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Glendale Abetted Enron in Energy Ploys, Papers Imply

March 29, 2003|Doug Smith and Nancy Rivera Brooks | Times Staff Writers

Newly released documents suggest that the city of Glendale knowingly helped Enron Corp. traders rig the California energy market -- even going so far as to quiz its own utility employees on "Fat Boy," the nickname for one of Enron's notorious trading schemes to create artificial shortages.

In addition, a ploy to sell phantom backup power during the California energy crisis was discussed in a trading strategies tip sheet obtained from Glendale Water and Power by the California attorney general's office.

City officials have previously acknowledged participating in a profit-sharing pact with Enron to sell surplus electricity from the city's power plant in times of shortages but said an inquiry last year found no wrongdoing.

Glendale City Manager James E. Starbird reiterated that defense Friday, saying the city has submitted thousands of pages of evidence refuting the allegations.

"It made no sense for Glendale to try to manipulate the market to drive up prices," Starbird said. "We were buying three times as much energy as we were selling."

State and federal officials are not convinced. A Federal Energy Regulatory Commission report this week said Glendale was "associated with Enron in executing the trading strategies in a willful and knowing manner."

Municipal utilities serving Los Angeles and half a dozen other California cities also were targeted in the FERC report, which said their activities appeared to constitute market "gaming" in violation of state tariffs. But Glendale's utility, which serves about 78,000 businesses and households, stood out by the volume and detail of the evidence presented against it.

The FERC report implicates Glendale in ploys that involved creating false congestion on electricity transmission lines, inflating demand and selling nonexistent backup energy through partnerships with Enron and Coral Energy, both based in Houston. The report also said the Glendale utility engaged in speculative trading that took advantage of varying power prices in different parts of the state.

"It should be clear to everyone that fraud, both criminal and civil, was committed in these schemes," said state Sen. Joe Dunn (D-Santa Ana), who chairs a committee investigating energy market manipulation in California.

Dunn noted that two top Enron traders have pleaded guilty to federal charges of wire-fraud conspiracy in connection with their use of the same strategies. He also said municipal utilities should be held to a higher standard of behavior than for-profit companies.

The state attorney general's office would not comment on whether it is looking into possible legal violations by Glendale or other cities.

The new documents appear to show that Glendale Water and Power managers incorporated the Fat Boy strategy into training. Fat Boy is the name for a ploy devised by Enron traders to falsely create the appearance of power shortages, leading to higher prices.

A question on one Glendale Water and Power monthly quiz asked: "What is Project 'Fat Boy' give as much detail as you can." In handwritten answers, several employees who took the February 2000 test indicated that it involved splitting profits or losses equally with Enron.

Glendale Assistant City Atty. Steven Lins said the Fat Boy in the quiz was not the same as the one first disclosed in confidential Enron memos released last year. He said the Fat Boy in the quiz referred simply to the city's deal to sell excess power to Enron and involved no misrepresentation.

"There would be no way for us to know what they're doing," he said.

Lins also challenged the significance of the three-page trading strategies memo, which he described as a "brainstorming" document provided to the utility by Coral Energy when the two entered into a trading accord.

He conceded that one of the strategies outlined, which advised traders to use "phantom ancillary services," or selling backup generation that did not exist, would have been improper. But he said the city filed evidence showing that it always had the capacity to produce the backup power it sold.

Lins said Glendale, one of a handful of Los Angeles County cities with a municipal power plant, felt no obligation to report Coral's phantom strategy to state officials because it did not believe Coral pursued those tactics.

Energy consultant Robert McCullough, who analyzed the Glendale documents for Dunn's committee, concluded that they were training materials to help the city's traders participate in the Enron and Coral schemes.

"They were actually totally up to speed on these strategies," said McCullough, a former utility executive.

The FERC report also included a Feb.17, 2000, Enron internal e-mail complaining about resistance to the ploys by some Glendale traders who "don't want to play."

"Their manager wants to do this every time we see fit," the e-mail noted.

State and federal officials have not said how much Glendale may have profited from its ventures with Enron and Coral. Starbird previously has said that the Glendale utility, with a $289-million annual budget, made $3.9 million in revenue from the Enron partnership.

Like Glendale, the Los Angeles Department of Water and Power also was accused by federal regulators of improper trading practices. DWP General Manager David Wiggs said the agency would go to court, if necessary, to prove its case.

"So far," Wiggs said, "nobody has shown us any evidence that supports this other than opinion testimony that it might have happened."

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