Energy's blame game, While feds slept, Enron milked California ("Not a clue" alert!)

Sacramento Bee ^ | 5/9/02 | Editorial

[randita]

Editorial: Energy's blame game

While feds slept, Enron milked California

Sacramento Bee

Published 2:15 a.m. PDT

Thursday, May 9, 2002

In the winter of 2001, when California electricity prices were skyrocketing and federal regulators were sitting on their hands, the Bush administration knew it was all California's fault. "The problem is a lack of supply," said Vice President Dick Cheney. "The problem is a flawed regulatory scheme."

It was nice spin, but, as it now turns out, also a lot of vice presidential hot air. California officials and economists who complained last year about the Federal Energy Regulatory Commission's torpor in the face of market manipulation by traders and generators weren't making it up. The memos released this week by the Enron Corp. amount to a step-by-step manual showing how Enron energy traders bilked California as the Bush administration spun political fairy tales and FERC slept.

California may have bungled electricity deregulation, but the documents are proof that it also got robbed by electricity pirates.

The Enron documents show that the pirates gave puckish Hollywood code names to their market-gaming ploys, names such as "Death Star" and "Get Shorty." Behind the cutsie labels was a strategy to artificially constrict electricity supply, be it transmission capacity or generated electrons, in order to demand, and receive, outrageous peak prices.

The unearthing of Enron's activities is not just a post-mortem political exercise about who actually was to blame for California's electricity crisis last year. The memos are still relevant to issues now before FERC about how to deal with the aftermath and make California consumers whole for the pillaging by Enron and its like. California needs justice and help on three major fronts:

* FERC must take seriously an appeal pending before regulators to order the energy firms to disgorge some of their excess profits they accumulated by selling electricity at prices that weren't "just and reasonable" as federal law requires.

* FERC must order some of these same firms to either renegotiate some long-term energy contracts they signed with the state during this era of market manipulation, or void them entirely.

* FERC must put in place permanent safeguards in the nation's energy market so that future "Death Stars" don't surface ever again. One solution may be to extend indefinitely a cap on the price of electricity when the market begins to heat up, a cap that guarantees everyone a profit, just not one that is obscene.

Meanwhile, beware of the regulator or politician who preaches the beauty of the energy marketplace as an efficient balancer of supply and demand. Electricity creates a market unlike any other. It's a commodity that can't be stored, and must be transported on wires with a finite transmission capacity. The memos from Enron show how easily it can be gamed if regulators are sleeping and an administration is in the generators' pocket. The market remains ripe for gaming if FERC and the president don't wise up.

Copyright © The Sacramento Bee / ver. 4

[Ernest_at_the_Beach]

Yes, there was an article in the WSJ on the 7th. I read it and it sounds pretty much like the ones in the NYT and SacBee - totally biased against Enron.

Thanks for the reply.

That is very disapointing!

[lucysmom]

"Why aren't Davis, Wilson, and the California legislature responsible for the idiocy of their own policy and politics?"

Wilson and the California legislature, along with the utility companies (yep, the same companies whining about the system they helped to create) created the flawed system in California and certainly are responsible for that. Davis inherited the flawed plan and handled the crisis poorly. There is plenty of blame to go around.

"What mandate was that?"

"When FERC was established in 1977 as a replacement for the Federal Power Commission, its mandate was to determine whether wholesale electricity prices were unjust and unreasonable and, if so, to regulate pricing and order refunds for overcharges to ratepayers."

California was (and still is) asking that the FERC function in the capacity it was created to.

[balrog666]

"When FERC was established in 1977 as a replacement for the Federal Power Commission, its mandate was to determine whether wholesale electricity prices were unjust and unreasonable and, if so, to regulate pricing and order refunds for overcharges to ratepayers."

California was (and still is) asking that the FERC function in the capacity it was created to.

But the FERC did just that. They just didn't rule the way to you would have liked.

You seem to forget there were a couple of dozen companies other than Enron dealing with California and that the big jump in natural gas prices touched everybody.

[okie01]

I have seen the $57,000 figure (and 200 MwH @ $285) quoted in two separate articles that were threaded on FR.

One of them listed the so-called "price gougers", on which Enron ranked 9th (of 10 listed), due to the $285/MwH rate.

Another remarked about the particular invoices that were turned over in the Enron bankruptcy -- noting that, apparently, Enron had submitted but one invoice (as above) to the state of California during the entire Crisis.

Further, I don't recall Portland General Electric appearing on any of the published lists of "price gougers" -- either for total or for rate.

Should have bookmarked them, I suppose.

