`Fat Boy'

May 09, 2002

THE LATEST revelations about alleged frauds by Enron traders profiteering on last year's California energy crisis have an all too familiar ring, given the greedy scams that have characterized the emerging saga of the bankrupt energy behemoth. About the only shocker may be that these schemes were made public by Enron's current leaders - though they were blowing the whistle on former officers of a former subsidiary.

But release of the Enron memos also may prove to be a turning point in the investigations into the costly dislocations of the West's electricity market in 2000-2001. As such, these documents could have lasting repercussions - from Californians' pocketbooks to this fall's national elections to the future of deregulation of energy markets across the country, now stalled in many places.

In the memos, Enron lawyers use wonderfully novel code names for their complex strategies for gaming California's electricity system, among them "Fat Boy," "Load Shifting," "Ricochet." In some of the schemes, the company bought power under California price caps, moved it out of state and then sold it for higher prices elsewhere or returned it to California under the guise of more expensive out-of-state power.

Enron even faked the appearance of congestion in California's power grid and then profited from relieving that sham, without actually moving any power.

The memos appear to back California officials' assertions that their yearlong bout with rolling blackouts and skyrocketing electricity costs stemmed from sophisticated, possibly illegal manipulations by big traders such as Enron. The documents should aid the state's claim that it is owed billions of dollars in compensation for its losses and could help the re-election campaign of its governor, Gray Davis, who's been hammered over the energy problems.

Moreover, the documents provide more fodder for Democrats intent on making the most of the Bush administration's energy industry ties. And perhaps most important, they underscore the need for much stronger rules and monitoring in deregulated energy markets, for stiffer penalties for violators of those rules, and for extension later this year of energy price controls in the West - which the administration has not supported. Making those moves should remove some of the murkiness about the difference between smart energy trading and market manipulation - a gray area in which Enron appears to have been masterful at making money.

As a symbol of corporate America run amok, Enron already has earned its niche. Its apparent financial frauds shook stock markets and the credibility of accountants. The crash of its stock led to moves to improve the rights of investors in retirement plans. Now Enron's alleged role in fleecing Californians of billions of dollars in energy costs should focus attention on the need to drastically beef up badly outgunned power-grid rules and regulators.

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