by John M. Curtis
(310) 204-8700

Copyright October 20, 2002
All Rights Reserved.

leading guilty to conspiracy, Enron's chief energy trader and corporate vice president, 35-year-old hotshot Timothy Belden admitted to manipulating California's electricity market, causing artificial shortages and skyrocketing prices. From the outset of the crisis in May 2000, Gov. Gray Davis blamed Enron and other power brokers for "gaming" the market and bilking the state of billions, contributing to growing budget deficits and economic peril. Begging the Federal Energy Regulatory Commission for help Davis got the cold shoulder, blaming the state's problems on too few power plants. Common sense told a different story. How could California suddenly run out of power? While Davis asserted, to no avail, that out-of-state power brokers created scarcity and inflated prices, the White House stubbornly insisted that California caused its own misery by failing to build new capacity. Two years and $ 9 billion in the hole, the truth finally comes out.

     Copping his plea, the wily Belden ran out of excuses and exposed his cards. "Why did I do it?" Belden repeated, in response to a question by U.S. District Court Judge Martin Jenkins in San Francisco. "I did it because I was trying to maximize profit for Enron," in a stunning, yet abundantly clear, admission. For two years, the state watched its major utilities hemorrhage into insolvency and forced to enter the power business to keep the lights on. Getting a handle on the arcane ways power brokers manipulated the market didn't come overnight. Short of declaring eminent domain and seizing power plants, Davis was pushed into long-term contracts to control spiraling prices. Long-term contacts eventually broke the runaway power market, dropping prices from $2,900 per megawatt hour to under $30. Locked into pricey long-term contracts under duress, the state now has powerful grounds for renegotiating. Belden's conviction strengthens the state's case that out-of-state power brokers illegally manipulated the electricity market.

     Before Belden's conviction, power companies insisted that trading schemes—no matter how creative—were legal under California's 1996 deregulation law. "These charges answer the question that has long troubled California consumers: whether the energy crisis was spurred in part by criminal activity," said Kevin Ryan, U.S. attorney for Northern California in San Francisco. "The answer is a resounding, yes," vindicating Davis that the state fell victim to illegal market manipulation. Recently released court documents indicate that Belden earned his keep, generating $50 million in 1999, $500 million in 2000 and $800 million in 2001, bleeding California with his clever schemes. Belden admitted to inventing "Death Star," clogging transmission lines, collecting payments for clearing lines and "Ricochet," sending power over state lines then selling it back at inflated prices. Because Enron gave false data to California authorities and received payments through bank wire transfers, Belden pleaded guilty to conspiracy to commit wire fraud.

     Belden's plea strengthens Gov. Davis' case asking FERC to authorize $9 billion in refunds from power brokers. Whether Belden's conviction implicates high–ranking Enron officials, like former Chairman Kenneth L. Lay, CEO Jeffrey K. Skilling or President Lawrence G. Walley, the head of Enron's trading unit, is anyone's guess. "I do not believe this fraudulent activity begins or ends with this one individual," said Sen. Diane Feinstein (D-Calif.), believing that other companies were also involved in similar criminal activity. Belden clearly indicated that he was "following orders," not operating a rogue operation suggested by Enron's upper management. Caught with their pants down, FERC can't ignore how Enron caused irreparable harm to California consumers. Now footing the bill for whopping rate hikes, ratepayers currently pay the freight for criminal wrongdoing. Referring to Belden, "He learned how to do these trading strategies at Enron," said attorney Christina Arguedas, reinforcing the idea that he was "following orders."

     Seeking $9 billion in rebates, Gov. Davis has a powerful case before FERC, though it's difficult to ascertain just how much Belden's illegal schemes caused skyrocketing prices and widespread shortages. California's flawed deregulation law also provided fertile ground for power companies to legally rip off the state. "We have not said 'no' to refunds. We have the judge trying to calculate them," said FERC chairman Patrick Wood, unwilling to commit to hefty amounts claimed by the state. Other companies—subscribing to the California Power Exchange, the state's largest independent trading floor—played the same shenanigans as Enron and must also pony up. In Belden's plea deal, he agreed to forfeit $2.1 million in commissions, pay $250,000 in fines and possibly serve five years in federal prison. Singing a different tune, FERC and the Justice Department must accept that California was fleeced by unscrupulous power brokers.

     Enron must now pay the price for fleecing California and causing the worst fiscal nightmare in the state's history. With Belden pleading guilty to conspiracy, FERC and the White House can't continue to blame California's crisis on a shortage of power plants. Belden's conviction proves beyond any doubt that out-of-state power brokers pulled off the biggest heist in the nation's history. Fleecing the state's utilities and ratepayers alike, FERC must order outlaw power companies to reimburse California for scamming the market. Turning Belden upside down won't repay businesses and consumers for illegal piracy now pending before a federal Judge. Utility shareholders—including the state's largest pension funds—deserve compensation for the dramatic loss of equity value, directly caused by Enron's illegal trading schemes. No one begrudges publicly traded corporations the right to hefty profits. But all companies must play by the rules or face the consequences.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's a consultant and expert in strategic communication. He's author of Dodging The Bullet and Operation Charisma.

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