The list of possible sins grew Tuesday for embattled Enron Corp., when a tag team of female Democratic senators from the West exacted a promise from the chairman of the Federal Energy Regulatory Commission to investigate whether Enron artificially inflated West Coast energy prices.
The Senate Energy and Natural Resources Committee hearing, chaired by the low-key, heavy-browed Sen. Jeff Bingaman, D-N.M., purportedly was to tackle the issue of how Enron's bankruptcy affected the energy markets. But Sens. Dianne Feinstein, D-Calif., and Maria Cantwell, D-Wash., were the only two senators -- with the exception of Bingaman -- who stayed until the end of the three-hour hearing. And they took it in their own direction, no doubt with their constituents in mind.
They pressed Pat Wood III, the 39-year-old Texan who was Enron CEO Ken Lay's preference to head FERC, to take anecdotal information they presented and investigate further to see if their suspicions of Enron price-rigging were warranted.
Republicans didn't seem all that interested in giving the hearing any credence. The committee's ranking Republican, Sen. Frank Murkowski, R-Alaska, came to the hearing apparently just to discredit it.
"It appears that politics in both the House and Senate are trying to create a political issue out of Enron's failure," Murkowski said.
Murkowski went on to pooh-pooh accusations that much of the Bush administration's energy plan was dictated by Enron. He also argued that many elements of the energy policy of Senate Majority Leader Tom Daschle, D-S.D., "are straight out of the Enron playbook."
"Those that live in glass houses should not throw stones," Murkowski said, then oddly adding, "or those who live in glass houses perhaps shouldn't take baths." When he finished railing, Murkowski left.
The hearing's stated purpose was to make sure that all was fine and well with the energy markets, which most of those testifying seemed to think was the case. "Energy markets are what saved the country from the collapse of this company being so dramatic," Wood said. "For it to have been digested so efficiently through the market is quite a testimony to the efficiency of the markets."
But that was not going to prevent a Left Coast Enron-bashing. The dots, according to Feinstein and Cantwell, seem to justify some connecting. They consist of:
Dot 1: Feinstein reported that Enron controlled 50 to 70 percent of the trading market for natural gas deliveries into Southern California from May 2000 to June 2001, and it did so through bilateral sales, which require no public disclosure of their details.
Dot 2: Natural gas prices drive electricity prices, and California energy prices went through the roof, from $7 billion in 1999 to $28 billion in 2000 and $27.7 billion in 2001.
Dot 3: At the end of 2000, the price of natural gas delivered to the border of Southern California was $59.12 a decatherm. In the New Mexico coal town of San Juan -- just an Arizona away from the California border -- the price was $10.12 a decatherm.
"We know that it costs less than a dollar to deliver the gas from San Juan to the California border," Feinstein said, so around that time "there was $48 a decatherm unaccounted for." Where did these inflated prices come from? Was it Enron?
"Today's gas price averages $1.91 for most of the country, and $2.05 for California," Feinstein said. "So, there's a lot of money unaccounted for, while at the same time Enron and other energy marketers are announcing record profits during that quarter."
Dot 4: After Enron declared bankruptcy on Dec. 3, prices on new "forward contracts" for energy dropped 30 percent, raising the question whether slithering Enron executives artificially inflated those numbers -- as they seemed to do with everything else that came across their desks.
Forward contracts, unregulated by the government, are agreements in which sellers agree to deliver to buyers a specified commodity -- in this case, energy. They're used so that consumers can budget for long-term energy costs. California has energy contracts through 2010, for instance, and the question is whether those contracts were based on an artificially inflated price because Enron's forward contracts on gas -- which helped set the price for energy futures -- were artificially pumped up.
"This is a Pandora's box and it must be opened," Feinstein said. "Do I have your assurance that you're going to look into it?" she pointedly asked Wood.
"Yes, ma'am," he said.
Cantwell asked for a "clear commitment" from Wood that he would look into whether any increase in energy prices was "because of manipulation by Enron." Wood gave such a commitment, when pressed to do so.
Cantwell also wondered aloud if the futures contracts could be renegotiated if the numbers they were based on were found to be built on a foundation of Enron lies. Though one expert told her that "Northwest utilities and industrial customers will have to live by the deals they made," that apparently wasn't the right answer.
"Do you think utilities, if Enron has been found to have been manipulating the forward contracts, do you think utilities should have to live and be stuck with those prices?" Cantwell asked Wood. He said, "A court's pretty good at saying that's a voidable contract," though he added that a state commission or the FERC could do the same. Cantwell came back after a break and told Wood that the U.S. Supreme Court had ruled "that FERC has had the authority to negate bilateral contracts if it finds that the prices, terms or conditions of those contracts are unjust or unreasonable."
Wood responded that yes, indeed, the FERC could do that, as instructed in Section 206 of the Federal Power Act, as he had said, sort of, before the break. "I'm sorry if I mumbled it," Wood said. "Are you requesting that the commission do a Section 206 investigation into the long-term contracts?"
Cantwell said yes.
One witness, Oregon energy consultant Robert McCullough, noted that the contracts negotiated by Democratic California Gov. Gray Davis "were higher than the cost of building a new power plant. They were very, very high at the time. But they were the only contracts that apparently his team were able to negotiate." But if Enron controlled that much of the market, he said, it might have made it difficult to have many competitive bids.
Thus, Feinstein, too, seemed interested in having her state's energy contracts renegotiated if Enron malfeasance was found to have played a role. Told by Wood that Nevada was the only state he was aware of that had filed a suit to renegotiate because of Enron's alleged price manipulations, Feinstein, known for a regal manner, furrowed her brow.
"I'll see that one gets filed, then," she said.
Wood got his job after then-Enron head Kenneth Lay concluded that the previous FERC chairman, Curtis Hebert, wasn't inclined to take the Enron position in favor of increased federal authority over electric power lines, an anti-free-market but pro-Enron position that Wood seems to support. But in a hearing where the subtext was clearly a Democratic push for increased government regulation of the business world, Wood sounded ever the free-marketeer.
During a break, he intimated to reporters that he didn't think Enron was responsible for the California gas spikes. But he seemed most alarmed by Feinstein's assertion -- an anecdotal one, since the records aren't available to the public -- that Enron controlled 50 to 70 percent of the trading market for natural gas in Southern California. That substantial percentage, he said, "certainly raised my eyebrows. That's a pretty high number for one to assume that it's competitive."
Before he took off, ranking Republican Murkowski said the tragedy of Enron was "a story of lies, deceit and coverup" but "not an energy market failure" that demanded new government regulation. The contrary was true, he said: Though a company that controlled 20 percent of the wholesale energy trading market had tanked, "the lights stayed on and energy prices did not spike."
But Democrats -- and many of the expert panelists called by Democrats -- drew the opposite conclusion. Enron traded in energy derivatives specifically exempted from regulation by the Commodity Futures Trading Commission. Vincent Viola, chairman of the New York Mercantile Exchange -- the largest forum for energy contract trading and clearing -- urged that Enron-like companies, which don't operate in trading "pits" and don't have the same government regulations, be given the same requirements for "compliance, disclosure, and oversight." He asked the committee to enforce "greater transparency" for the records of companies like Enron.
McCullough also recommended supervision as well. "I'm not talking about micromanaging the market," McCullough said. "Forward contracts don't need to be public, necessarily, but we need some sort of third-party overview." McCullough said that Enron's forward-market contracts that are charged with artificially inflating West Coast energy prices "could become the basis of future pricing. We might be looking at distortions that could take years to work out."