, and the more than half a billion dollars paid to Enron’s lawyers and executives throughout the company’s bankruptcy proceedings. Another condition of the proposed settlement would require FERC staff to work to prevent the public release of Enron evidence that remains sealed. As a result, over 500 hours of audiotapes that FERC has disclosed as part of its long-overdue Enron investigation would be unavailable to parties still trying to prove their case. The FERC staff would also agree not to pursue any cases brought before the Commission under the so-called “Cantwell Amendment”—a provision included in the Energy Policy Act of 2005, designed to ensure that FERC, rather than the bankruptcy courts, would have the final say in determining whether Enron’s attempts to collect additional money on manipulated power contracts are legal.
The settlement is not yet final, and must be approved by FERC Commissioners. On Monday, Cantwell sent a letter to FERC Chairman Joe Kelliher, outlining her objections to the proposal and urging that the Commissioners reject it in favor of a settlement more equitable to Northwest ratepayers.
Cantwell was joined at Ash Grove Cement Monday by representatives from Snohomish and Grays Harbor PUDs. Enron is suing Snohomish PUD for $120 million for power it never delivered. Enron is also suing Ash Grove Cement for more than $4 million resulting from manipulated Enron power contracts. The settlement could hurt both parties in the case against Enron.
[The text of the letter to FERC, and partial transcripts of the audiotapes Cantwell played, follow below]
Dear Chairman Kelliher,
I write regarding the joint settlement proposed March 10 by Enron and the Trial Staff of the Federal Energy Regulatory Commission (FERC). Given mounting evidence of the damage Enron’s market manipulation schemes did to the Northwest economy and consumers, I believe the proposed settlement—which would likely return less than $3 million of Enron’s illegal profits to the ratepayers of my region—is woefully inadequate. The terms of the proposal would also complicate efforts to achieve a full and fair hearing of evidence related to Enron’s market manipulation and its attempt to collect profits associated with power never even delivered, from entities such as Washington state’s Snohomish Public Utility District (PUD) and other Northwest businesses. For the reasons articulated more fully below, I hope the Commission will reject the current proposal in favor of a solution more equitable to Northwest ratepayers.
1.) The Compensation Proposal Is Inadequate: As you know, the current proposal would provide only $10 million in unsecured claims against the Enron estate, to be split among the parties, mainly in the Northwest, that have not yet settled with Enron. It is important to note, however, that in actuality, this $10 million is actually worth only $2.29 million because, under the current Enron bankruptcy plan, such claims will be paid out at 22.9%. The $400 million “penalty” claim called for in the settlement is worth nothing at all. Because the claim is subordinated, it will not be paid in any amount by the Enron estate.
While it’s true that few parties with claims against Enron will see anything resembling the compensation they rightfully deserve, the Enron/FERC settlement proposal is decidedly inequitable for Northwest consumers and business. This is particularly true given audiotape evidence and documents on file at the Commission that show that Enron’s profits in Northwest markets during the Western energy crisis surpassed its profits in California. This evidence has been further bolstered by recent testimony in the Enron trial ongoing in Houston. For example:
- Evidence now on file at the Commission shows that Enron profited from its transactions in the Pacific Northwest more than from transactions in California. Specifically, internal Enron documents show that the company’s Northwest trading desk accounted for more than half of its $510 million in Western trading revenue in 2000. Enron’s Northwest desk logged almost $325 million of these profits in both long- and short-term markets, whereas its California profits totaled less than $200 million. As you know, Enron recorded these profits during the period in which FERC has already determined that the company was in violation of its market-based rate authority.
- Enron’s internal email also supports this notion. In particular, email circulated among Enron’s legal team in July 2001—written by the same attorney widely acknowledged as the drafter of the now-infamous “smoking gun” memos that outlined the company’s trading schemes—noted that Enron’s Pacific Northwest exposure “may be as much as six times as great as the California refund exposure, because of the greater number and volume of transactions.”
- Documents prepared by Enron North America-Research Group state unequivocally: "Which States Are Most Susceptible to California Crisis? Washington, Oregon, Idaho, Montana” and others throughout the Western Interconnection. And yet, to date, the only promise of substantial compensation received by Northwest parties who fell victim to Enron’s market manipulations has been obtained by the Attorneys General of Washington and Oregon, as part of last year’s multi-state Enron settlement. According to statements by the office of Washington’s Attorney General, “the final amount actually received by Washington will be just a few million dollars.”
