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The State

Perot Systems Posts Energy 'Gaming' Files

Probe: The company puts subpoenaed records on Web, showing efforts to sell market strategies. It denies improper use of confidential state data.

June 21, 2002|NANCY VOGEL and TIM REITERMAN | TIMES STAFF WRITERS

SACRAMENTO — Documents made public Thursday by Perot Systems suggest more extensive efforts than previously acknowledged by the Texas company to sell energy firms a blueprint for gaming California's electricity market.

Perot Systems offered in 1997 and 1998 to help Enron Corp. and the state's major utilities earn "unexpected" profits, even as it was helping to set up the computer systems that would run California's power market.

The documents show that Perot Systems peddled its knowledge of holes in the market to Enron, Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric. None of the companies pursued business with Perot Systems. But the pitches amount to a more extensive marketing effort than the company has implied, said Sen. Joe Dunn (D-Garden Grove), chairman of a legislative committee investigating manipulation of the state's defunct power market.

"The deeper we dig with respect to the Perot Systems' involvement in the California energy crisis, the more involved they become, contrary to their public statements," Dunn said.

In a conference call with investors earlier this month, Perot Systems founder H. Ross Perot, a former presidential candidate, said his company made several presentations about the California power market but found little interest.

Dunn said the new disclosures raise questions about whether Perot Systems violated the conflict-of-interest portion of its contract with the California Independent System Operator, the agency established to manage most of the state's transmission grid under a deregulation plan.

Cal-ISO hired Perot Systems in March 1997 to help set up and test computer software. In 1998, the Power Exchange, the state's main marketplace for electricity, also hired the company.

Perot Systems officials said Thursday that the company never improperly disclosed any confidential information gleaned from its work for Cal-ISO and the Power Exchange. The thousands of pages of documents made public on the company's Web site were subpoenaed by state Atty. Gen. Bill Lockyer and given to Dunn's committee.

They include a letter written April 8, 1998--one week after the California market first opened--from Perot Systems employee Ed Smith to Rich Davis, a vice president in Enron's trading arm.

"There is already evidence that participants in the CA PX/ISO are delivering micro-probes (small, 'unusual' bids) designed to find the weaknesses in the system and the software," Smith wrote. "It is clear that many holes in the system exist that could be used to deliver 'unexpected' profits."

The letter goes on to describe several specific strategies Enron could use to raise prices, including one involving a small transmission line called Silver Peak that brings power to California from Nevada. Smith's letter suggests that Enron could profit by scheduling to move more electricity than certain transmission lines can handle.

In 1999, Enron paid a $25,000 settlement to the Power Exchange for intentionally scheduling 2,900 megawatts of electricity over the Silver Peak line, which can handle roughly 15 megawatts.

Enron spokesman Eric Thode said it would be impossible to know if Perot Systems influenced Enron traders in the Silver Peak incident. "The employees that those pitches were made to are no longer with the company," Thode said.

The documents released Thursday also include a May 7, 1997, memo that describes a meeting between Perot Systems and Southern California Edison officials. Dunn called the memo "disturbing."

The memo indicates that William Heller, then vice president for strategic planning at Edison, wanted the company to set up a system for Edison to evaluate "gaming options."

Subsequent memos said such knowledge would assist Edison in two ways: protecting itself against predatory companies and maximizing revenue from generation.

Bob Foster, president of Southern California Edison, said the company had not yet reviewed the documents but noted that the utility did not hire Perot Systems.

He said that Edison had no incentive to try to manipulate the market to get higher prices for its generation because, under deregulation rules, it is constrained from making a profit on the energy.

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