Three devastating internal memos from Enron revealing the techniques employed by the energy trader to manipulate California's deregulated power market for financial gain have prompted the White House to call for a "vigorous" investigation.
The memos, released by federal regulators on Monday, have been hailed in California as the "smoking gun" needed to prove that the state was overcharged for energy during its power crisis of the last two years. California was forced to pay $20 billion (€22 billion) to avoid widespread blackouts before price caps were imposed by Washington.
The Houston power trader used code names "Fat Boy", "Get Shorty" and "Death Star" to describe the procedures which enabled it to distort the power supply market to make huge financial gains. Two of the memos, written in December 2000, showed that Enron deliberately moved power off the California grid, then resold it back at higher prices. The third indicated how traders created phantom power congestion on the grid, and made profits correcting the supply.
US federal energy regulators have now widened a two-month investigation into the manipulation of the Californian grid and natural gas network. They will look at other US power traders, Duke Energy, Reliant Energy and Mirant which, according to the memos, may have also adopted the same aggressive trading techniques.
Enron collapsed in December after disclosures that it concealed massive debts to inflate corporate profits and share values.
White House spokesman Mr Ari Fleischer said it backed the federal probe, adding: "We've always said that if anybody is illegally manipulating markets, they need to be held accountable."
The revelations have outraged Californian politicians and consumer advocates. Governor Gray Davis called on US Attorney General Mr John Ashcroft to open a criminal investigation into possible fraud in how electricity and natural gas was traded in California. State politicians have up to now expressed frustration at the inability of federal agencies to find evidence that the power supply was being manipulated at huge cost to taxpayers. California has demanded nearly $9 billion in refunds from dozens of energy firms, including Enron.
The Federal Energy Regulatory Commission has ordered all power trading companies to preserve records relating to their trading activities in California for the last two years. Questioned about the techniques at a Senate hearing on Tuesday, five current and former Enron board members said they knew nothing about them.
