California lawmakers reacted Monday with outrage to revelations that Enron Corp. may have shunted profit made during California's energy crisis into hidden reserves to reduce the political heat directed at the Houston energy company.
According to the allegations, reported in Sunday's New York Times, Enron hid as much as $1.5 billion in trading profit from long-term contracts in undisclosed reserves as energy prices leaped in California in late 2000 and early 2001. Enron at the time said price spikes in California were having little effect on Enron's finances.
Enron reportedly was hiding these profits at the same time that it was hiding corporate borrowings and losses in off-the-books partnerships, which led to the company's financial collapse and Chapter 11 bankruptcy filing in December.
Enron spokeswoman Karen Denne refused to comment on the allegations except to say that Enron is cooperating with the many investigations into the company's accounting and trading practices.
R. Neal Batson, appointed last month as special examiner in the Enron bankruptcy, did not return a call for comment on whether Enron's use of reserves would be part of his investigation into accounting irregularities at Enron. Batson, an Atlanta bankruptcy attorney, is looking into Enron's complex tangle of partnerships and off-balance-sheet deals, which could help determine how much creditors will receive.
But Sen. Barbara Boxer (D-Calif.) said the accusation of hidden Enron reserves adds fuel to California's demand that the Federal Energy Regulatory Commission refund $8.9 billion in alleged electricity overcharges and that $43 billion in long-term electricity contracts negotiated during the worst of the crisis be renegotiated.
"I have been saying all along that they used California as a cash cow and they bled us dry. The fact that they hid that shows how corrupt they were," Boxer said.
"This gives us more ammunition to show how we were gamed, how it was a plot, how it was hidden and how much we deserve to have our money back and deserve to have the long-term contracts reexamined," she said.
State Sen. Joe Dunn (D-Santa Ana) said such accounting allegations are not part of his committee's investigation into possible market manipulation, which is focusing on trading ploys and market misbehavior.
The charges are more likely to figure into the ongoing investigation into Enron's accounting practices by the Securities and Exchange Commission, which has proved to be more aggressive than FERC, he said.
"It certainly is interesting that while we were in the raging hours of our crisis, they [Enron] were trying to make sure no one knew how much money they were making," Dunn said. "Some thieves bury money in the backyard. Enron hid it in their financial statements."
Gov. Gray Davis in a statement said: "Enron's made such a killing off this state, they were embarrassed to disclose it to their shareholders ....Unfortunately, Enron will live on as a symbol for everything that has gone wrong with electricity deregulation."
Separately, Enron was told Monday it can immediately pay as much as $2,000 in severance to some former workers after U.S. Bankruptcy Judge Arthur Gonzalez preliminarily approved a $28.8-million plan.
Times staff writer Thomas S. Mulligan contributed to this report and Bloomberg News was used in compiling it.