Sept. 30, 2002
Public Citizen: Documents Raise Questions About Army Secretary Thomas White’s Senate Testimony on Energy Trades
Records Show White Unit Involved in Wholesale Trading
WASHINGTON, D.C. – In a letter to Senate Commerce Committee Chairman Ernest Hollings, Public Citizen President Joan Claybrook raised questions about the accuracy of Army Secretary Thomas White’s July 18 Senate testimony, during which he denied that wholesale energy trading operations fell under his control as an executive at Enron Corp. and said his division played no role in the manipulation of Western energy markets.
Claybrook urged the committee to investigate White’s responses more thoroughly. Before President Bush named him to head the Army in May 2001, White worked as vice chairman of Enron Energy Services (EES), a division of Houston-based Enron Corp.
“It appears that White was not entirely truthful about his role in the California energy crisis, including the independence and size of his division’s energy trading operations, his responsibilities in overseeing wholesale energy trading services, his decision to dispose of California retail contracts and stick taxpayers with the liabilities, and the collaborate legal and policy efforts between EES and Enron Power Marketing,” Claybrook’s letter says.
“Given the enormous costs incurred by West Coast consumers and taxpayers from Enron’s manipulation of energy trading, Public Citizen believes it is essential for Thomas White to again serve as a witness before your committee to explain these discrepancies. You may also want to request a GAO investigation of White’s role.”
In the nine-page letter, Claybrook raised concerns about three major areas of White’s testimony:
Energy trading. White insisted that EES was an electricity retailer and was not significantly involved in wholesale trading operations. He said EES operated at “arm’s length” from Enron’s wholesale operations, which conducted trades. But EES was indeed a registered “power marketer,” meaning the company was authorized by the Federal Energy Regulatory Commission (FERC) to buy and sell wholesale energy contracts in deregulated markets.
FERC records indicate that EES did engage in wholesale trading. In fact, EES became one of the fastest growing energy traders in the country during White’s tenure, with its wholesale electricity sales jumping nearly 300 percent, from 2.8 million megawatts in 1998 to 11.1 million megawatts in 2000. In March 2001 – after White left the division – Enron moved EES’s wholesale trading operations into its Wholesale Services division. “Until March 2001, the trading operations of EES were completely separate from the Wholesale Energy unit – meaning Thomas White was responsible for a huge trading operation that played a significant role in California,” the letter says. “In fact, White’s original biography on the Army web site listed commodity management – which includes energy trading – among his duties while at EES.” That description on the Army Web site was removed after Enron declared bankruptcy.
In a footnote to the division’s April 16, 2001, earnings summary, EES restated revenues for 2000 without the risk management, or power trading, operations included. Before the restatement, EES had 2000 revenues of $4.6 billion; afterward, the division had revenues of $1.7 billion, demonstrating how important wholesale energy trading was to White’s bottom line.
“It’s clear that Enron Energy Services was doing more than selling electricity to retail clients,” said Tyson Slocum, research director for Public Citizen’s Critical Mass Energy and Environment Program. “Enron had several different units buying and selling power, even among themselves, at the height of the California energy crisis, and all the while the company was lobbying the White House in an effort to avoid the price controls that eventually ended its market manipulation.”
Dumping California customers. EES had contracts to supply electricity to a number of retail clients in California. Beginning in January 2001, the division began unilaterally dropping those clients, who had been getting electricity for less than the prices that had been artificially driven up by various wholesale trading schemes employed by Enron and other marketers.
“White failed to describe the reasons why EES severed at least two large retail contracts in California in January/February 2001 during the height of the energy crisis,” the letter says. “Based on the evidence at hand, it appears as though EES took the power that had been obligated to serve these retail customers and sold it in the wholesale market, where EES could fetch higher prices than they could continuing to sell power at lower, fixed rates to retail customers.”
Facing lawsuits, EES resumed providing electricity to several high-profile clients – but only after FERC enacted price controls in the West Coast electricity market on June 19, 2001.
A Public Citizen analysis of trading sales volume by EES shows that the division actually increased West Coast wholesale trading sales by 18 percent from February 2001 (when it dumped all of its California retail customers) to June 2001 (when it resumed service).
EES collaborating with Enron Power Marketing. White said during his testimony that EES operated at “arm’s length” from Enron’s wholesale operations. But on at least three occasions during White’s tenure, EES and Enron Power Marketing (a wholesale unit) jointly filed motions and reports to FERC. These joint filings represented Enron’s core response to significant regulatory concerns at the height of the California crisis, suggesting substantial policy and legal coordination between the two divisions. These filings included a 68-page white paper outlining the steps Enron believed FERC should take in California.
In addition, the two divisions shared legal counsel before FERC as regulators began their inquiry into the actions of Enron and other energy traders.
To view the letter, click here.