The Viridian Design Movement

Sent: Monday, October 21, 2002 9:23 PM

Viridian Note 00346: California's Vengeance

Key concepts
Enron, scandals, California energy crisis of 2001
Attention Conservation Notice:
Over 2,500 words of more tiresome blither about corporate corruption in the energy biz.

Try searching for "California crisis"

(((We Viridians spent a lot of time closely studying the California energy crisis. Now one of its architects has decided to turn states-evidence in a federal court. Federal prosecutors will attempt to recast the fleecing of California as one of the biggest corporate crimes in the history of the known universe. And they don't want just Enron, one of the minor profiteers. They're making noises like they want to collar the lot of 'em.

(((Will justice be done? Sure, you bet it will, Real Soon Now. But before I delve at length into the latest dismal developments, I wanted to say one thing that no other pundit or commentator seems to be saying. And that is: Sorry.

(((Sorry, good people of California. I feel true pity and regret that you and your Golden State were ruthlessly subjected to so much entirely unnecessary turbulence, pain, monetary loss and bold fraud. It's revolting to recall how many people blamed it all on you, you and your California-ness. It's amazing to think that this gross assault on your peace and dignity was so broadly and lavishly spread across all of you, from the stricken widow with no air conditioning to the factory-owner plagued with brownouts. You gentle, mystical people, what on earth did you do to deserve such rough treatment? Nothing, nothing except to dare to be vulnerable and a little careless. I just thought someone, somewhere should express real regret about all this.)))

(((Step A. So who is this malefactor, "Timothy Belden"? A Wall Street swindler in a Monopoly top-hat? No, he was a mathematically-literate GenXer science wonk with a personal fondness for renewable energy.)))


"For Enron's Belden, 'Success Bred Power'
By Nancy Rivera Brooks and Nancy Vogel
Times Staff Writers
Posted October 18 2002

"When Timothy N. Belden got out of college around 1990, he found himself entering an arena that couldn't have been sleepier.

"He joined Lawrence Berkeley National Laboratory, a research operation backed by the Energy Department, where he was a utility policy analyst who wrote detailed studies on the most arcane subjects. (((Tim was a science fed.))) Among the many reports he co-authored was the abstruse 'Theory and Practice of Decoupling.'

"A decade or so later, however, Belden found himself in a very different world as head of Western electricity trading for Enron Corp.

"The Houston-based company was then the biggest and most aggressive player in a field that had become incredibly fast-paced and high-stakes in the wake of the deregulation of energy markets in California and elsewhere.

"Along the way, Belden had evolved from an idealistic, environmentally conscious policy wonk to the quintessential Enron company man: smart, innovative and aggressive. (((They were both. That was the secret behind all that divinely-inspired Enron arrogance.)))

"On Thursday, the 35-year-old Belden paid the price for going too far with that aggressiveness. He pleaded guilty to a single count of conspiracy to commit wire fraud in connection with illicit trading tactics during California's 2000-01 energy crisis. ((("Wire fraud," boy what a weird charge.)))

"'I did it because I was trying to maximize profit for Enron,' Belden told a federal judge in San Francisco. He agreed to cooperate in the continuing investigation and pay back $2.1 million in ill-gotten gains. (((And to rat out his pals.)))

"Those who've known Belden for a long time were left trying to make sense of how a person they considered supremely trustworthy had gotten caught up in a huge corporate scandal. (((It didn't look like one at the time. Booming stock, owning a President... wow.)))

"'He's the most decent person I know in the whole energy industry == bar none,' said Steve Stoft, an energy consultant who hired Belden at the Lawrence Berkeley lab.

"Stoft fondly remembered his friend's passion for the environment, noting how Belden had once bought into a windmill company 'because he wanted to invest in alternative energy.' ((("Alternative" is not a synonym for "morally spotless.")))

"But as the years passed, and Belden abandoned his life as a researcher to go to Portland General Electric Co. and then Enron, he seemed to become interested in a different sort of power: his own.

"One energy consultant who worked with Enron in its glory days remembers Belden as 'sufficiently smart and sufficiently intimidating to call his own shots. In that culture, success bred power.'

(((Fans of words-on-paper may like to further consult the aptly titled "PIPE DREAMS: Greed, Ego and the Death of Enron" by Robert Bryce, a nice guy I run into every once in a while.)))

