06.24.04

New Evidence Reveals Enron Continued to Manipulate Energy Markets Until Enron's Bankruptcy in December 2001

Evidence contradicts testimony by Enron executives before Congress; Cantwell calls for new congressional hearings

WASHINGTON, D.C. – U.S. Senator Maria Cantwell (D-WA) today said new evidence reveals that Enron continued to manipulate energy markets until its bankruptcy in December 2001. The evidence contradicts sworn testimony to Congress by five Enron executives and lawyers in May 2002. Cantwell called for new congressional hearings on the Enron scandal in light of the inconsistent and incomplete testimony.

The executives claimed under oath that they had stopped the deceptive trading practices in December of 2000, but in fact the market manipulation continued for at least another full year until Enron's bankruptcy. The evidence also raises serious questions about other aspects of the testimony, including how an internal Enron "smoking gun" December, 2000 memorandum that revealed Enron's energy market manipulation was developed.

"What Enron lawyers said and what Enron traders did were two very different things," Cantwell said. "Congress needs to get to the bottom of this since federal regulators are sitting on their hands."

In addition to the testimony, a literal treasure trove of new evidence has been uncovered in the two years that have passed since Congress held its last hearings, including data showing five sets of accounting books at Enron and five new market manipulation schemes.

The testimony was delivered on May 15, 2002 before the Senate Commerce Committee's Subcommittee on Consumer Affairs. The testimony was given by Enron attorneys Richard Sanders and Christian Yoder, and by Enron outside counsel Stephen Hall (a one-time Enron employee), Gary Fergus and Jean Frizzel. Each testified that Enron had stopped its manipulative trading practices in early December 2000.

The Enron witnesses claimed their order to stop energy market manipulation came after an internal memorandum detailing the deceptive practices was circulated within Enron on December 6, 2000. That memorandum described manipulative energy trading strategies such as "death star", "get shorty", "ricochet", "fat boy", and "load shift".

In one exchange, Sanders tells then Subcommittee Chairman Dorgan that he "understood that the trading practices that I directed to be suspended in December 2000 did not continue." In another exchange, Yoder tells current Commerce Committee Chairman John McCain (R-AZ) that after the memo "the trading strategies were stopped…out of prudence we suspended them, stopped them."

But the new evidence shows the deceptive practices actually continued well after December 2000 into late 2001.

Enron's "reconciliation sheets" are a key source of data proving Enron continued to manipulate energy markets. These sheets describe the variance between Enpower, the Enron internal database, and CAPS, the official schedules given by Enron to California regulators. Enron's "reconciliation sheets" for 2001 show energy market manipulation at least through December 2, 2001. These sheets are available at http://www.snopud.com.

For example, a newly released December 2, 2001, Enron reconciliation sheet said a "load shift" was responsible for differences between Enpower, the internal Enron database, and CAPS, the official schedules given by Enron to California regulators. The Yoder-Hall Enron memo says that "one concern here [with ‘load shifts'] is that by knowingly increasing the congestion costs, Enron is effectively increasing the cost to all market participants in the real-time market."

Moreover, audiotapes from January 2001 transcribed by Snohomish PUD clearly show that despite the Enron testimony, manipulative trading practices continued past December 2000. In one clip Enron traders discuss a "ricochet" transaction. In another, a trader tells an Enron lawyer to "make it sound like we're in a competitive process" to which she responds "I feel like I'm being corrupted." In another tape, employees discuss telling a "lie" to the Wall Street Journal because "you don't ever want them to know the truth." In yet another tape, a trader discusses a "ricochet" transaction.

In addition to the inconsistent testimony about whether the illegal energy market manipulation actually stopped, there remains a significant lack of clarity as to how the "smoking gun" memos that describe strategies such as "load shift" and "ricochet" were developed. While members of the Enron legal team asserted under oath that these memos were first received at the beginning of December 2000, a review of documents and emails released as part of the discovery process in ongoing proceedings at the Federal Energy Regulatory Commission (FERC) point to the existence of draft documents outlining these same schemes as early as October 2000.

One of the Enron executives, Richard Sanders, served as Vice President and Assistant General Counsel of Enron through last month and was reportedly involved in the company's bankruptcy strategy, in which Enron has filed a $122 million lawsuit against Snohomish PUD and several other utilities in Nevada and California. If Enron is successful in its $122 million lawsuit against Snohomish PUD, the average ratepayer there will be forced to pay $420 to Enron.

Cantwell is requesting that the Senate Commerce and Senate Energy and Natural Resources Committees hold hearings on the new evidence. The new evidence also suggests the existence of a handful of previously-unidentified Enron schemes; points to the fact Enron maintained up to five different sets of books in order to account for variances resulting from these manipulative practices; and provides the first snapshot of the magnitude of Enron's unjust profits—conservatively estimated as $1.1 billion on days in which the company was engaged in manipulation schemes.