[Robert357]

$57,000 is chump change in the power scheduling business. It is not even worth rounding error in terms of cost of power. If this is the total of Enron's price gouing it is trivial.

[lucysmom]

As I remember it California requested the FERC to get involved in the crisis situation (remember this request is consistent with the FERC's mandate, they were created to function in this capacity). Both Bush and Cheney along with the FERC refused for months until they were forced to yield to pressure.

As far as things not turning out the way I want, its still in the courts and will be for some time.

You are correct in saying that more companies were involved, not just Enron.

[balrog666]

As I remember it California requested the FERC to get involved in the crisis situation (remember this request is consistent with the FERC's mandate, they were created to function in this capacity). Both Bush and Cheney along with the FERC refused for months until they were forced to yield to pressure.

Why do you keep saying this nonsense? Bush and Cheney had no voice on FERC and didn't control it at the time.

Furthermore, grow up! FERC's purpose is not to guarantee low prices to Californiacs at the expense of the rest of the western United States.

As far as things not turning out the way I want, its still in the courts and will be for some time.

Non sequiter, speak up for yourself then, what would have had done differently at any point? What would you have had the FERC do and how? What would you have had the ISO do and how (when they were publicly declaring that they would not pay their bills)? Would you have forced California to pay its bills on time? Would you have forced power plants to continue into bankruptcy (and we're not talking Enron here) or shut down California because Davis wouldn't guarantee payment for the power they wanted to buy? If companies had responded to the political pressure from Davis for free power and gone broke who could they cry to? And why does any of it matter now? If people broke the law, send them to jail and send Davis and his stooges to jail as well.

You are correct in saying that more companies were involved, not just Enron.

Yes, but that cuts both ways. When the ISO and Davis would not guarantee to pay for what they had bought, what were the power companies supposed to do? Roll over and dive into bankrupcy so their stockholders could sue them for every penny they had ever made?

I repeat myself once again, but if you have anything to say, then say it!

[FairWitness]

The Enron documents show that the pirates gave puckish Hollywood code names to their market-gaming ploys, names such as "Death Star" and "Get Shorty."

I understand that the names of the "ploys" alone prove that Enron was criminally guilty </ sarcasm >. However, though I have seen these names listed several times, I have not seen them defined. Can anyone else tell me what "Death Star" and "Get Shorty" stood for.

[snopercod]

According to the governor's office, Enron only supplied about 4 percent of the state's electricity needs.

...from Then Enron Blame Game

[lucysmom]

"Furthermore, grow up! FERC's purpose is not to guarantee low prices to Californiacs at the expense of the rest of the western United States."

You are correct in saying that the "FERC's purpose is not to guarantee low prices", it is, however, to provide fair and just pricing. Fair and just means that no one gets screwed, The industry gets to make a fair profit and consumers are not gouged.

"As far as things not turning out the way I want, its still in the courts and will be for some time. Non sequiter, speak up for yourself then, what would have had done differently at any point?"

I would have liked to have seen the FERC do its job and intervine. Even the FERC stated that the rates being charged to California could not be justified by market conditions.

"Yes, but that cuts both ways. When the ISO and Davis would not guarantee to pay for what they had bought, what were the power companies supposed to do? Roll over and dive into bankrupcy so their stockholders could sue them for every penny they had ever made?"

The price caps were set at the industry's request at 50% over what was then the market and were to end in 2002. Remember, deregulation was promised to lower rates. What was at the time seen as a floor turned out to be a ceiling. Before the crisis, the utilities did rake in between 17 and 20 (depending on who you trust for figures) billion dollars over what they would have had the caps not been in place, bet you didn't hear any complaints out of the utilities then. As for my personal feelings, the system was flawed, the window was left open for abuse, and that was taken advantage of. When the price of natural gas increased 10 times simply by crossing state lines, and charges to utility companies were at times up over 1,000 times the previous year, something would appear to have been wrong. If you leave your door unlocked and come home later to find your house burglarized, who is responsible, you or the thief? Would you call the police and hope they were willing to do their job, or take full responsibility for your carelessness in leaving the door unlocked and give the thief a pass?

[balrog666]

Even the FERC stated that the rates being charged to California could not be justified by market conditions.

Marfinal prices on the spot market. 90% of the power was still being sold at the usual rate.

Once again, if Davis had threatened to take away your house when you stopped selling to him on credit and he promised never to pay his bills, what would you do?

[lucysmom]

"Once again, if Davis had threatened to take away your house when you stopped selling to him on credit and he promised never to pay his bills, what would you do?"

Call for an investigation to decide the legality of what he proposed to do.