O’Neill started experimenting: O’Neill, interviews by author, 2016.
He was on an e-mail list . . . WinterSkinny: Koch Industries internal e-mail, subject line: “WinterSkinny.xls,” from Patrick Ferguson to Koch Industries traders including O’Neill, December 23, 2002.
Other internal reports, such as the Daily Analysis: Koch Industries internal e-mail, subject line: “Daily Analysis.xls,” including attachment and report, May 7, 2001.
These reports were coupled with . . . Plant managers: Former senior Koch Industries trading executive speaking on background, Hall, interviews by author, 2013–14.
In 2000, two Koch analysts . . . “Natural Gas Point of View 2000–2001”: Wayne Knupp and Blake Hill, Internal Koch Industries report, Koch Energy: Forecasts and Strategies—Focus on Gas. Natural Gas Point of View 2000–2001.
The assessment matched what O’Neill was seeing: O’Neill, interviews by author, 2016; historic natural gas prices taken from database of TradingEconomics.com.
In early 2000 . . . mistaken assumption: O’Neill, interviews by author, 2016; “Koch Fully Acquires Natural Gas Asset Management Company; Koch Energy Trading Increases Ownership Interest in IMDST to 100 Percent by Buying Out IMDCI,” BusinessWire, May 1, 2000.
Senior executives . . . no longer pay their traders like engineers: O’Neill, former Koch Industries trading executive speaking on background, interviews by author, 2016.
It was a cold winter in 2000. Demand for electricity was strong: O’Neill, interviews by author, 2016; historic natural gas prices taken from database of TradingEconomics.com; Natural Gas: Analysis of Changes in Market Price, GAO report to congressional committees and members of Congress, December 2002.
the entire pipeline company of Koch Gateway: Income figures, “Koch Gateway Pipeline Company Annual Report Form No. 2,” June 4, 2011, 114.
After the books were closed . . . time for O’Neill to get his bonus: O’Neill, interviews by author; O’Neill’s income figures were confirmed by a former senior Koch Industries trading executive speaking on background, interview by author, 2016.
With a single paycheck . . . economic life: O’Neill, interviews by author, 2016; figures on houses taken from housing deeds and Realtor.com databases.
CHAPTER 13: ATTACK OF THE KILLER ELECTRONS!
Koch’s trading division was always expanding: Beckett, Hall, former Koch Industries trading executives speaking on background, interviews by author, 2013–16. Documents from Federal Energy Regulatory Commission (FERC) proceedings detailed below.
The new commodity in this market was called a megawatt-hour: Bethany McLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York: Portfolio, 2003), 264–83; Toni Mack, “Power Players,” Forbes, May 19, 1997.
The company selected . . . the megawatt markets: Darrell Antrich’s account is based in part on prepared testimony he provided to federal regulators. It will be referred to in these endnotes as “FERC testimony.” For the first citation, the full document name is provided: “Prepared Testimony of Darrell W. Antrich on Behalf of Koch Energy Trading Inc., Before the Federal Energy Regulatory Commission, in Regard to San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into Markets Operated by the California Independent System Operator Corporation and the California Power Exchange,” October 25, 2011, 3.
Antrich helped build a team of traders: Antrich, FERC testimony, October 25, 2011, 3–7.
Darrell Antrich would end up getting engulfed by this disaster: Descriptions of Antrich’s personality from Beckett, speaking on background, interviews by author, 2016; Antrich, FERC testimony, October 2, 2003, December 3, 2003, September 17, 2009, October 25, 2011.
It is significant that the disaster began in Sacramento: Notes and photographs from author’s reporting trip to Sacramento, 2016.
That isn’t to say that Stephen Peace didn’t try: Stephen Peace, interviews by author, 2016.
Peace was put in charge . . . energy committee: Ibid.; Ron Russell, “Dim Bulbs,” SF Weekly, March 7, 2001; Chris Kraul, “Radical Changes in Power Industry Pass Legislature,” Los Angeles Times, September 1, 1996.
It only became apparent years later that Attack of the Killer Tomatoes! was prophetic: Peace, interviews by author, 2016; notes from watching Attack of the Killer Tomatoes!, 2016.
When Peace held public hearings . . . minuscule: Timothy P. Duane, “Regulation’s Rationale: Learning from the California Energy Crisis,” Yale Journal on Regulation, no. 2 (2002); “Historical Look at California’s Restructuring of Electricity Regulation: Influences Leading to the Legislature’s AB 1890 of 1996,” California Senate Office of Research.