- Audiotape evidence also records discussions among Enron employees, identifying the Northwest as Enron’s foremost profit center, even more lucrative than California. This is in addition to audiotape evidence in which Enron traders rather callously discuss indirect impacts to my region associated with the Western power crisis, such as our efforts to keep the lights on in California, to the detriment of Northwest salmon stocks. Of course, the records also show that even as Northwest operated energy system at full capacity to supply power-hungry California during these energy emergencies, Enron was exporting some of this “fish kill power” to the Southwest, where electricity prices were even higher.
- Recent testimony in the Enron trial now ongoing in Houston further bolsters the connection between Enron’s profits and its trading activities across the West. As the former head of Enron’s Western trading operation, Tim Belden, testified on February 28, “Chaos in California created chaos in the entire western market…The chaos drove high prices; and the high prices drove our profits, yes.” This point was reiterated by former Enron North America CEO David Delainey, who noted that during the second of half of 2000, Enron North America was “making tons of money. We were knocking the cover off the ball, essentially…The majority of the profits…my recollection is 50 to 60 percent of the profits that we made gross margin were driven from our trade activities, particularly our speculative trading activities.”
Given all of this evidence demonstrating the impacts of Enron’s power market activities on the economy of my region, I must note that the Commission last November certified an Enron settlement between the State of California and its utilities, nominally totaling more than $900 million in cash and unsecured claims. By comparison, the $10 million settlement figure currently on the table for remaining parties looks quite paltry. This is particularly true when one considers the fact that Enron’s own attorneys and advisors have filed claims with the bankruptcy court for fees totaling more than half a billion dollars—reportedly, the most ever paid in this type of proceeding. Unlike the ratepayers of the Northwest who have borne the brunt of the Western energy crisis and will receive pennies on the dollar—Enron’s own attorneys stand to make millions. As such, FERC staff’s recommendation that the remaining victims of Enron recover no more than $10 million of the company’s illegal profits violates simple principles of common-sense and fairness.
2.)The Proposal Would Suppress Additional Enron Evidence: I also find objectionable terms of the proposed settlement that would withdraw from ongoing proceedings any of the evidence related to Enron’s market manipulation accumulated by FERC staff, some of which remains under seal to this very day.
As you know, I have previously raised concerns about the fact FERC’s initial investigation of Enron did not turn up the reams of audiotape evidence and other documents detailing the now-bankrupt company’s schemes to manipulate Western energy markets. The failure to uncover those audiotapes and other data raised serious questions in my mind and in the minds of a number of my colleagues about the thoroughness of FERC’s investigation. Still more flags were raised when we learned that FERC staff had previously attempted to quash or exclude portions of this evidence from the record.
Ultimately, I was heartened when former FERC Chairman Wood in June 2004 committed to Senator Lieberman and me that the Commission would process additional tapes, and would budget some $800,000 for this investigative effort. I believe this helped lead to FERC staff’s initial finding that Enron had engaged in fraudulent activities dating back to 1997 and recorded illegal profits of approximately $1.8 billion. In fact, FERC staff in subsequent months said they had “found numerous specific conversations that lead to clarification as to the intent of the [Enron] energy traders” when they entered into power deals. In addition, FERC staff cited new evidence in which Enron's own attorneys recognized the incriminating nature of the audiotapes as early as October 2001, writing in a memorandum that “We have already heard several conversations that should not be produced” in response to power market litigation.
I find outrageous the suggestion that now, the audiotapes and additional evidence accumulated during this process should not be considered in determining whether Northwest ratepayers deserve relief. The ratepayers of my region, the general public and policymakers alike deserve to know the full truth about Enron’s market manipulation schemes. In fact, I remain perplexed by the amount of information that FERC staff has to date kept under seal. But to the extent this evidence has been made available for public inspection, it is clear that it contains information relevant to the Northwest parties still seeking relief.
As such, I hope you will seriously consider rejecting the term of the proposed settlement that would require FERC staff to: “withdraw all pleadings, testimony, related exhibits, discovery requests of any type, and all additional requests for relief filed with FERC and terminate their participation” in further Enron-related proceedings; oppose any motion to retain this evidence as part of the record; and require that FERC’s own staff “take no position” in any of the remaining matters related to Enron. In short, this provision would deprive Northwest parties of the evidence to which they are entitled no less access than any other entity injured by Enron’s power market schemes. FERC’s obligations to protect our nation’s electricity consumers and right the wrongs of the Western power crisis do not stop at the California border.
