Enron's new windfall
Your PG&E bills will help pay off the alleged market manipulators.

By Matthew Hirsch

NOW THAT STATE regulators have agreed to give Pacific Gas and Electric Co. billions of ratepayer dollars to pay its bills, want to know who's getting your money? Let's start with the electricity-generating company that has the most outstanding claims against PG&E: Enron Corp., which is awaiting $580 million.

That's right: the company of Kenneth Lay, the firm that personifies all of the scams and fraudulent activities that helped precipitate California's energy crisis, is getting more than half a billion dollars – from northern California businesses and residents – to pay for power that many say was sold to PG&E at badly inflated prices.

And that's just one of the alleged market manipulators that will benefit from the PG&E bankruptcy settlement.

California Public Utilities Commission president Michael Peevey has said repeatedly that the Dec. 18 bankruptcy settlement with PG&E will close the book on the California energy crisis, but nothing could be further from the truth. The settlement locks in high electricity rates in northern California for the next nine years – and delivers a huge cash infusion to the very companies that drove up electricity prices in 2000 and 2001 by gaming the energy market.

Enron led a committee of PG&E creditors that formed shortly after the company filed for bankruptcy in April 2001. The committee includes merchant energy generators, investment banks, and subcontractors that are owed the most money from PG&E.

That committee had considerable power to make decisions about how PG&E's money would be spent – decisions that affected thousands of smaller businesses with claims against PG&E. Among those on the committee: Enron, Dynegy Power Marketing, and Reliant Energy, all companies that were implicated in market manipulation during the California energy crisis.

The total that will now be paid to those alleged crooks: at least $830 million, and possibly much more.

The committee also includes some of the world's largest banks, such as Bank of America, which has $1.175 billion in claims, and Bank of New York, which is claiming $2.2 billion.

All of PG&E's creditors' claims were effectively approved Dec. 22 in U.S. Bankruptcy Court, meaning that even if PG&E's settlement agreement with the CPUC is overturned on appeal, the creditors are guaranteed their money.

The only way the state of California can now get back some of the money energy generators overcharged consumers is through a complaint California attorney general Bill Lockyer filed with the Federal Energy Regulatory Commission. Since a recent FERC report implicated more than 30 power companies in market manipulation, few have agreed to pay refunds, and those that have paid shelled out much less than the state is asking for.

Even the Utility Reform Network (TURN), which helped broker the PG&E bankruptcy settlement, opposes paying companies that set off the energy crisis. "Who in their right mind would pay Enron at this point?" Mindy Spatt, media advocacy director for TURN, told the Bay Guardian. "And ... to rely on FERC to refund that money, that's silly."

The CPUC never looked at creditor claims as part of its negotiations on the bankruptcy settlement, although the CPUC Office of Ratepayer Advocates said it should have done so.

Linda Stanley, the former U.S. Bankruptcy Court trustee assigned to the PG&E case, told us any party in the bankruptcy case, including PG&E and the CPUC, could have suggested withholding money from companies that were fined for market manipulation – but none did. "You would think PG&E would want to do that," Stanley said.

Stanley told us it became clear during her year on the PG&E case that U.S. bankruptcy code is inappropriate for dealing with a bankrupt public utility. The law doesn't recognize the difference between a private entity that must finance its own bankruptcy settlement and a regulated utility, like PG&E, that can use ratepayer funds, she said.

In response, Stanley tried setting up a committee of ratepayers to give electricity customers representation in the court proceedings, but the bankruptcy judge said no. Stanley at least managed to remove Enron and Dynegy from the creditors' committee before she was taken out of the U.S. trustee program, but both companies will still be repaid by PG&E. Stanley was fired last June, for what some say were political reasons, by U.S. attorney general John Ashcroft, who controls the U.S. trustee program. She was in the midst of a five-year term she was appointed to by former president Bill Clinton.

Ratepayers shouldn't be financing the PG&E bankruptcy if price gouging during the energy crisis was to blame, Stanley told us. And neither should they be footing the bill if PG&E was at fault, she said. Unfortunately, neither of those issues was addressed at the CPUC or at bankruptcy court. As a result, Enron, Dynegy, and other market manipulators can continue, even now, to make money from an energy crisis that Michael Peevey says is over.

December 24, 2003