GRAY DAVIS DOES DAMAGE CONTROL Enron's Lessons for the Energy Market

SACRAMENTO This week the Federal Energy Regulatory Commission released internal memos it had obtained from Enron detailing an edifice of corrupt practices Enron used to profit from artificial shortages it created in the California energy market.

More than a year ago, we in California stood virtually alone when we charged that Enron and possibly others were ripping off California consumers. The energy industry scoffed, saying the charge was paranoid. "Get used to it," they said. "That's the way the deregulated market is supposed to work."

Now, after billions of dollars of damage to California's economy, the truth is out. These memos amount to a confession by Enron of its efforts to exploit the system. Residential rate payers and small businesses were among the victims. More important, the memos are the first inkling that Enron's actions in California were possibly criminal as well. Through its greed and possibly illegal manipulation, Enron did incalculable damage to California's economy and to the national economy.

Enron's current board has done the right thing in turning these memos over to FERC. And I am joining Senators Dianne Feinstein and Barbara Boxer in asking Attorney General John Ashcroft to start a criminal investigation into Enron's actions.

I am also calling on FERC to release all other materials in its possession relating to Enron's role in manipulating the energy market in California and the West. It is important to know how deep Enron's involvement goes. Did Enron attempt to have a role in shaping California's dysfunctional 1996 deregulation law, as it attempted to influence the Bush administration on energy policy and even helped to shape the membership of FERC?

Did Enron taint trades made by other energy marketers? That possibility is raised in a tantalizing line in one of the Enron memos saying, "[A]lthough Enron may have been the first to use this strategy, others have picked up on it too." In response to this concern, FERC has appropriately demanded that other energy trading companies in the California market turn over internal documents relating to their trading strategies.

To prevent further damage, FERC also needs to continue price caps on energy throughout the West. The caps are due to expire on Sept. 30. Power producers and marketers, especially companies like Enron, make money by exploiting market imperfections. The price caps should remain until California has enough new generation capacity to prevent shortages, and until all the investor-owned utilities, including PG&E, are creditworthy again and able to purchase power on their own.

Another huge problem is the long-term power contracts that California entered into last year when it was forced to purchase power on behalf of private utilities that were driven into insolvency by high energy prices. Those contracts were infected by the high spot market prices, and now the Enron memos show that the spot market itself was tainted. These revelations add strength to California's argument that the dysfunctional market resulted in long-term contracts that the FERC must now act to reshape.

Enron's own lawyers have written memos that suggest the company's actions may have contributed to severe power shortages throughout California. In one memo from December 2000, the lawyers describe one trading strategy as appearing "not to present any problems, other than a public relations risk arising from the fact that such exports may have contributed to California's declaration of a Stage 2 emergency yesterday."

To the Enron traders who came up with schemes they named Fat Boy, Ricochet, Get Shorty and Death Star, it must have seemed merely a matter of how much they could get away with in a deregulated, chaotic market.

After Enron's manipulation and the siphoning of billions out of California during the energy crisis, it will be impossible to make the argument that the energy market can function without diligent government oversight.

Perhaps this is the Heavy Punch of the Democrats carefully orchestrated campaign to bring back regulation and cast blame on the capitalistic market system!

Their media hounds are hard at work to carry the message.
However some of the media have not been following the script as well as their Democratic handlers had hoped.

See the CalGov2002 list of articles regarding Oracle and other dirty linen around Davis and his moneygrubbing ways!

Here is just one article among many:

California:Davis' flip-flop on tax break came after aide joined lobbying effort

It's very difficult to game the market if the market is free from government controls. It can't be done for long, if at all.

California's market is the opposite of a free market, and it should come as no surprise to conservatives that traders in the private sector turned out to be much smarter than those who wrote the laws, and the bureaucrats who tried to compete with them.

Liz, the continual drumbeat of excusing corrupt practices on the left, and condemning them on the right is growing old with me. Too bad that they are so blind that they will not see. Glad we have the FReepaper, now all we can work on is our 'subscriber' base.
*******
Bill Clinton is more of a 'criminal' than Ken Lay ever was, IMHO.

Now, if corrupt practices IS to be differentiated from criminal acts; then, we know from history, that corrupt practices are not criminal with regards to Presidential behavior, and I would assume that the 'media' would make similar excuses for corporate behavior that mirrored Presidential practice. No, you say. Then, hypocrisy, not crime, IS the issue.

That's the only strategy the dems have left...is to .. rip off as many scabs of as many issues as possible before NovemBer and the impending slaughter....EnRon..Social Security..EnerGy..yada yada

Big Mistake here trying to cover their a$$eS in conggressional or justice dept investigations..

Have At It!!!

You got it, brother. Nor has there been nearly enough made of the fact that Calbania paid more for power purchased within the borders of the state (and from British Columbia, but that's no surprise) than they ever did on normal day-to-day transactions with the power boys.

Adding insult to injury is today's Barron's, which contains an article on fuller transparancy for shareholders, written by none other than the Treasurer of...you guessed it...Calbania.

