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FERC Staff Proposes Enron Fine

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Times Staff Writer

The Federal Energy Regulatory Commission staff recommended Monday that Enron Corp. pay almost $1.7 billion for improper trading in Western electricity markets, raising the ante in the debate over how to punish the companies that exploited California’s energy crisis.

The proposed penalty represents profit that Enron made from energy sales in Western states starting in January 1997, well before the 2000-01 energy meltdown in which Enron played a pivotal role.

The Houston company, which is snared in bankruptcy proceedings, has been accused of profiting from questionable trading schemes. The ploys were widely copied by other companies to take advantage of market weaknesses and power shortages during the yearlong energy emergency, bringing record prices and rolling blackouts. Three Enron traders have pleaded guilty to fraud charges for rigging California’s electricity markets.

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If approved by FERC commissioners, the sanction will be the largest for misconduct during the market debacle and might signal a tougher line by federal regulators, who have been criticized for lax oversight of California’s energy marketplace in 2000 and 2001.

“This is unprecedented,” FERC spokesman Bryan Lee said of the size of the payback.

Roger Berliner, a lawyer with Manatt, Phelps & Phillips who represents clients at odds with Enron, said the amount of the proposed penalty was less important than FERC’s hardening stance on Enron’s conduct.

“The significance of the commission staff recommendation is that it too believes that Enron must not profit from its wrongdoing,” Berliner said.

Enron spokeswoman Jennifer Lowney said the company was reviewing the FERC staff recommendation.

Just how much money would come to California ratepayers remains murky. Before an administrative law judge rules later this year, Enron will get to argue its case. After that, the energy commissioners will make a final decision.

In addition, Enron has said in bankruptcy filings that it has only $12.8 billion in assets to satisfy $63 billion in claims. A U.S. Bankruptcy Court judge would determine whether a FERC order represents a debt, which could have higher payment priority, or a punishment, which could have a lower standing.

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“To figure out where that [penalty] fits in the universe of creditors, we’d have to check a number of things,” said Enron bankruptcy attorney Martin J. Bienenstock of law firm Weil, Gotshal & Manges.

“It would be highly scrutinized. With every additional claim, others get less,” Bienenstock said.

In July, federal energy regulators advised FERC staff that they should consider ordering Enron to relinquish ill-gotten profit dating to January 1997 as part of an investigation into Enron’s relationships with other energy suppliers. The FERC staff, after analyzing financial records, concluded in testimony filed Monday that the figure was $1.67 billion.

By contrast, the California attorney general is arguing for a broader, marketwide remedy for ratepayers that would lead to a $2.8-billion refund over a much narrower time period, said Tom Dresslar, a spokesman for Atty. Gen. Bill Lockyer.

“The games that Enron masterminded were copied by other market participants,” Dresslar said.

But others think that both FERC and California officials are being too conservative.

“It is an infuriating finding,” said Michael Shames, executive director of Utility Consumers’ Action Network in San Diego, maintaining that overcharges by all market participants came to $45 billion during the energy crisis. The “$1.66 billion is merely an appetizer in the estimated $45-billion feast cooked up by Enron and gobbled up by energy companies at the expense of California customers during the energy crisis.”

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Times staff writer Debora Vrana in Los Angeles contributed to this report.

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