Enron Corp. teamed up with at least two other power sellers -- including B.C. Hydro's Powerex subsidiary -- to reap outsized profit by submitting false information to California's electric-grid manager in 2000, according to internal Enron memos.

The practices outlined in the memos, co-authored by an Enron attorney and an outside counsel, cast a new spotlight on former company chief executive officer Jeffrey Skilling, who was reportedly briefed on the market-rigging schemes, and Secretary of the Army Thomas White, who was vice-chairman of one of the units involved at the time of the scheme described in the memos.

The companies mentioned, including BC Hydro, deny they did anything wrong.

The disclosures could broaden a new front of inquiry into the practises of Enron, the once-mighty energy company already collapsed under the weight of its aggressive accounting practises. The company now is facing calls for criminal inquiries over evidence which first surfaced Monday -- when the memos were released by the Federal Energy Regulatory Commission -- that it used false claims of energy demand and supply to manipulate the huge California energy market for its financial gain.

Mr. Skilling has vigorously denied knowledge of the company's various accounting schemes under investigation. But according to an individual close to the situation who spoke with both co-authors, the memos detailing market-rigging schemes were brought to his attention after they were written in December, 2000. A spokeswoman for Mr. Skilling had no comment.

Mr. White, who has been under fire for his contacts with Enron officials while he was disposing of his company stock after becoming Army Secretary, said yesterday that he was not aware of the memos when they were written, and had only recently seen them.

"To my knowledge, there was never any chicanery" at the retail unit Enron Energy Services, where he was vice-chairman, he said. Mr. White added, "We would have no commercial purpose" for falsifying Energy Services' energy demands.

He said the unit would not profit from such strategies, though Enron's trading unit that conducted the trades would. "They are playing a wholesale game," he said of the trading unit. "We are playing a retail game."

The memos contain the first evidence that Enron units conspired with specific companies -- the Powerex power-marketing subsidiary of B.C. Hydro, and Puget Sound Energy -- to exploit structural weaknesses in California's troubled energy market.

While not illegal, the strategies contributed to rocketing power costs in the state which contributed to the near-financial collapse of two of the state's private utilities and led it to spend billions of dollars from its own coffers to make sure the lights stayed on.

Two nearly identical memos describe how Enron's power marketing arm, Enron North America, would submit a "schedule" to the California Independent System Operator asking that a certain amount of power be moved across the grid the following day. Under the state's market rules, all such schedules must be "balanced," meaning there must be a consumer for every megawatt hour of power requested to be moved.

In this case, according to the memos, power traders would submit a schedule that purported to be balanced-even though they knew that Mr. White's unit Enron Energy Services (EES), the intended user, didn't need all the power. When the California ISO matched up providers and users, it would see that Enron had supplied more than it had used and would pay it a price for the excess power that was higher than what Enron would have otherwise collected.

"The customers using this service are companies such as Powerex and Puget Sound Energy that have generation to sell, but no native California load," the memos say. "Because Enron has native California load through EES, it is able to submit a schedule incorporating the generation of a generator like Powerex or PSE and balance the schedule with 'dummied-up' load from EES."

Charles Robinson, general counsel for the ISO, said the practice described by Enron didn't appear to violate ISO market rules, at least at the time.

California officials have long suspected that practices such as these were used to drive up prices during the state's energy crisis, but have had a tough time proving it. Frank Wolak, a Stanford University professor who chairs an external monitoring committee at the ISO, says Enron's strategy did go against the rules under deregulation and should result in fines.

Under those rules the ISO requires that "scheduling coordinators" like Enron submit balanced schedules because it is tasked with keeping supply and demand perfectly matched.

At the time the memos were written, utilities were underestimating their daily needs in an effort to control prices. One week after the Enron memos were written, the ISO swept aside a $250-per-megawatt-hour price cap and agreed to pay whatever price was required to keep energy flowing to the state.
A spokeswoman for B.C. Hydro, Elisha Odowichuk, said the memos' contentions about Enron's trading strategies, including its tactic to inflate demand, "came somewhat as a surprise." She said, "we haven't done anything outside the rules. We always follow the guidelines that have been set by" the Federal Energy Regulatory Commission.
She said Powerex's chief executive was not aware that Enron was inflating the loads in order to put more electricity into the system.