Prepared Direct Testimony of Robert McCullough on Behalf of the ...

Page 32 <strong>of</strong> 76SEATAC-4001 provided an equally detailed description <strong>of</strong> several schemes, including Death Star and the sale <strong>of</strong>2 phantom ancillary services.3 Q. Were there any reasons for confidential treatment <strong>of</strong> this document?4 A. No. The document simply is a restatement <strong>of</strong> the Enron schemes with somewhat more precision.5 Q. What is the significance <strong>of</strong> the Coral document?6 A. It establishes that the understanding <strong>of</strong> the vulnerabilities <strong>of</strong> the California IS0 and California PX7 was not reserved for Enron alone. The existence <strong>of</strong> the document goes far to explain the breadth8 <strong>of</strong> certain schemes, such as Death Star.9 Silver Peak10 Q. When did the schemes begin?11 A. We do not know. The first major scheme for which we have evidence was launched on May 24,12 1999, when Enron Power Marketing Incorporated (EPMI) submitted four bids into the California13 Power Exchange (PX) for 2,900 megawatts during on-peak hours. The path identified for the14 power to be sold was the Silver Peak line from Nevada. Ratings for Silver Peak vary, but the15 consensus appears to be that the line had a capacity <strong>of</strong> 15 megawatts. This impossible schedule16 went largely unnoticed by the California Independent System Operator (ISO), but two17 complaints spurred an investigation by the PX compliance unit.I9 The investigation dragged on18 for twelve months, and, in spite <strong>of</strong> a finding that Enron had cost consumers $4.6 million to $719 million, was settled for a fine <strong>of</strong> $25,000 and a commitment by Enron to not "su.bstantially repeat"20 the behavior. We now know that Enron had taken a financial reserve <strong>of</strong> $10 million for a scheme'gCalifomia PX Silver Peak Investigation, May 22,2001, Exhibit SEATAC-422.