Perot papers detail gaming tactics for energy market

By Jennifer Coleman The Associated Press
Monday June 24, 2002

Lawmaker says new evidence could prove antitrust behavior 


SACRAMENTO – Documents turned over by Perot Systems Corp. to California investigators detail instructions for “gaming” California’s energy market and could be evidence of “antitrust behavior,” a state lawmaker said Friday. 

But managers of the state’s power grid said gaming is different than a blatant abuse of market power — the ability to charge astronomical prices — to which they attribute $9 billion in overcharges. 

The Texas-based software company, which designed computer software for the state’s energy markets in 1997, sent the documents this week to California Attorney General Bill Lockyer and to a state Senate committee — both investigating the state’s power crisis. 

Some of the strategies outlined in the Perot documents mirror those detailed in recently released Enron memos. Sen. Joe Dunn, the Santa Ana Democrat heading the legislative probe, has said he wants to know if Perot Systems’ actions were at the heart of the energy crisis. 

Some of the documents discuss acts that Dunn said “fall squarely into antitrust behavior.” 

That includes advice on how energy suppliers could communicate without leaving a trace, Dunn said Friday. “Proving communications between market participants is one of the key elements of an antitrust suit.” 

The Texas firm first came to the committee’s attention earlier this month, when a Perot Systems presentation was found among subpoenaed documents turned over by Houston-based Reliant Energy. 

Perot System’s chairman, two-time presidential candidate H. Ross Perot, is expected to testify at the state Legislature in July. 

The new documents show that Perot Systems’ strategy was to “exploit the flaws” of the market, Dunn said, and that any gaming was not just the work of a “rogue employee.” 

Though Perot Systems and energy consultant George Backus approached several energy companies and utilities in 1997 and 1998, no business resulted from the joint marketing effort, said Perot Systems spokeswoman Mindy Brown. 

In a letter submitted with the Perot documents, Backus said none of the information presented to energy companies was confidential but was based on publicly available data. 

Dunn said that’s not true: Perot Systems was paid for at least one presentation and he’s still investigating whether any contracts developed from the sales pitches. And, he said, the “holes” they describe would only have been known to market players after years of trading in the market. 

Memos and presentations from Perot employees and Backus detail intricate strategies for taking advantage of “thousands of loopholes” in California’s energy market, and the fact that it could take months for regulators to close them. 

In an undated letter included among the documents turned over to Dunn’s committee, Backus compares gaming the California market to “multiple simultaneous games of chess. You can’t make the same move over and over and for every move there is a counter move.” 

The California Independent System Operator, which manages much of the state’s power grid and the spot market for energy sales, reported in early 2001 that the state saw nearly $9 billion in overcharges due to the exercise of market power. 

Market power is when a company or companies can command excessive prices for a commodity. California has asked the Federal Energy Regulatory Commission to refund the overcharges. 

ISO spokesman Gregg Fishman said attorneys for the grid operator were looking at the documents to determine if Perot broke its contract with the ISO. 

But, he warned, these presentations, and recently released memos from Enron detailing other gaming strategies, may not be the smoking gun that investigators are seeking. 

Calling some claims “outlandish,” Fishman said the memos show Perot was trying to develop business. 

There is a difference, he said, between gaming the market and exerting market power. 

Dunn said gaming and market power are connected, because it takes market power to game the market successfully. 

Davis administration officials, looking for ammunition in the state’s refund request, said they don’t have to prove a crime took place in order to get a refund, but these new documents could help their cause. 

“The more FERC tries to say this was some minor aberration in the market, and the more revelations like this that come out, you see that there was widespread gaming of the system,” said Richard Katz, an energy adviser to Gov. Gray Davis. 

The additional Perot documents could also bolster California’s ability to renegotiate the long-term contracts the state entered at the height of the energy crisis, Katz said. 

“As ratepayers in this state, we never stood a chance. This game was rigged before we even sat down at the table,” he said.