By Sylvie Dale, Online Editor

May 7, 2002 -- The Federal Energy Regulatory Commission's Office of Markets, Tariffs and Rates has demanded more information after reviewing some confidential Enron memos which discussed ways to make extra money from the California energy markets.

In a May 6 e-mail sent to the Enron lawyer who provided the controversial memos, Donald J. Gelinas, Associate Director of the Office of Markets, Tariffs and Rates, asked for all related correspondence and the names of people who might have gotten Enron started with its trading policy. Gelinas demanded the information by May 10.

Sam Behrends IV of LeBoeuf Lamb Greene & MacRae, LLP, had provided FERC with the memos in response to its request for more information. FERC is investigating possible price manipulation in the newly deregulated California electricity markets.

The first memo was dated Dec. 6, 2001 and addressed to Richard Sanders (of Enron) from Christian Yoder (of Enron Power Marketing Inc.) and Stephen Hall (of Stoel Rives, LLP). The second memo, dated Dec. 8, 2001, appears to be very similar except that some comments are written on the memo copy. The third memo, not dated but which refers to the Dec. 8 memo, discusses the methodology used by Enron traders.

In the Dec. 6 memo, the writers discuss various methods of getting extra money out of the energy market, including such colorful names as "inc-ing" the load, "Death Star," "Get Shorty," "Wheel Out," "Fat Boy," and "Ricochet".

FERC interpreted "inc-ing load" as submitting unrealistic schedules into the California Independent System Operator's real-time energy imbalance market.

Another strategy involved creating, and then relieving, phantom congestion on the Cal ISO's transmission grid.

"Ricocheting," which FERC called megawatt laundering, was explained by the memo as buying energy in the Day Of market, sending it out of the state and then buying it back for sale on the Real Time market.

Another strategy, called "Death Star," is described as allowing Enron to get paid "for moving energy to relieve congestion without actually moving any energy or relieving any congestion," FERC said.

The last section of the two dated memos discuss the ISO tariff's definition of, and prohibition of, "gaming" and "anomalous market behavior." The memos then list and discuss those sanctions in the ISO tariff that would apply in the event that the ISO were to discover that Enron was engaging in such strategies.

In response to the memos, FERC demanded several pieces of information by May 10:
1. A list of all traders and other Enron employees (both current and former) with whom the authors discussed the trading strategies outlined in the memos.
2. All correspondence, dated both before and after December 2000, that discusses the trading strategies covered by these memos, or the ISO sanctions discussed in these memos.
3. All memos and correspondence that discuss Enron's trading strategies with respect to natural gas markets in the West.

"The internal Enron Corp. memos newly released by FERC raise serious questions that must be resolved," EPSA President Lynne Church said of the alleged market abuses. "FERC needs to aggressively continue its investigation into these allegations."

"If anyone ultimately is found to have engaged in these practices, we will join with FERC and all California customers in condemning this behavior and seeking appropriate remedies.

"In the meantime, these memos demonstrate the importance of FERC's existing initiatives, supported from the start by competitive power suppliers, to create independent and multi-state regional transmission organizations, a standard market design with appropriate monitoring and good congestion management rules."

EPSA is the national trade association representing competitive power suppliers, including independent power producers, merchant generators and power marketers.

The Enron memos came to light during meetings for the fact-finding investigation of potential manipulation of electric and natural gas prices, FERC Docket No. PA02-2-000.

All three memos are available on FERC's web site. For more information, visit:
http://www.ferc.fed.us/electric/bulkpower/pa02-2/pa02-2.htm#memo.