FERC Says Enron Exploited Loopholes

Two Enron Corp. strategies for exploiting the California electricity market relied on using false information to manipulate prices, while nine others simply took advantage of loopholes in state rules for operating the market, according to federal regulators.

The two strategies--nicknamed “Get Shorty” and “Fat Boy”--are of particular interest to investigators from the Federal Energy Regulatory Commission and other agencies, who are trying to determine if federal laws or regulations were broken.

A FERC document said the two schemes involved supplying false information about the demand for electricity and the location of generators.

The commission cited the tactics in documents released Wednesday proposing nationwide rules for the operation of regional power markets.

The new regulations, which include a $1,000 per megawatt hour price cap, would close the loopholes that the Enron strategies sought to exploit, officials said.

“A few of the strategies in the Enron memoranda appear to depend on the marketer providing false information” to the California Independent System Operator, which controls the transmission grid covering three-quarters of the state, the document said.

“These strategies rely on evading or violating the market rules rather than on market design flaws.”

Nine other strategies detailed in the December 2000 memos, including “Death Star” and “Ricochet,” took advantage of loopholes in the design of California’s market, the agency said.

Some industry officials have blamed the crisis on flawed market rules and a lack of supply rather than wrongdoing by traders.

Lawyers for Enron, which filed for bankruptcy in December, learned of the internal documents in April and turned them over to the federal commission in May.

One of the lawyers said at the time he didn’t know whether the strategies were accurately described in the documents, or if they had ever been used.

“We continue to cooperate in the various investigations,” Enron spokesman Eric Thode said Thursday.

The traders involved were hired by UBS Warburg when the investment bank took over the company’s trading arm this year, he said.

“To speak directly to any of these supposed strategies is difficult for us because the people who were involved no longer work for the company,” he said.