Senator Feinstein Calls on Attorney General to Launch Investigation Into Possible Fraud, Anti-Trust Violations During Energy Crisis

Senator Feinstein Calls on Attorney General
to Launch Investigation Into Possible Fraud,
Anti-Trust Violations During Energy Crisis

- Documents Made Public by FERC Indicate
that Competitors Shared Non-Public Information -

March 26, 2003

Washington, DC - U.S. Senator Dianne Feinstein (D-Calif.) today called on Attorney General John Ashcroft to investigate fraud and anti-trust violations, which may have occurred during the 2000-2001 western energy crisis.

Citing documents newly released by the Federal Energy Regulatory Commission (FERC), Senator Feinstein questioned how energy firms used Industrial Information Resources, a company which provides energy industry competitors detailed, non-public information on power plant outages.

Additionally, Senator Feinstein urged the Attorney General to examine instances of intentional document destruction, which may have prevented regulators from knowing the full scope of fraud and manipulation during the crisis.

In a letter to Attorney General John Ashcroft, Senator Feinstein wrote: "Now that the Federal Energy Regulatory Commission (FERC) has lifted its 'Protective Order' and has allowed the public to review evidence of market manipulation in the Western Energy Market, I am writing to ask the Department of Justice to fully investigate and prosecute possible violations of anti-trust and fraud statutes by energy companies.

The State of California has filed thousands of pages of new evidence at FERC that further demonstrate how these incidents of fraud and manipulation were not isolated events attributable to a few rogue energy traders. Instead, the documents provide substantial evidence that energy companies engaged in well-established and coordinated strategies to deliberately withhold electric power and natural gas at critical moments during the Western Energy Crisis in a concerted effort to boost company profits.

The filing at FERC shows that there was a coordinated attempt by energy companies to manipulate the Western market and to drive prices up by engaging in the following schemes:

Withholding of Power - driving up prices by creating false shortages.
Bidding to Exercise Market Power - suppliers bid higher after the California ISO declared emergencies, knowing the State would need power and be willing to pay any price to get it.
Scheduling of Bogus Load - suppliers submitted false load schedules to increase prices.
Export-Import Games - suppliers exported power out of California and imported it back into the State in an attempt to sell power at inflated prices.
Congestion Games - suppliers created false congestion and were then paid for relieving congestion without moving any power.
Double-Selling - suppliers sold reserves, but then failed to keep those reserves available for the ISO.
Selling of Non-Existent Ancillary Services - suppliers sold resources that were either already committed to other sales or incapable of being provided.
Sharing of Non-Public Generation Outage Information - the largest suppliers in California shared information from a company called Industrial Information Resources that provided sellers detailed, non-public information on daily plant outages.
Collusion Among Sellers - sellers were jointly implementing or facilitating Enron-type trading strategies.

I strongly believe the Department of Justice must investigate possible anti-trust violations by energy companies as detailed by the California parties in their brief. Allowing competitors to share non-public information on plant outages through Industrial Information Resources that traders called 'the mole' seems to be an anti-trust violation on its face. As the California parties state, 'even in the absence of a price fixing agreement, the exchange of price or output information can itself violate the Sherman Act as an unreasonable restraint of trade, if it causes anticompetitive effects.' How can it be lawful for traders to obtain information from their competitors through an intermediary like Industrial Information Resources?

Furthermore, I urge that your department vigorously investigate the new evidence of intentional document destruction cited in the filing at FERC. During the 100-day discovery process, an ex-Mirant employee disclosed that he was instructed to delete certain files relating to the California markets from hard drives and that key Mirant executives were instructed to turn in their laptops so that Mirant could clear their hard drives. Similarly, a City of Glendale employee told an ex-Glendale employee that he could destroy one of the documents that contained information about Enron's gaming strategies.

I would like to ask the Department of Justice to use its investigative and subpoena powers to conduct a thorough review of the market abuse by energy generators, suppliers, and traders in the Western Energy Market. The mountain of evidence submitted to FERC requires a complete and thorough investigation to ensure families and businesses see an end to fraud and manipulation in our energy markets."

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