A FERC Administrative Law Judge last Tuesday recommended that Enron Corp. be fined $32.5 million for violating federal laws during the western power crisis in 2000-2001. Judge Carmen Cintron also reiterated in her initial decision that Enron’s wholesale electricity trading license be revoked after reviewing testimony that indicated Enron had violated Section 205(c) of the Federal Power Act (FPA).

The Federal Energy Regulatory Commission last year launched formal investigations into potentially illegal actions of three Enron affiliates: Portland General Electric, Enron Power Marketing and Enron Capital and Trade Resources Corp. It also began an investigation of El Paso Electric Co., Avista Corp. and affiliate Avista Energy (see NGI, June 10, 2002). Last month, following the investigation, FERC issued a series of rulings concerning the western energy crisis, which included revoking the marketing authorizations for Enron and its subsidiaries (see NGI, June 30).

Last week’s 42-page initial decision examined the business relationship between El Paso Electric Co. and two Enron subsidiaries, Enron Capital and Trade Resources and its subsidiary Enron Power Marketing (No. EL02-113-000). Cintron called Enron ‘s lengthy and compelling arguments “specious,” but found the evidence pointed toward self-dealing in its business relationship with El Paso Electric.

In affiliate El Paso Electric’s case, Enron “decided how, when and to whom it bought and sold El Paso [Electric]’s power. Additionally, it was Enron who set the price for these transactions. Enron controlled El Paso [Electric]’s trading desk, 76% of the time, for five years. The evidence in this case also corroborates that Enron was in control during this time.”

Further, “documentary evidence shows that Enron admitted it gained control of El Paso [Electric] and this was part of a larger strategy to gain control of many resources in the West.” Since the transactions took place in real-time, El Paso [Electric] had no control over them, and could not undo a transaction for economic reasons.”

FERC staff also is correct that Enron engaged in “self-dealing,” said the judge,” and “correctly points out that the type of self-dealing in this case is more blatant than affiliate abuse between two subsidiaries sharing the same parent. In this case, the transactions between El Paso [Electric] and Enron were not made at arms-length. Enron profit-shared in certain transactions. Thus, Enron had an economic incentive in the sale price it charged for El Paso’s power”…”the economic interests of Enron coincided with El Paso [Electric]’s.”

As far as the fine, the judge noted that the conduct investigated by FERC in the designation order was Enron ‘s relationship with El Paso Electric. “As a result, the disgorgement of $32,528,766 for transactions identified to have involved El Paso [Electric] and Enron seems an appropriate remedy.” The remedy recommended in the initial decision is in addition to the license revocation, already ordered by FERC.

In related news, Enron agreed last week to pay $109,000 to the State of New Jersey to settle allegations that it had violated New Jersey election law by making improper financial contributions to various New Jersey political candidates and campaigns.

According to Vaughn L. McKoy, director of New Jersey’s Division of Criminal Justice, the investigation determined that from Oct. 22 through Nov. 1, 1999, Enron made more than 30 financial contributions to various New Jersey political candidates and/or campaigns in violation of New Jersey election law.

The investigation determined that Enron effectively owned 100% of Enron Energy Services Inc., a New Jersey-licensed electric power and natural gas supplier doing business in the state, and New Jersey law prohibits corporations “carrying on the business of a… gas, electric light, heat or power company,” including any parent and subsidiary corporations, from making financial contributions to New Jersey political candidates or campaigns.

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