[PEN-L:36280] company town

["Ian Murray" <seamus2001@xxxxxxxxx>]

http://www.latimes.com
Glendale Abetted Enron in Energy Ploys, Papers Imply
By Doug Smith and Nancy Rivera Brooks
Times Staff Writers

March 29, 2003

Newly released documents suggest that the city of Glendale knowingly
helped Enron Corp. traders rig the California energy market -- even going
so far as to quiz its own utility employees on "Fat Boy," the nickname for
one of Enron's notorious trading schemes to create artificial shortages.

In addition, a ploy to sell phantom backup power during the California
energy crisis was discussed in a trading strategies tip sheet obtained
from Glendale Water and Power by the California attorney general's office.

City officials have previously acknowledged participating in a
profit-sharing pact with Enron to sell surplus electricity from the city's
power plant in times of shortages but said an inquiry last year found no
wrongdoing.

Glendale City Manager James E. Starbird reiterated that defense Friday,
saying the city has submitted thousands of pages of evidence refuting the
allegations.

"It made no sense for Glendale to try to manipulate the market to drive up
prices," Starbird said. "We were buying three times as much energy as we
were selling."

State and federal officials are not convinced. A Federal Energy Regulatory
Commission report this week said Glendale was "associated with Enron in
executing the trading strategies in a willful and knowing manner."

Municipal utilities serving Los Angeles and half a dozen other California
cities also were targeted in the FERC report, which said their activities
appeared to constitute market "gaming" in violation of state tariffs. But
Glendale's utility, which serves about 78,000 businesses and households,
stood out by the volume and detail of the evidence presented against it.

The FERC report implicates Glendale in ploys that involved creating false
congestion on electricity transmission lines, inflating demand and selling
nonexistent backup energy through partnerships with Enron and Coral
Energy, both based in Houston. The report also said the Glendale utility
engaged in speculative trading that took advantage of varying power prices
in different parts of the state.

"It should be clear to everyone that fraud, both criminal and civil, was
committed in these schemes," said state Sen. Joe Dunn (D-Santa Ana), who
chairs a committee investigating energy market manipulation in California.

Dunn noted that two top Enron traders have pleaded guilty to federal
charges of wire-fraud conspiracy in connection with their use of the same
strategies. He also said municipal utilities should be held to a higher
standard of behavior than for-profit companies.

The state attorney general's office would not comment on whether it is
looking into possible legal violations by Glendale or other cities.

The new documents appear to show that Glendale Water and Power managers
incorporated the Fat Boy strategy into training. Fat Boy is the name for a
ploy devised by Enron traders to falsely create the appearance of power
shortages, leading to higher prices.

A question on one Glendale Water and Power monthly quiz asked: "What is
Project 'Fat Boy' give as much detail as you can." In handwritten answers,
several employees who took the February 2000 test indicated that it
involved splitting profits or losses equally with Enron.

Glendale Assistant City Atty. Steven Lins said the Fat Boy in the quiz was
not the same as the one first disclosed in confidential Enron memos
released last year. He said the Fat Boy in the quiz referred simply to the
city's deal to sell excess power to Enron and involved no
misrepresentation.

"There would be no way for us to know what they're doing," he said.

Lins also challenged the significance of the three-page trading strategies
memo, which he described as a "brainstorming" document provided to the
utility by Coral Energy when the two entered into a trading accord.

He conceded that one of the strategies outlined, which advised traders to
use "phantom ancillary services," or selling backup generation that did
not exist, would have been improper. But he said the city filed evidence
showing that it always had the capacity to produce the backup power it
sold.

Lins said Glendale, one of a handful of Los Angeles County cities with a
municipal power plant, felt no obligation to report Coral's phantom
strategy to state officials because it did not believe Coral pursued those
tactics.

Energy consultant Robert McCullough, who analyzed the Glendale documents
for Dunn's committee, concluded that they were training materials to help
the city's traders participate in the Enron and Coral schemes.

"They were actually totally up to speed on these strategies," said
McCullough, a former utility executive.

The FERC report also included a Feb.17, 2000, Enron internal e-mail
complaining about resistance to the ploys by some Glendale traders who
"don't want to play."

"Their manager wants to do this every time we see fit," the e-mail noted.

State and federal officials have not said how much Glendale may have
profited from its ventures with Enron and Coral. Starbird previously has
said that the Glendale utility, with a $289-million annual budget, made
$3.9 million in revenue from the Enron partnership.

Like Glendale, the Los Angeles Department of Water and Power also was
accused by federal regulators of improper trading practices. DWP General
Manager David Wiggs said the agency would go to court, if necessary, to
prove its case.

"So far," Wiggs said, "nobody has shown us any evidence that supports this
other than opinion testimony that it might have happened."