Again, this is an excruciatingly dull story that nobody wanted to hear about: Peace, interviews by author, 2016; Dan Morain, “Assembly OKs Bill to Deregulate Electricity,” Los Angeles Times, August 31, 1996; Mark Gladstone, “Gridlock Gives Way to Teamwork in Legislature,” Los Angeles Times, September 2, 1996.
ALEC was an umbrella group . . . the nation: Bonnie Sue Cooper, former ALEC executive director, and Lisa Graves, executive director of the Center for Media and Democracy, interviews by author, 2014–16; Corporate America’s Trojan Horse in the States: The Untold Story Behind the American Legislative Exchange Council (New York: Natural Resources Defense Council and Defenders of Wildlife, 2002).
By the time Peace arrived . . . promoting electricity deregulation: Peace, Cooper, interviews by author, 2016; “Electricity Industry Restructuring: History and Background,” The State Factor, ALEC report, November 1996; ALEC Model Bill: “Electric Industry Restructuring Act”; Corporate America’s Trojan Horse in the States.
During the 1990s . . . key members of the ALEC task force: Stuart Eskenazi and Mike Ward, “Lawmakers’ Corporate Classmates,” Austin American-Statesman, November 2, 1997; Eskenazi and Ward, “2 Learning Styles: Seminars and the Golf Course,” Austin American-Statesman, November 2, 1997; Corporate America’s Trojan Horse in the States.
Even though . . . Peace remained uneasy: Peace, interviews by author, 2016.
Peace and Brulte passed the bill in August of 1998: Dan Moran, “Deregulation Bill Signed by Wilson,” Los Angeles Times, September 24, 1996.
Koch Industries had constructed its own intelligence network: O’Neill, Beckett, speaking on background, interviews by author, 2016.
Traders on the electricity desk analyzed the new marketplace: Antrich, FERC testimony, October 25, 2011, 5–6.
Darrell Antrich helped lead . . . West Power Clearing Model: Beckett, interviews by author, 2016; Antrich, FERC testimony, December 3, 2003, 1; photos of Beckett and Antrich from Barboza, “Energy Traders Continue to Prowl.”
The bill created a new market . . . buy and sell megawatt-hours: Peace, interviews by author, 2016; McLean and Elkind, Smartest Guys, 264–83; Russell, “Dim Bulbs.”
When Melissa Beckett started her day: Beckett, interviews by author, 2016; photos of Beckett’s desk and surroundings from Barboza, “Energy Traders Continue to Prowl.”
West Power Clearing Model began to produce some very strange numbers: Beckett, interviews by author, 2016; Antrich, FERC testimony, October, 25, 2011, 7.
The thinking of Enron traders was captured in recorded phone calls: “Blackout: The California Crisis,” Frontline, 2001; “Enron Traders Talking About Grandma Millie,” video, 2:11, uploaded to YouTube by irwinmcraw on March 17, 2009, www.youtube.com/watch?v=DOLNWF5QMxY.
It would be up to the traders . . . make the markets work: Beckett, interviews by author, 2016; Antrich, FERC testimony, October 25, 2011, 7.
Antrich wasn’t . . . met with Tom Nesmith: Beckett, interviews by author, 2016; Antrich, FERC testimony, December 3, 2003, 3–6, and October 25, 2011, 6; Gary Taylor, FERC testimony, February 27, 2004, 60.
Antrich and his team . . . information-sharing agreement: Consulting agreement between Koch Energy Trading and PNM, dated to take effect January 2001. The KET representative on the document is David Owens, v
ice president of Koch Energy Trading, while the PNM representative is Duane Farmer, director of Wholesale Power Marketing.
Enron traders . . . while the power from California was not: The author is grateful to energy consultant Gary Taylor, who served as an expert witness for federal authorities investigating illegal trading schemes in California, for his detailed and patient explanations of the parking trade. Readers with more interest in the topic are urged to pick up the thorough and well-researched book he coauthored, Market Power and Market Manipulation in Energy Markets: From the California Crisis to the Present (Reston, VA: Public Utilities Reports, 2015); Taylor, interviews by author, 2016; Taylor, FERC testimony, January 31, 2005, 33–35, and February 27, 2004, 64–82.
Once PNM learned . . . it started pitching the service to trading companies: Taylor, FERC testimony, February 27, 2004, 64–82; transcript of Nesmith phone call in ibid., 76–78.
On February 28, 2000, Koch Energy . . . in the coming months: Contract between Koch Energy Trading and PNM, dated February 22, 2000, and signed February 28, 2000.
“I am excited about practicing”: Darell Antrich to Tom Nesmith, e-mail, May 5, 2000.
