California sues Enron for alleged energy price manipulation

Alex Veiga

Friday, June 18, 2004 | 9:06 a.m.

SANTA MONICA, Calif. -- The state of California sued Enron Corp. and several subsidiaries Thursday for allegedly manipulating market prices during the state's 2000-01 energy crisis and costing Californians billions of dollars.

State Attorney General Bill Lockyer said a 20-page complaint was filed in Alameda County Superior Court seeking restitution and unspecified damages from the Houston-based energy giant whose trading practices are under investigation by the Justice Department.

Three former Enron Corp. traders have been charged with wire fraud involving price manipulation in California. Two of them have pleaded guilty and a third awaits trial in October.

"The evidence, we think, is very, very compelling that California rate payers should be entitled to well in excess of a billion dollars -- probably closer to $2 billion -- in profits that Enron took that were illegal," Lockyer told reporters at a news conference in Santa Monica.

A message left with an Enron spokeswoman was not immediately returned.

The lawsuit comes amid a series of developments in the case of Enron, the once high-flying energy company that declared bankruptcy in 2001 amid revelations of hidden debt and inflated profits.

Tapes recordings released earlier this month of Enron traders' profanity-laced calls showed them opening gloating of manipulating California's power market and boasting they would bring the state to its knees.

In excerpts of the calls, some of which Lockyer played Thursday, the traders bragged of ripping off California "to the tune of" a million dollars a day and of stealing money from "Grandma Millie."

"Grandma Millie is California. I am her lawyer and she seeks justice," Lockyer declared.

The attorney general also is bringing suit amid his ongoing battle with the Federal Energy Regulatory Commission to collect as much as $9 billion in refunds from energy wholesalers that officials say the state is owed to cover overcharges it paid during the energy crisis. FERC has estimated the overcharges at around $3 billion and has collected less than $100 million to date.

"If FERC had been aggressive from the beginning we wouldn't have to file these lawsuits," Lockyer said.

The attorney general is also attempting to reverse a decision by FERC last month requiring that California refund Enron and other energy companies nearly $270 million in overcharges from power the state sold during the energy crisis.

The sales took place after the state stepped in to buy power on behalf of three nearly bankrupt California utilities to ensure an adequate supply.

Most of California's electricity purchases were used by Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric Co.

But some of the power sold to the state was eventually resold to other energy companies, including Enron. Those are the sales subject to the refund order.

Lockyer's lawsuit contends that between 1998 and 2001 Enron violated California's commodities and unfair competition laws by engaging in "a number of unlawful, unfair, fraudulent and manipulative trading schemes" to artificially boost energy prices and the company's profits.

The suit, the first filed against Enron by the state's top law enforcement officer, accuses the company, among other things, of deliberately causing congestion along power transmission lines, then reaping extra revenue for taking action to relieve the bogus congestion. The company also allegedly misrepresented out-of-market energy sales so it could sell power back to the state at a higher price.