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US Senate set to consider if Enron manipulated prices

Enron Corp.'s power trading strategies during California's energy crisis face scrutiny before two Democratic-led Senate committees on Wednesday.

Trading recipes dubbed "Death Star" and "Get Shorty" are proof enough for California Democrats that the now-bankrupt energy trader improperly boosted prices while their state suffered power shortages and blackouts in 2000 and 2001.

But some Republicans plan to spotlight design flaws in California's now-defunct experiment with electricity deregulation that began in 1996.

Witnesses due to appear before the Senate Commerce and Senate Energy panels include two former Enron lawyers who discussed the trading strategies in memos released last week by the Federal Energy Regulatory Commission.

Also set to testify is FERC Chairman Pat Wood, who capped California electricity prices in June last year and is probing whether energy firms gouged California's market.

Upcoming November elections and Enron's status as the top supporter of President George W. Bush's 2000 campaign have supercharged the already highly political task of assigning blame for California's power crisis.

Meanwhile, the White House on Tuesday asked more than 100 administration officials to disclose whether they discussed energy policy with Enron executives.

The action came after Democratic Senator Joe Lieberman, the chairman of the Senate Government Affairs Committee, demanded that the administration reveal its Enron contacts.

In a letter to Wood sent on Tuesday, Lieberman also criticized the FERC for failing to sound the alarm on potential Enron problems after it finished an internal probe of the firm in August 2001, before the firm declared the biggest bankruptcy in U.S. history in December.

California Democrats have asked the Justice Department to launch a criminal investigation into Enron's strategies.

"In my book, this is outright fraud," Sen. Dianne Feinstein wrote to the Justice Department last week.

Some Republicans want a broader look at California's market problems, wondering how the state's trading rules allowed Enron's activities to go unnoticed for two years.

"Enron must shoulder the blame for their deception and misdeeds, but we can't blame the entire industry," said Alaska Republican Frank Murkowski. "Bad decisions by (California), the government and many others only made the situation worse," the senior energy committee member said.

In 1996, California was among the first states to deregulate its electricity market. Its experiment proved disastrous amid a ten-fold leap in wholesale prices, six days of rolling blackouts and a bankruptcy at its biggest utility.

California politicians have demanded that the FERC take a new look at California's request for nearly $9 billion in refunds from dozens of energy firms, including Enron. The refund case has been pending at FERC for a year, with no decision imminent.

FERC should also let California renegotiate some $42 billion in long-term wholesale electricity contracts signed during the height of the power crisis, they say.

The recent revelations about Enron's trading strategies, coupled with bogus trades between energy companies to boost trading volumes and revenues, could drive lawmakers to include market control measures in a sweeping energy bill headed to a House-Senate negotiating session.

The hearings could also breathe new life into a shelved plan proposed by Feinstein to give the Commodity Futures Trading Commission authority to track large trades in the huge and secretive over-the-counter market for products like electricity and natural gas.

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