On May 22, 2000 . . . parking transactions: Date and volumes of parking transactions taken from “Response of Koch Energy Trading, Inc., to Order to Show Cause,” filed with FERC, July 31, 2003, 5–6; Antrich, FERC testimony, December 3, 2003, 8; a detailed overview of Koch’s “parking” activities is also provided in Taylor’s testimony to FERC, February 27, 2004, 82–89.
The state was facing a shortage . . . Independent System Operator: Nancy Rivera Brooks and Zanto Peabody, “Heat Triggers Moderate Power Emergency,” Los Angeles Times, May 23, 2000.
Koch’s parking arrangement . . . desperation: “Response of Koch Energy,” filed with FERC, July 31, 2003, chart breakdown of May 22 parking transaction, chart 1-1; Antrich, FERC testimony, October 25, 2011, 9–11.
Of the 650 megawatt-hours that Koch parked with PNM: Ibid.
Gaming the system was creating dire, real-world effects: Rivera Brooks and Peabody, “Heat Brings Outages and Emptied Offices.”
On June 14 Koch’s traders executed . . . complex parking transaction: “Response of Koch Energy Trading,” filed with FERC, July 31, 2003, chart breakdown of May 22 parking transaction, chart 2-2.
Darrell Antrich e-mailed . . . Brian Arriaga: Antrich to Arriaga, e-mail, June 15, 2000.
On June 14 and 15, temperatures rose above 100 degrees: Mara Dolan, “California and the West: S.F. Cools Off but Outages Persist,” Los Angeles Times, June 16, 2000.
Lights blinked . . . inside the cavernous control room: Images from ISO office control room taken from ABC News reports of blackouts.
By the afternoon of the fourteenth . . . fall short: Nancy Rivera Brooks and Charles Piller, “Bay Area Heat Wave Strains Power Grid,” Los Angeles Times, June 15, 2000.
Throughout the autumn . . . incomprehensibly complex schemes: McLean and Elkind, Smartest Guys, 264–83.
Steve Peace . . . knowing more than anybody: Peace, interviews by author, 2016.
a similar fatalism playing out at the ISO offices: Ibid.; ABC News report on blackouts; “Blackout: The California Crisis.”
Gray Davis was a popular, if somewhat bland, governor: John Balzar, “Bright Days for Gray Davis,” Los Angeles Times, July 7, 2006.
The weekend of January 12, 2001: Peace, interviews by author, 2016; Lynda Gledhill, “Davis to Seek State Role in Energy Pricing,” San Francisco Chronicle, January 15, 2001; Nancy Vogel, Bob Drogin, and Nicholas Riccardi, “Energy Players Deeply Divided on Rescue Plan,” Los Angeles Times, January 15, 2001.
Davis quickly discovered . . . Market prices were nonnegotiable: Nancy Vogel and Miguel Bustillo, “Power Firm Demands Utilities Pay Bills Now,” Los Angeles Times, January 16, 2001.
FERC also refused to compromise: Peace, interviews by author, 2016; Steve Johnson and Mark Gladstone, “Federal Panel Blasted over Emergency Moves, Davis Calls Commissioners ‘Pawns’ of Electricity Sellers,” San Jose Mercury News, December 16, 2000; Bart Jansen, “Davis Asks FERC to Order Refunds for Power Customers,” Associated Press, November 9, 2000; Jon Sarchie, “Western Governors Turn Up Pressure for Electricity Price Cap,” Associated Press, December 20, 2000.
Mike Bowers steered his semitruck off the freeway: Peace, interviews by author, 2016; Seth Rosenfeld, Janine DeFao, and Jaxon Van Derbeken, “Capitol Suspect ‘Flopped’—Mom Says Prison Mental Health Systems Failed Him,” San Francisco Chronicle, January 17, 2001; Jim Williams and Alison Stewart, “California’s Energy Crisis Forces Governor to Declare State of Emergency; Truck Driver Who Hit California Capitol Was Ex-Convict,” ABC News, January 18, 2001.
a story line emerged about the electricity crisis: Russell, “Dim Bulbs”; McLean and Elkind, Smartest Guys, 264–83; Wendy Zellner, “Enron’s Power Play,” Bloomberg Businessweek, February 12, 2001.
This narrative was misleading: Peace, interviews by author, 2016; Timothy P. Duane, “Regulation’s Rationale: Learning from the California Energy Crisis,” Yale Journal on Regulation, no. 2, 2002; “Historical Look at California’s Restructuring of Electricity Regulation,” California Senate Office of Research; Morain, “Assembly OKs Bill”; Gladstone, “Gridlock Gives Way to Teamwork.”
On November 20, 2000, Koch Industries . . . in California: Antrich, FERC testimony, December 3, 2003, 3.
