Fines, settlements and disgorgement of ill-gotten gains imposed upon energy companies for causing the California energy crisis

It has been nearly three years since the Federal Energy Regulatory Commission ended the California energy crisis by re-regulating the entire Western United States electricity market in June 2001. [1] While the price controls and other regulations included in that order have kept prices stable and the lights on, three important lessons should be gleaned from the experience if we are to prevent it from happening again.  

First, although the government has pursued a handful of criminal charges and several billion dollars worth of fines and refunds against energy companies, these enforcement actions fall far short of what needs to be done to hold companies accountable for their crimes. Total fines and refunds total $4.5 billion - less than half what the California Attorney General has calculated is owed to California alone

Second, the few criminal indictments and fines that have been pursued clearly prove that the California energy crisis was fully the result of manipulation, and NOT because of the state's environmental laws. Indeed, a criminal indictment handed down by the Justice Department against Houston-based Reliant Energy noted that the company was charged with "disseminating false and misleading information to the market that wrongly attributed the shut-downs to environmental limitations." [2] This should settle the debate once and for all that deregulation - not environmental laws - is the culprit.

Only three mid-level Enron executives - Timothy Belden, Jeffrey Richter and John M. Forney - have criminal charges filed against them for their role in manipulation of the California energy market. Of the hundreds of charges brought against former CFO Andrew Fastow and Jeffrey Skilling, none are for their roles in facilitating the company's plan to rip-off west coast consumers. And of course, former CEO Ken Lay still hasn't been charged with a single crime. 

Third, the Bush Administration has been proven wrong in all of its public statements and policy initiatives surrounding California's energy deregulation fiasco, and the stream of misinformation originating from the White House during the crisis makes it all the more important that citizens learn the full details of the still-secret Cheney energy task force. 

Cheney's task force released its report in May 2001 at the height of the California energy crisis. The report implicitly blames environmentalists for the problems. This radical position by the Bush Administration was echoed by powerful members of Congress, like former Texas Senator Phil Gramm, who offered the following explanation for California’s crisis during an interview with the Los Angeles Times in January 2001: “As they [Californians] suffer the consequences of their own feckless policies, political leaders in California blame power companies, deregulation and everyone but themselves, and the inevitable call is now being heard for a federal bail-out. I intend to do everything in my power to require those who valued environmental extremism and interstate protectionism more than common sense and market freedom to solve their electricity crisis without short-circuiting taxpayers in other states.” 

In a tense meeting with California Governor Gray Davis in Los Angeles on May 29, 2001, President Bush failed to grasp the irony of his proclamation that electricity price controls would lead to “more serious shortages and even higher prices.”

Among the power companies found guilty of energy market manipulation, Enron exercised tremendous influence over the Bush Administration’s hands-off policy towards the California energy crisis. Enron paid the DC lobbying firm Quinn Gillespie more than half a million dollars in the first seven months of 2001 to lobby the "Executive Office of the President" on the "California electric crisis", according to the lobbying disclosure report filed with Congress on April 10, 2001. Ed Gillespie, the “Gillespie” in Quinn Gillespie and former communications director at the RNC, was a top Bush campaign advisor and ran the U.S. Department of Commerce for the first 30 days of the Bush presidency. Enron lobbied against bi-partisan efforts to re-regulate the Western electricity market through price controls. 

Just as Enron was paying Gillespie $75,000 a month lobbying Congress and the White House against price controls, the Bush Administration aggressively took Enron's position. On numerous occasions, President Bush, Vice-President Cheney, their various spokespeople and cabinet officials took an aggressive stance against price controls. In fact, the Bush Administration held firm against price controls even against the advice of top Republicans in Congress. Tom DeLay told Bush in early June 2001 that Bush “shouldn’t count” on Republicans in the House to continue to block price controls. That’s because bipartisan pressure was mounting by California’s delegation to support price controls. Trent Lott “warned Bush aides” that the energy crisis “could infect” 10 western states, endangering Republicans.

At the height of the California energy crisis, Gillespie formed the 21st Century Energy Project. It was generally acknowledged that Gillespie initiated this project in conjunction with the Bush White House.

“Administration officials generally don't ask for support directly,” American Conservative Union president David Keene told Newsweek, “It’s more a wink and a nod. Everyone knows Ed is close to [Bush], so a wink and a nod is all it takes.”

Gillespie's group was funded almost entirely by his corporate lobbying clients. Newsweek claims that Enron laundered $50,000 to Gillespie through Grover Norquist’s Americans for Tax Reform. Gillespie used the Enron money to run print and TV ads in July 2001 attacking Jimmy Carter and environmentalists and supporting the Enron-supported proposals found in Bush's energy plan. The TV ads featured background music and footage of people's faces taken directly from Bush's presidential run—which is not surprising, considering the ads were written by Russ Schriefer, who worked with Gillespie on the Bush campaign and jointly formed Mosaic Media with Quinn Gillespie in February 2001 to help produce advocacy ads for republicans. The ads ran on ABC, Fox and CNN.

All of this influence helps explain why the convictions few and fines inadequate: the industry's $146 million in campaign contributions since the 2000 election - with 75% of that money going to Republicans - has bought the CEOs and companies a certain amount of immunity from prosecution and scrutiny.

FOOTNOTE 1: "Order Addressing Price Mitigation in California and the Western United States,” the Federal Energy Regulatory Commission, June 18, 2001. www.ferc.gov

FOOTNOTE 2: http://www.justice.gov/opa/pr/2004/April/04_crm_223.htm