3.) The Proposal Ignores the Bipartisan Intent of Congress: Finally, the Enron/FERC settlement proposal contains one more provision that would jeopardize the ability of Northwest utilities and businesses to get their fair day before the Commission. As a condition of this settlement, Enron would be released from “all existing and future claims for monetary or non-monetary remedies before FERC and/or under the Federal Power Act (“FPA”), the Natural Gas Act (“NGA”), and/or including the Cantwell Amendment and any amendments to the FPA or NGA pursuant to the Energy Policy Act of 2005”.
As you know, President Bush signed the Energy Policy Act of 2005 last August, which contained a carefully-tailored provision (Section 1290, or “the Cantwell Amendment”). This provision makes clear that the Commission’s exclusive jurisdiction under sections 205 and 206 of the Federal Power Act, for purposes of determining whether a seller such as Enron should be entitled to collect termination payments associated with wholesale power contracts, cannot be usurped or limited by the Bankruptcy Court. As my colleague Senator John Ensign stated during debate on this legislation, “when FERC was established by Congress, its fundamental mission was, and remains, to protect ratepayers. FERC has specialized expertise required to resolve the issues surrounding some of the contracts that Enron entered into and eventually terminated. [This provision] relates solely to the legality of Enron collecting additional profits in the form of termination payments for power not delivered. It is also directly related to the agency's core function to ensure just and reasonable rates and guard against market manipulation.”
As you know, a number of claims filed pursuant to the Cantwell Amendment are currently pending at the Commission. Again, I am deeply troubled by FERC staff’s willingness to abandon the Northwest stakeholders who are simply trying to avoid having to pay Enron more money—for power the bankrupt company never even delivered.
I believe all of us wish to bring to a close the scandalous chapter in this history of our nation’s energy industry--brought about by the Western energy crisis and Enron’s bankruptcy of historic proportions. But as you consider the proposed settlement, I hope you will also keep in mind that real dollars remain at stake for consumers and businesses of the Northwest, and that they deserve a far more equitable solution.
I request that you make these comments part of the public record in Docket No. EL03-180 and its consolidated proceedings. Thank you for your attention to this matter, which is of great importance to my constituents.
Sincerely,
U.S. Senator Maria Cantwell
Text from portions of the Enron audiotapes played by Cantwell at Monday’s event
RICK: So, what’s goin’ on in California today?
TIM: Um, what’s goin’ on? It’s ah, hot. [both laugh]
TIM: It’s hot and they don’t have enough power, and they kill fish in the Northwest to—so the people of California can go enjoy themselves at a baseball game.
RICK: And then, what are we doin’? Are we exporting, you know, some of the, um, the fish-kill power out of um, California?
TIM: We are ah, exporting some power from California to the, ah, Southwest…a lot of activity in, you know, there’s black, there’s white and there’s gray. Um, we have been endeavoring into the gray area when opportunities present themselves—
RICK: Mm hm.
TIM: —to make money, in real time…So, if you’re—if you’re saying, ah—and I know that there’s a lot of political risk there, and I know that we got a ton of money in our book and then—and if Jeff Skilling ah, has to go in front of some commission and explain the activities of the West Power Group, that’s probably not so great for my career. Um…and so, we know exactly when they’re going to cut us and we know, um—the West is gonna break if it’s hot in the Southwest, California, and the Northwest. * * *
STEWART ROSMAN: …California, in terms of the potential to make money in the West—obviously we’ve had a good year—
SHARI THOMAS: Right.
STEWART ROSMAN: For [inaudible] power. I’m not saying that this is something that’s going to be repeated every single year—
SHARI THOMAS: Right.
STEWART ROSMAN: —but, in terms of the f—the markets that we trade, California certainly should be looked at as—the Northwest’s probably our most profitable cen—ah, profit center, and then right after that’s California.
SHARI THOMAS: Right.
STEWART ROSMAN: So, I mean, you’re talkin’ millions—certainly thousands of dollars an hour can easily, um, be made— * * *
FORNEY: We’re getting pretty spoiled on [...?...] money.
STAN: Yeah, I know. I, um—I, uh—I heard y—you said you were getting a little scared—we’re making a little too much, and I—I tend to agree with you. [laughs]
FORNEY: Yeah. I don’t—I—you know what I mean.
STAN: I know what you mean—yeah, yeah.
FORNEY: I don’t want to have to pay any of it back.
STAN: Exactly.
FORNEY: —by saying, ‘I, state your name.’
STAN: [laughter] That would not be good.
FORNEY: No, that would be uncool.
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