Attorney General Lockyer Files Lawsuit Against Sempra Affiliate Alleging Large-Scale Fraud in Manipulation of Electricity Prices
Sempra Energy Trading’s Use of Enron Games Violated Commodities Fraud Laws
(SACRAMENTO) – Attorney General Bill Lockyer today filed a lawsuit against Sempra Energy Trading (SET) alleging the Connecticut-based Sempra affiliate committed fraud on a large scale during the Energy Crisis of 2000-01 by manipulating wholesale electricity prices through widespread playing of Enron games.
“Sempra ranks as one of the worst of the bad actors who ripped off businesses and consumers during the Energy Crisis,” said Lockyer. “Its gaming of the electricity market was widespread and egregious, and it inflicted severe financial pain on ratepayers. In the process, Sempra proved itself to be one of the most expert practitioners of the Enron ethic: rake in the dough, let California burn, and send Grandma Millie to the poorhouse.”
Lockyer filed the Enron gaming complaint in Sacramento County Superior Court. The complaint alleges SET’s rampant use of Enron games violated California laws prohibiting commodities fraud and unfair business practices. To hold SET accountable and deter future violations, Lockyer’s complaint seeks damages and civil penalties. The amount is unspecified, and will be awarded based on the evidence. But Lockyer said the damages and penalties should total hundreds of millions of dollars.
Lockyer said he expected his office to receive a referral from the California Public Utilities Commission (CPUC) to bring another lawsuit against Sempra and its affiliates. The referral likely will come within a week, Lockyer added. The action would involve conduct in the natural gas market.
The Enron gaming complaint alleges SET submitted false schedules to the California Independent System Operator (Cal-ISO) to create the illusion of congestion, then got paid to relieve the phony congestion. Among these games was Death Star. Between January 2000 and June 2001, SET engaged in Death Star transactions involving at least 205 hours and 9,728 megawatt-hours of electricity, according to the complaint.
Additionally, SET got paid by Cal-ISO to keep capacity in reserve and provide that capacity in case Cal-ISO needed it to generate electricity. But SET never provided the capacity, the complaint alleges, and never intended to provide it. That was the Get Shorty game. Between January 2000 and June 2001, SET played Get Shorty during 924 hours, according to the complaint.
To further increase its profits, SET lied to Cal-ISO by knowingly overstating how much load it intended to serve with anticipated generation. SET received a higher price for the phony “excess” generation. That was the Enron scheme called Fat Boy. Between January 2000 and June 2001, SET played Fat Boy during at least 3,271 hours, the complaint alleges.
Finally, Ricochet was the Enron-devised manipulation game in which sellers bought energy in the Cal-ISO control area, “exported” it outside the system, where it was parked very briefly, then “imported” the energy back into the Cal-ISO area at greatly inflated prices. Under Cal-ISO rules, Ricochet gave sellers a way to avoid price caps. SET employed Ricochet on a grand scale, according to the complaint. Between January 2000 and June 2001, the complaint alleges, SET engaged in Ricochet transactions involving at least 79,287 megawatt-hours of electricity during at least 603 hours.
“SET engaged in an array of manipulative and fraudulent schemes designed to enable them to obtain ‘congestion relief’ payments for taking actions that did not relieve any congestion, to receive payment for excess generation through the submission of false schedules, and to circumvent the ISO’s price cap by falsely representing the source of the energy,” the complaint alleges.