Reckoning for Energy Firms
The first criminal indictments brought against a company for helping to orchestrate California’s 2000-01 energy crisis offer the strongest evidence yet that company policies, not just rogue individual power traders, were to blame. The April 8 indictments of Houston-based Reliant Energy Services Inc. and four current or former employees should also jolt the Federal Energy Regulatory Commission, which has been slow to punish anyone for the crisis and even slower to order restitution for Californians who continue to pay high energy bills.
In announcing the federal indictments, Atty. Gen. John Ashcroft stated the underlying cause clearly even as he hinted at more charges to come: “When evidence shows that a company’s culture breeds corruption and disrespect for the law, the Department of Justice will not hesitate to bring criminal charges against the company itself.”
That culture is evident in transcripts from the height of the crisis. A June 21, 2000, transcript released by FERC shows a trader boasting about Reliant closing down power plants to create a shortfall that drove up prices. The trader tells of a manager who “just thought that was the coolest strategy ever.” Another trader acknowledges that the plan would have failed had not “everybody in the whole group bought into it wholeheartedly.”
The energy shortage sent electric rates and corporate profits skyrocketing and left Californians saddled with high-priced long-term energy contracts. The Reliant transcripts add to the growing pile of evidence that profit-hungry companies clearly knew what they were doing. Telephone records previously released by FERC showed employees of another energy provider, the Williams Cos., using flippant language to describe long plant shutdowns and lengthy repair projects that disrupted energy generation and boosted corporate profits. Enron Corp. and others concocted trading schemes with such names as Death Star, Ricochet and Fat Boy to fatten energy profits. In late March, yet another set of transcripts from the crisis shows traders in Nevada orchestrating deals that seemed designed to trick California into paying top dollar. Upon hearing that temperatures in Los Angeles were heading toward records, one trader crowed: “Mo’ money, mo’ money, mo’ money.”
Ashcroft’s strong language about Reliant’s alleged criminal activity provides a stark contrast to FERC’s initial unwillingness to investigate the costly crisis and its subsequent decision to slap minimal civil fines on market manipulators. The indictments also provide valuable evidence in support of California’s claim that utility customers deserve $9 billion in refunds.
Peter Navarro, a UC Irvine economist, stated the issue bluntly last week: A criminal indictment “doesn’t mean anything unless it translates into breaking the overpriced energy contracts and getting the refund that we’ve requested.”