"At Enron, Belden was at the nerve center of a vast operation that bought and sold electricity around the clock. About 100 traders worked in constant activity under Belden on the high-tech trading floor that Enron occupied in the World Trade Center in Portland, Ore. (((Press the F1 function key in Oregon and Californians swelter in the heat!)))

"Deal after deal was lined up for the next month, week, day == or even minute == with the Golden State's official markets, the California Power Exchange and California Independent System Operator, or with traders from the dozens of other energy companies operating in the West. (((Dozens of scared, shivering energy companies who are staring longingly at the shredders.)))

"Belden and his lieutenants == some of whom now are scrambling to cut their own plea agreements with prosecutors == were particularly talented at playing one market off another or at wringing payments out of Cal-ISO to relieve congestion on the transmission grid, internal Enron memos show. Frequently, Enron's traders created the electron traffic jams they were then paid to fix, the documents indicate. (((Now this vast human genius will be devoted to surviving the American legal system.)))

"This year, a state Senate committee investigating alleged energy market manipulation by Enron and other companies received five compact discs containing Belden's e-mails. (...) (((Boy oh boy, not even Ollie North had bulletproof email.)))

(((Step B. The Feds Publicly Gloat Over Their Stricken Informant)))

Source: Reuters

"WASHINGTON, Oct 17 (Reuters) == The following are excerpts from a statement issued on Thursday by federal prosecutors about a plea agreement with a former top Enron Corp electricity trader:

"The United States Attorney's Office for the Northern District of California and the Enron Task Force announced today that Timothy N. Belden, who was Enron's Chief Energy Trader, has agreed to plead guilty to conspiracy to commit wire fraud in a scheme with others at Enron Corp. to manipulate California's energy market, a scheme that was designed in part to alter the price of electricity in the state."


"In the first criminal charges to be filed in an investigation of the manipulation of the California energy markets during the power crisis of 2000 to 2001, Enron's chief energy trader was charged in San Francisco federal court with one count of conspiracy to commit wire fraud.

"The defendant has agreed to plead guilty and cooperate with the United States in its investigation.

"The charges are based on Enron's intentional manipulation of the California energy markets, which was done in part to affect the price of electricity in California. In pleading guilty, the defendant will admit that Enron's manipulation of the California energy markets was illegal. (((Like Tim's the supreme expert on the subject. Like that was all his doing.)))

"The investigation is being led by the U.S. Attorney's Office in San Francisco, the Enron Task Force, the Antitrust and Fraud Divisions of the Department of Justice, and the San Francisco division of the FBI. (((Incredible that the FBI has allowed themselves to be listed last, for once. Maybe they've learned some humility lately.)))


"Deputy Attorney General Larry Thompson, the head of the Justice Department's Corporate Fraud Task Force, said, 'During the period of the charged conspiracy, Enron's revenues from Belden's trading unit rose from $50 million in 1999 to $500 million in 2000 to $800 million in 2001. While Enron benefitted from the overall rise in electricity prices, the information charges that a portion of these increased revenues was due to the execution of these schemes. The conspiracy charged in this information allowed Enron to exploit and intensify the California energy crisis and prey on energy consumers at their most vulnerable moment.'

"U.S. Attorney Kevin V. Ryan, a member of the Corporate Fraud Task Force, said in announcing the guilty plea, 'These charges answer the question that has long troubled California consumers: whether the energy crisis was spurred in part by criminal activity. The answer is a resounding yes. The U.S. Attorney's Office in San Francisco and the Justice Department will bring to justice those who served their own selfish purposes by intentionally and criminally manipulating energy consumers in California and on the West Coast.' (...) (((Yeah, all three of 'em, including this geeky Enron science wonk. Well, we'll see. Enron was by no means one of the major profiteers in California. They just have the most cops on their case and the least number of surviving defense lawyers.)))


"The Information alleges that in 1999, Enron's West Power generated approximately $50 million in revenues. By 2001, West Power's revenues increased to approximately $800 million as the price of electricity skyrocketed.

"Prices during the height of the energy crisis rose from $25 per megawatt hour to, in some cases, $1,500 per megawatt hour. It is alleged that the price increase is attributable in part to the schemes charged in the Information.

