From: Steve Sturgill [steve@stevesturgill.com]
Sent: Wednesday, January 01, 2003 6:47 AM
To: paul.beckett@wsj.com; jathon.sapsford@wsj.com;
alexei.barrionuevo@wsj.com
Subject: How Energy Traders Turned Bonanza Into a Historic Bust

Dear Messrs. Beckett, Sapsford and Barrionuevo,

Congratulations on a nice summation. I can't say I enjoyed reading it, due to the
subject matter, but your piece, "How Energy Traders Turned Bonanza Into a Historic 
Bust," goes into my file for posterity.

I have just a couple of comments for your consideration.

"Trading companies also lobbied in Washington for flexible new accounting rules 
that would allow them to account for anticipated revenue and income from long-term 
contracts as if the cash were coming in immediately. In 1992, the Financial 
Accounting Standards Board, an accounting-industry group, signed off on the switch, 
as did the SEC. The adjustment helped the companies impress Wall Street with what 
looked like quickly bulging bottom lines."

I have never been able to see how these accounting rules changes represent anything 
but bald-faced dishonesty. Who are the individuals responsible for the rules 
changes, why did they make the rules changes if not for dishonest reasons, and where 
are they now? I don't accept the blaming of it all on politics and politicians, and 
I think this question would provide the basis for a great follow-up piece.

"But with little regulatory oversight, a Wild West atmosphere quickly developed in 
Houston. For about three years, beginning in 1998, Enron traders selling power to 
California utilities artificially increased congestion on the state's transmission 
lines, knowing they would be paid later to ease the situation, according to a 
federal plea agreement in October by former Enron trader Timothy Belden. The scheme 
worked, even though the traders didn't relieve the clogs. Enron traders also 
dishonestly demanded higher out-of-state prices for certain power supplied to 
California, the Belden agreement says. In fact, the electricity was generated in 
California, shipped out and then brought back in."

Perhaps I'm being persnickety, but Enron did not create congestion on the 
transmission lines, nor did they ship energy out of state and then bring it back in. 
Both of those actions would have had to do with physics. There was no congestion and 
there was no energy crossing California's border. What occurred, in my view, was that 
criminals took advantage of a system thrown together in California by politicians, 
economists and others without appreciation for the complete disconnect between their 
so-called market and real-world physics. I don't know of a single engineer who thought 
re-regulation a la California would work.

What stands out most in your piece is the piddling sums of restitution, and the fact 
that "jail," "prison" or "trial" are not mentioned anywhere. Were these people drug 
traffickers, law enforcement would be all over them with RICO and civil forfeiture. 
I think the game is still rigged.

Happy New Year! 


--
Steve Sturgill