Probe of Enron’s Influence Over FERC Is Urged

Calling federal regulators the “handmaiden” of Enron Corp., a California legislator is urging Congress to investigate Enron’s influence over the Federal Energy Regulatory Commission.

Congress should expand its probe of the bankrupt energy giant to include FERC, the nation’s overseer of wholesale electricity markets, state Sen. Steve Peace (D-El Cajon) said this week.

Peace was heavily involved in refining California’s 1996 electricity deregulation plan, and has long blamed FERC for failing to intervene forcefully when prices in California’s electricity market jumped to record levels starting in June 2000.

The state senator wrote to Rep. Henry A. Waxman (D-Los Angeles) Wednesday and asked him to hold hearings to scrutinize the influence of Enron on federal energy policy over the last decade.

“Despite its recent actions,” wrote Peace, “FERC continues to be a regulatory agency whose agenda, distorted for so many years by Enron, serves the financial objectives of energy suppliers at the expense of consumers who pay the bills.”

It is clear, Peace wrote, “that Enron inhibited FERC, under both the Clinton and Bush administrations, from addressing the Western energy crisis in a timely way.”

FERC officials refused to comment, saying that they had not seen a copy of the letter.

Waxman is a senior Democrat on the House Energy and Commerce Committee, one of a dozen congressional committees investigating the Enron collapse.

“There’s a lot of concern about FERC’s action last year,” said Waxman’s chief of staff, Phil Schiliro, “so it very well may be an area for scrutiny.”

Enron was created in 1985 with the merger of two natural gas pipeline companies. It took advantage of the federal deregulation of natural gas to pioneer gas trading and marketing. Its then-chief executive officer, Kenneth L. Lay, became a strong, politically savvy advocate of deregulating the even more lucrative electricity industry. Enron and its employees gave millions of dollars to local, state and federal politicians, and Lay hired former employees of government agencies, including the California Public Utilities Commission.

The company experienced phenomenal growth in the 1990s. But Enron collapsed quickly late last year amid revelations of underhanded accounting and losses hidden behind complex deals. In December, Enron became the largest company to file for bankruptcy in U.S. history.

Peace argues that Enron’s pro-market doctrine held sway over the five presidential appointees and staff at FERC. As a result, he argues, the agency was reluctant to impose price controls in the Western electricity market or to punish companies accused of manipulating prices.

Today, with Enron executives facing lawsuits, potential criminal charges and congressional investigations, the company’s role in California’s yearlong electricity crisis is being dissected.

Last month, U.S. Sen. Barbara Boxer (D-Calif.) asked FERC to document meetings and telephone calls between the agency and Enron executives. Gov. Gray Davis also has called on FERC to investigate possible market manipulation by Enron.

But Peace said the focus needs to reach back to the late 1980s, when Congress and FERC made decisions benefiting companies like Enron.

“This influence started in the first Bush administration, carried through the Clinton administration and goes beyond the Capitol,” said Peace. “It goes to academia, it goes to the press.

“The reason FERC is critical,” he said, “is because, at the end of the day, they’re in charge. They’re the policeman.”

Peace argued in the summer of 2000 for price caps in California’s electricity market. FERC did not impose strong price controls until June 2001. By then, months of spectacularly high wholesale electricity prices had driven Pacific Gas & Electric to bankruptcy and forced the state to spend billions of dollars to keep power flowing to utility customers.