$piking prices by “trading”
among its many hands at
ever higher prices before
actually $elling to us

Loretta Lynch of the California Public Utilities Commission (PUC) described
Enron's greatest innovation -- the creation of its own electricity marketplace, with
its own set of “rival” firms, where prices were set before the energy was shipped
to the central exchange. "In the fourth quarter of 2000," Lynch said, when energy
prices were spiking, "five Enron affiliates -- Enron Energy Services Inc., Enron
Power Marketing, Inc., Enron Energy Marketing Corp., the New Power Co.,
and Portland General Electric -- bought and sold 10,167,782 megawatt-hours of
electricity to and from each other at ever higher prices, that skyrocketed to $1,100
per megawatt-hour (more than 10 times the cost of generation). These trades were
not only among affiliated companies; the same individuals were managing all these
(‘different’) companies.”

Key to Enron's strategy was to ensure that it could operate in secret. It accomplished
this goal, not in California, but through lobbying in Washington, via the offices of
the Commodity Futures Trading Commission. There, in 1992, under GOP Bush I,
commission chairwoman Wendy Gramm, the wife of Texas Republican Senator Phil
Gramm, wrote rules to exempt energy companies from normal financial accounting rules.
Six weeks after the rules were approved, Gramm left the commission and joined
the Enron board.

There were other players in the market, of course, but they soon realized it was in
their interest to go along with Enron's games rather than undercut the inflated prices.
five independent generators who bought into California on the eve of deregulation --
the energy firms Duke, Dynegy, Reliant, Mirant and AES -- each ran their power
plants at just half their rated capacity through the months of the crises, helping create
the appearance of shortage.Click here to see one case.

Enron had no actual capacity, and so found more creative ways to exploit the California
market. Aside from sham transactions, Lynch said Enron was a leader in the practice
of "megawatt laundering," whereby a firm would sell California power to out-of-state
customers, creating artificial shortages at home. "Exports from California quadrupled
from 1999 to 2000," Lynch said.

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