California cheers Enron convictions

0 Comments | Oakland Tribune, May 26, 2006 | by Barbara Grady

The Enron trial that resulted in the fraud and conspiracy convictions of Kenneth Lay and Jeffrey Skilling on Thursday was about cooking the company books -- not cooking up California's energy crisis.

But that is not stopping those in the Golden State from applauding the verdicts.

State officials and legislators who tried to steer California through its energy crisis of 2000-2001 spoke of the verdict as justice coming due, even though the convictions did not result from actions regarding the energy markets.

"Of course I'm happy," said Carl Wood, who served on the state Public Utilities Commission from 1999 to 2004. "At least justice

has been done with respect to the abuse of investors and investment fraud. That's good.

"But at the same time, there has been no criminal prosecution at all for what was done to consumers in California and elsewhere," Wood said.

The energy crisis led to rolling blackouts, a multibillion- dollar financial hit to the state, the bankruptcy of Pacific Gas and Electric Co. and higher energy bills for consumers to help PG&E come out of its bankruptcy. Higher bills that consumers are still paying today.

"It validates what Californians have known for years, which is the energy crisis didn't 'just happen.' It was manufactured by a company that turned the state upside down to shake more than

$9 billion out of the pockets of California ratepayers," said state Sen. Debra Bowen, D-Redondo Beach.

During the crisis, tape-recorded phone conversations revealed that Enron power traders used congestion strategies to hold back available power to increase the cost of electricity so they could make more money. The strategies had nicknames -- "Death Star," "Ricochet," and "Get Shorty." Traders who manipulated the market were heard making jokes about gouging venerable "Grandma Millie" Californians.

"Our view is that the jury came to the right conclusion," said Brian Hertzog, spokesman for PG&E.

Last year, Enron agreed to a $1.5 billion settlement over allegations of overcharging and market manipulation brought by attorneys general from California, Oregon and Washington, the Federal Regulatory Energy Commission, PG&E, Southern California Edison and San Diego Gas & Electric.

While the verdict against Lay and Skilling is a prosecution victory, it does nothing for investors and former Enron employees who lost their retirement accounts as a result of the company's collapse, said Richard Bilas, who served on the PUC from 1997 to early 2002.

"It doesn't put a penny back in the pockets of those people who lost all their retirement," he said.

Bilas said the Enron trial was essentially about the way Enron "cooked the books," but it is understandable that California residents would tend to cheer the verdict.

"The majority of those people in the state of California who remember the energy crisis and are still paying high rates and know about the trial -- these people would probably say (about the verdict), 'It serves them right,'" he said.

The verdict showed that jurors believed Skilling and Lay were involved in fraudulent behavior and not just shoddy management, he said.

California Attorney General Bill Lockyer said the verdict "brings the two individuals who led Enron one step closer to being held accountable for ripping off California consumers and businesses, destroying the pensions of hundreds of workers and their families and defrauding investors on a massive scale."

Consumer groups, however, said that state officials should see the error of their ways in these convictions.

"It is very important to remember that the California Legislature was led around by the nose by these corporate criminals in 1995 in passing deregulation (of the energy markets)," said Mindy Spatt, spokeswoman for The Utility Reform Network of San Francisco.

"Lay and Skilling -- it was their idea, basically," to deregulate the markets, she said.

The verdict concerned financial fraud and manipulation of company financial statements to investors and the Securities and Exchange Commission; however, the University of California also suffered from the financial fraud Enron has been charged with.

UC is the lead claimant in a class-action suit brought by investors in Enron stock against a dozen financial institutions along with Enron's outside directors and the former Andersen Worldwide consulting firm for allegedly participating in a scheme to defraud investors. The claimants estimated they suffered about $40 billion in market losses.

UC and its fellow claimants have settled with five financial firms, including JPMorgan Chase and Citigroup, as well as with Enron's outside directors and Andersen, for a total of more than $7 billion. They have yet to settle with several other institutions.

Trey Davis, UC's director of special projects, said the class- action suit against financial institutions is a civil case quite separate from the criminal proceedings against Enron's executives.

But, he said, "We are appreciative of any evidence demonstrating the Enron securities fraud that may have come to light during the trial," and during other government investigations.