What a difference a plea makes.

Just last week federal regulators were scratching their heads and wondering if there was any way to prove that Enron had manipulated the California energy market. Then former Enron energy trader Tim Beldon pleaded guilty to the criminal charge of conspiracy to commit wire fraud, and agreed to cooperate with investigators.

“The world changed yesterday,” energy consultant Robert McCullough enthused in an interview Friday. “The whole question of whether these activities are criminal has now been settled.”

That distinction carries more than semantic significance. McCullough and other experts predict Beldon’s plea will have a direct impact on new energy regulations, on a raft of civil lawsuits seeking to assign blame for the energy crisis, and on California‘s bid to recover $9 billion in excess charges from a handful of energy companies.

“I feel some degree of vindication,” said state Senator Joe Dunn (D–Garden Grove), chair of the Committee to Investigate Price Manipulation in the Wholesale Energy Market. “We are finally seeing some serious moves to bring to justice those responsible for the crisis.”

Beldon, 35 years old, was the head of Enron’s Portland-based West Coast trading operation from 1998 to 2001 — the same time span as the crisis. Besides supervising as many as 125 traders, Beldon helped devise such schemes as “Death Star” and “Fat Boy,” which capitalized on flaws in the state‘s recently deregulated market. Under Beldon’s direction, revenue from Enron‘s California trading operation grew from $50 million in 1999 to $800 million two years later.

In his federal plea, Beldon acknowledged that he had defrauded state authorities by submitting false information on how much energy was available, and how much Enron would produce, at specific times. Operators of the state grid paid out millions of dollars in bonuses and fees to resolve the resulting discrepancies.

Aside from the “congestion” fees, the artificial shortages drove energy prices to 10 times the cost of production, resulting in a billion-dollar bonanza for a handful of energy companies. At the same time, as documented by McCullough and others, some generators took some of their production capacity off-line, further exploiting the market breakdown. Experts remain divided over whether market manipulation, or power shortages, were the primary cause of California’s spiking prices.

The effects of the crisis were obvious at the time, as sky-high rates pushed California‘s utilities to the brink of bankruptcy, but state and federal officials had little luck proving misconduct on the part of the market players. State Attorney General Bill Lockyer even mused to The Wall Street Journal last year that he’d like to put Enron chairman Ken Lay in “an 8-by-10 cell that he could share with a tattooed dude who says, ‘Hi, my name is Spike, honey,’” but Lockyer announced months later that the inquiry was dead.

Now the Justice Department has picked up the thread. At the news conference last week, Bruce Gebhardt, deputy director of the FBI, vowed that Beldon‘s plea “is by no means the end” of the investigation. State Senator Dunn elaborated: “Beldon is perfectly situated to push responsibility up the corporate ladder and out to competitors in the field.”

The question now is, How far are prosecutors and regulators willing to follow the leads that Beldon has supplied them. “Is Beldon just a scapegoat, or is he an example of where the prosecution is going to go?” asked Michael Aguirre, a San Diego attorney who has lodged a taxpayer suit against Enron and other energy firms.

“The entire criminal-justice system is on trial here,” Aguirre said. “We send black people to jail for years for stealing a thousand dollars or less. What are we going to do with corporate crimes involving billions?”

Aguirre said aggressive prosecution is the only way to prevent continued public losses in deregulated markets. “There were scores and scores of people involved in this illegal activity,” he said. “What we need is for some of these traders to do some serious jail time.”

Also on trial as a result of Beldon’s plea is the Federal Energy Regulatory Commission (FERC), which is charged with enforcing “reasonable” rates, but which failed to intervene as the California crisis dragged on. Since then, critics say the agency has failed to punish clear cases of misconduct. “The big effort at the FERC to preserve the innocence of the key players has just taken a big hit,” said McCullough, the Portland analyst.

In fact, the Senate Governmental Affairs Committee has scheduled a hearing next week to investigate the conduct of the regulators. Said a committee spokeswoman this week: “Nobody thinks FERC did such a good job.”

In turn, the pressure on the agency could translate to dollars for California. The energy commission is currently weighing demands by state officials that energy companies refund more than $9 billion in excess charges. “This latest enforcement action is further evidence of illegal manipulation; that should compel FERC to order refunds,” said Sandra Michioku of Attorney General Lockyer‘s office.

More broadly, FERC is still considering the entire question of deregulation. To David Freeman, energy adviser to Governor Gray Davis, the Beldon plea should provide clear direction. “Those who are advocating that we continue to move toward a deregulated electricity economy need to have their heads examined, and need to face up to the fact that the system breeds crooks who have stolen our money,” Freeman told the Associated Press this week.

“Deregulation requires so many regulatory systems that you have to ask yourself, is it worth the cost,” attorney Aguirre agreed. “It’s the law of the jungle. Any time you have a guy on the switch, you‘re going to have to have a cop sitting next to him 24-7.”

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