"In pleading guilty, Mr. Belden will admit that beginning in approximately 1998, and continuing through 2001, he and other individuals at Enron conspired to manipulate the energy markets in California by:

"* misrepresenting the nature and amount of electricity Enron proposed to supply in the California market, as well as the load it intended to serve;

"* creating false congestion and falsely relieving that congestion on California transmission lines, and otherwise manipulating fees it would receive for relieving congestion;

"* misrepresenting that energy was from out-of-state to avoid federally approved price caps, when in fact, the energy it was selling was from the State of California and had been exported and re-imported;

"* falsely represented that Enron intended to supply energy and ancillary services it did not in fact have and did not intend to supply.

"As a result of these false schedules, Mr. Belden will admit that he and his co-conspirators were able to manipulate prices in certain markets, arbitrage price differences between the markets, obtain 'congestion management' payments in excess of what they would have received with accurate schedules, and receive prices for electricity above price caps set by the California Independent System Operator ('ISO') and the Federal Energy Regulatory Commission. (((This sure makes you wonder why anybody anywhere thinks that things get more honest when they're all automated and computerized. "Looka this 'Congestion/Decongestion' switch! Every time I pull it, they pay me!")))

(((Step C. The righteously ticked-off California press.)))

San Francisco Chronicle, bin/article.cgi?f=/c/a/2002/10/20/BU34368.DTL

"Energy industry's dirty little details about to see light

by David Lazarus Sunday, October 20, 2002

"The betting in energy circles is that Enron's erstwhile big cheeses are in deep trouble now that the company's former top trader has pleaded guilty to manipulating the California power market.

"But that may not be the half of it.

"Sources close to the matter say Timothy Belden, who previously ran Enron's trading office in Portland, Ore., is prepared to implicate a number of other industry players in what could shape up to be one of the biggest conspiracies in U.S. corporate history.

"Deputy Attorney General Larry Thompson declined at a news conference last week to identify other alleged conspirators in the fleecing of California ratepayers. (((Oh, hey, I can do that. 'Cause we Viridians were watching. "The leading power generators for California include Reliant Energy, El Paso Energy Corp., Dynegy and Enron Corp., all of Houston; as well as Duke Energy Corp. of Charlotte, N.C.; AES Corp. of Arlington, Va.; Southern Co. of Atlanta; and Calpine Corp. of San Jose.")))

"But he did say that 'Belden and others conspired to defraud California electricity consumers and customers.'

"This confirms a lot of hunches here in the Golden State, where folks knew something was screwy with the power grid long before federal authorities finally decided to weigh in on the matter.

"Now we know exactly how it was done, at least as far as Enron was concerned.

"Belden said he and his cronies would provide bogus data on how much juice was available at any given time to state utilities.

"This would create the impression of congestion on power lines when none in fact existed, driving up demand and, better still, allowing Enron to charge an extra fee to relieve the congestion that wasn't actually there in the first place.

"Enron also exported power generated in California to other states and then turned around and sold it back to us at a big markup as electricity generated elsewhere.

"Chutzpah? These people were rewriting the definition. (...)

"The question now, aside from which former Enron bigwig will be in court next, is whether the other major players in the energy business were running similar scams.

"Sources in a good position to know tell me that Belden is cooperating fully with investigators and is prepared to map out a far-reaching scheme involving all the big boys.

"'We intend to pursue this investigation wherever it leads,' Kevin Ryan, U.S. attorney for the Northern District of California, told reporters Friday. 'Mr. Belden's co-conspirators == and they know who they are == should be very concerned."

"Maybe they are already.

"I'm told that last week's resignation of Dynegy President Steve Bergstrom was directly related to the looming prospect of Belden naming names. Dynegy also said it will exit the energy-trading business.

"Dynegy is being investigated by the Justice Department and already has agreed to pay $3 million to the Securities and Exchange Commission to settle fraud charges. (((Dynegy almost bought Enron when Enron was crippled. Now the black hole's got both of them.)))

"A spokesman for the company, David Byford, denied that Bergstrom's decision to step down was tied in any way to Belden's case. On the other hand, Bergstrom came to power as a result of his success building up Dynegy's energy-trading operation.

"For what it's worth, San Francisco's ChevronTexaco owns about 26.5 percent of Dynegy and is the Houston firm's largest shareholder. (((Man, if only an oil-major like ChevronTexaco got indicted for this solemn fraud and... oh well, keep dreaming.)))

"Dynegy and other industry leaders have already said they played no role in exacerbating California's power woes. Enron said the same once upon a time.

"Clearly we haven't heard the end of this."

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