Tapes Reveal Enron's Secret Role in California's Power Blackouts

Newly discovered tapes have revealed how the energy corporation Enron shut down at least one power plant on false pretences, deliberately aggravating California's crippling 2001 blackouts with the aim of raising prices.

The tapes also show that Enron, whose bankruptcy three years ago was the biggest corporate scandal of recent times, manipulated energy markets in Canada and was planning to rig the Californian market even before deregulation in 1998, for which the Texan corporation actively campaigned.

The most damning revelations concern Enron's secret role in creating artificial power shortages in California, helping to trigger an energy crisis in 2000 and 2001 which cost residents billions of dollars in surcharges.

The crisis ultimately led to the ousting of the state's Democratic governor, Gray Davis, and paved the way for rise of Arnold Schwarzenegger in his place. Meanwhile, the shortages helped Enron to make $1.6bn (£850m).

This week, the federal energy regulatory commission recommended that the company return almost $1.7bn acquired from shady energy deals dating back to 1997.

Enron's former chief executive, Kenneth Lay, an enthusiastic financial backer and friend of President Bush (to whom he was "Kenny Boy"), has been charged with fraud and is facing trial, along with two other company officials, in Houston in September.

Those charges mainly involve allegedly cooking Enron's books to make the energy brokerage appear more profitable and boost its stock price. The new evidence suggests the company may also have promoted deregulation so enthusiastically because it knew it could fix the system to its own advantage.

"Enron, more than any company in California came in with consultants and presentations to all the legislators and policymakers to explain how deregulation would work, to explain how Enron was just trying to help," Eric Saltmarsh, executive director of California's Electricity Oversight Board, told the Guardian. "It later turned out to be part of their scheme. From the earliest days of deregulation, Enron was arguing for market structures that from the beginning it took advantage of."

The tapes came to light when a local authority in Washington state went to court over Enron's bills and was permitted to seize internal records from a company warehouse.

On one tape, an Enron official named Bill tells an employee called Rich at a Las Vegas power plant to take the plant offline on a confected excuse. The conversation took place on January 17 2001, in the last days of the Clinton administration, as blackouts were rolling across California, cutting off electricity to more than one million people, and after the energy secretary, Bill Richardson, had ordered generators across the west to direct their output to the troubled state.

"Ah, we want you guys to get a little creative, and come up with a reason to go down," Bill says on the tape. "Anything you want to do over there? Any cleaning, anything like that?"

"OK, so we're just comin' down for some maintenance, like a forced outage type thing?" Rich replies, according to transcripts published yesterday. "I think that's a good plan, Rich," Bill says. "... I knew I could count on you."

A spokeswoman for Enron, which is still going through bankruptcy proceedings, refused to comment.