Koch walked away from: Unsigned consulting agreement between KET and PNM, dated November 20, 2000, and addressed to Melissa Beckett.
Other firms ramped up . . . got more expensive: FERC Opinion No. 536, “Order Affirming Factual Findings, Directing Compliance Filing and Ordering Refunds,” November 10, 2014, 62; Enron activities, McLean and Elkind, Smartest Guys, 264–83.
Back in 1968, when the oil gauger Phil Dubose: Dubose, interviews by author, 2014–15.
Koch’s priorities in the winter of 2000 were telling: Antrich, FERC testimony, October 2, 2003, 3; Antrich to Nesmith, e-mail, May 5, 2000. Antrich wrote: “Remember when you commit to a date to insist on golf for an afternoon.” Meeting agenda with heading: “PNM/KET Knowledge Alliance Meeting,” September 13, 2000. Agenda items include: “Tour of Trading Floor,” “Risk Management and Controls,” “Trading Alliance Discussion,” and “Power Trading Capabilities.” Also KET internally produced slideshow for PNM, dated April 26, 2000. Slides include: “Power Trading Profitability,” “Competitive Advantages of Koch Power Trading Group,” and “Potential Business Opportunities.”
The California crisis ended in April: Taylor et al., Market Power and Market Manipulation in Energy Markets, 79–83; FERC Final Report on Price Manipulation in Western Markets, March 2003.
Enron declared bankruptcy in December of 2001: Case file, San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services; FERC Opinion No. 536, Order Affirming Factual Findings, Directing Compliance Filing and Ordering Refunds, November 10, 2014, 62; FERC Order Approving Uncontested Settlement with Koch Energy Trading and others, October 8, 2015.
Steve Peace’s life in politics was also ended: Peace, interviews by author, 2016.
After the electricity markets cooled . . . never quite so white hot again: Beckett, speaking on background, interviews by author, 2016–17; Taylor et al., Market Power and Market Manipulation in Energy Markets, 79–83.
CHAPTER 14: TRADING THE REAL WORLD
To the private equity world . . . a game board: Eileen Appelbaum and Rosemary Batt, Private Equity at Work: When Wall Street Manages Main Street (New York: Russell Sage Foundation, 2014); Daniel Souleles, interviews by author, 2017; Souleles, Songs of Profit, Songs of Loss: Private Equity, Wealth, and Inequality (Lincoln: University of Nebraska Press, 2019).
$91 billion in private deals at the dawn of the century: Appelbaum and Batt, Private Equity at Work, 35–36.
Koch Industries . . . put itself aggressively into the hunt: Feilmeier, Hall, Packebush, Chase Koch, interviews by author, 2013–18.
Charles Koch sat on the Cor
porate Development Board: Charles Koch, Feilmeier, Hall, Markel, Jeremy Jones, Packebush, former senior Koch Industries executive speaking on background, interviews by author, 2013–14.
If going before the board . . . doubly intimidating to Steve Packebush: Packebush, Watson, interviews by author, 2013–16.
But in 2003, Steve Packebush . . . made an appointment: Packebush, interview by author, 2013.
The Koch Nitrogen team . . . took their places: Ibid.; background on development board meetings: Hall, Feilmeier, Jeremy Jones, interviews by author, 2013–14.
Koch Industries . . . since at least the 1990s: Watson, interviews by author, 2016; Joe Hise, former Farmland Industries fertilizer sales manager in Enid, Oklahoma, interviews by author, 2014–15.
Farmland would, in fact, collapse . . . destroyed it: Bob Terry, former Farmland Industries CEO, interview by author, 2013; “Farmland Industries Files for Protection Under Chapter 11,” GrainNet, last modified May 31, 2002; David Barboza, “Facing Huge Debt, Large Farm Co-op Is Closing Down; Farmland Industries Battled Major Food Conglomerates,” New York Times, September 16, 2003.
Packebush and his team . . . identified something that no one else saw: Packebush, interview by author, 2013.
he and the development board considered the plan: Hall, Markel, Charles Koch, interviews by author, 2013–15.
The development board . . . all three of these criteria: Packebush, interview by author, 2013; Leonard, “The New Koch.”
The timing was perfect. Farmland’s CEO, Bob Terry: Bob Terry, interview by author, 2013.
The delegation . . . mild spring day: Packebush, interview by author, 2013; weather conditions from historic weather database; Nancy Seewald, “Koch Wins Farmland’s Fertilizer Assets,” Chemical Week, April 2, 2003; Barboza, “Facing Huge Debt”; images of Farmland mural taken from online archive.
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