This bozo was in charge of the financing for one of the great economic fiascoes in American history, and NOW he's gonna tell us about better corporate/mutual fund governance? Puh-leeeeeeze. Not after a full meal, ok fella.

Bill Clinton is more of a 'criminal' than Ken Lay ever was......

BillyBoy is the Master criminal. He taught the rest of 'em about the meaning of is,
convenient memory failure, denying the obvious (I never had sex with that woman),
and so on and so forth ad infinitum, ad nauseam.

Sometimes I sits and thinks, and sometimes I just sits.

But I think I have this all figured out:

This "Get Enron" media hysteria is just an attempt to divert attention from the upcoming bankruptcy of California. I'd bet money that Lehane and Fabiani are still secretly working for Davis.

Mark my words. Later this month, or early next, when California State employee paychecks start to bounce, Enron will be the culprit.

If you re-read the article, you will find that Davis is already setting the stage for this - blaming Enron for the recession in California. He will blame Enron for the upcoming bankruptcy, too.

You heard it here first.

......only strategy the dems have left...... (to) rip off as many scabs of as many issues as possible before .....
the impending slaughter....Big Mistake here trying to cover their a$$es in congressional or (DOJ) investigations..

Will they never learn? The coverup is always worse than the actual crime.

if the power crisis was so great for Enron, why did they collapse with a thud heard 'round the world shortly thereafter?

Good question. We know that California owed Enron millions of dollars. Did they ever pay up?

California may have well contributed to Enron's collapse.

Good question. We know that California owed Enron millions of dollars. Did they ever pay up?

IMO, far too little has been discussed about the surcharge many power companies tacked on to CA's power purchases because the state was so far in arrears on paying its bills. I believe it was BC Hydro which at one point refused to deliver power unless it received some of what it was due.

Several companies forgave the surcharge when Davis went squealing last year to FERC.

I think you're on to something with the "blame Enron" campaign strategy. I think it's a strategy that very possibly the Democrats will nationalize. I just wonder if it will work. I really think people are burned out hearing the whining about Enron. You can only kick a dead horse so many times...

Thanks for the compliment :-).

I have no doubt that some deception did occur, and some practices were followed that were bad.

But that doesn't necessarily mean the bad practices did a significant amount of damage. In fact, these memos only show that such things were thought up, not that they were implemented.

But let's say for the sake of argument there are bad practices that were followed. What percentage of the total crisis is attributable to these practices? Probably relatively little of it. Enron's role was analgous to the person who sells you a $5 bottle of water in a crisis where no water was otherwise available. You don't like the fact that he overcharged you, but you're glad he was there to help you survive. If he was forced to charge normal market for the water (say $1), he'd probably keep it for himself and his family.

In short, this does not take Gray Davis off the hook for his mishandling of the electricity crisis, which created the situation making Enron's deal possible. Without the crisis, Enron could not have done what it did.

This doesn't excuse Enron, not by a long shot -- but it doesn't excuse Davis, either.

I think it's a strategy that very possibly the Democrats will nationalize. It seems that they already have, with the NYT and the WSJ accusing Enron executives of everything except strapping dynamite around their bodies... I just wonder if it will work. I really think people are burned out hearing the whining about Enron. You can only kick a dead horse so many times...

Perhaps I've become too cynical, but I don't think things have changed much since Adolph Hitler wrote:

...the great mass of the people...consequently represent the simplest-minded part of the nation. It cannot be listed in terms of professions, but at most in general degrees of intelligence. To it belong all those who have neither been born nor trained to think independently, and who partly from incapacity and partly from incompetence believe everything that is set before them in black and white. To them also belongs the type of lazybones who could perfectly well think, but from sheer mental laziness seizes gratefully on everything that someone else has thought, with the modest assumption that the someone else has exerted himself considerably. Now, with all these types, who constitute the great masses, the influence of the press will be enormous, They are not able or willing themselves to examine what is set before them, and as a result their whole attitude toward all the problems of the day can be reduced almost exclusively to the outside influence of others...
--Mein Kampf

Spot on.

Most energy trading is arbitrage (in the short run) in any case. If the Calbanian regulatory bureaudorks had written the rules reasonably, most of the flap would never have occurred.

You do know what they did, of course. They took a page out of American history, specifically the history of that energy mkt genius Jimmuh Carter. D'you remember the 1970s 'old oil' and 'new oil' and 'old gas' and 'new gas', and related governmental price-rigging? I do, bet your life...and I also remember where prices went because of such idiocies.

Guess what, Calbania did functionally the same thing. If I can sell 'in-state' product for a fixed max price X, but I can sell 'out of state' product for mkt price, I guarantee you on the soul of Adam Smith that any product I acquire IN the bloody state is getting shipped somewhere else first, even if it's only a paper routing. Then, those bleeps will get to bid up for it, and sucks to them. Try to rig MY markets, will you? Hah!

I'm tempted at times toward a little sympathy for the average citizen...and then I remember who put Doofus and his Gang Who Couldn't Trade Straight into power, and that sympathy goes bye-bye right quickly.

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