EDITORIAL: Enron Memos Only Part of Power Crisis
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The Orange County Register, Calif.
May 9--Amazing, isn't it. When reams of data prove that state regulators, Gov. Gray Davis, California legislators and publicly owned utilities were up to their eyeballs in mistakes and malfeasance regarding the California electricity crisis, few penalties were meted out and Sacramento politicians were busy blaming everybody else.
When federal regulators release memos pointing to failed energy giant Enron's efforts to game the California energy market, the same politicians -- Gray Davis, in particular -- are pounding their chests and pointing fingers at the Evil Profiteers.
"Did Enron really impact the marketplace?" asks Orange County Treasurer John Moorlach. "I don't think the memos are the end all. Did it mean Enron made another $1 million or $1 billion? We don't know. But I have a funny feeling Davis is going to hang everything on it."
The memos don't look good for Enron, or at least for what's left of the company. Enron may have manipulated the system by "selling energy outside California, then reselling it back into the state to avoid price controls that capped intrastate power only," according to the Register news story. The memos also seem to document efforts to inflate electricity demand estimates.
Investigators ought to sort through the documents and pursue charges against company officials if illegalities can be proven. If proven, refunds could be in order, although it's unlikely that the company has the means to pay anything back.
But like every turn in the electricity crisis story, this one too is not as simple as a sound bite. "Many of the transactions that are being criticized are the kinds of transactions any competitor would have made, and they generally increased supplies, decreased prices and benefited consumers," said Cal State Fullerton professor of economics Robert Michaels, who has followed the crisis closely and points out that he also does consulting work for energy producers and marketers.
However the Enron memo scandal plays out, there's something unseemly about Gov. Davis gloating about the memos, as if the Enron schemes are the singular animating dynamic of the entire California energy crisis.
For starters, it's unclear to what degree these instances of Enron gaming were responsible for the larger mess, given the relatively small percentage of Enron power provided to California relative to the total amount imported. Furthermore, as Sacramento Bee columnist Dan Weintraub explained this week, memos also show culpability by state officials in trying to manipulate energy markets.
"In a bizarre twist, it turns out that the state-created Independent System Operator, or ISO, was the one rigging the price of power, not so much the evil private generators whom everyone suspected," he wrote. The California grid manager didn't like the profits earned by Enron, so he drove up the price of electricity to reduce Enron's profits. As Mr. Weintraub pointed out, there has been no outrage, no hearings, no press conferences over this instance of state malfeasance.
Another crucial point, made by San Jose Mercury News Technology columnist Dan Gillmor: "[T]he fleecing of California in 2000 and 2001 didn't just happen because of some corporate malfeasance and federal nonfeasance, no matter how much we might like to think so. California bears much of the responsibility, starting with the bogus but ballyhooed deregulation."
And, one might add, including the governor's refusal to allow consumer prices to increase to reflect market realities, or the state's long-running reluctance to allow the construction of new electricity plants that would increase supply and lower prices. Remember, also, that the Los Angeles Department of Water and Power, run by the man the governor put in charge of all of California energy policy, turned out to be a far bigger price-gouger than the Texas generators the governor railed against.
Markets work, whether we're talking about food, consumer goods or electricity. Rather than deregulate electricity, California created a bizarre system of counterintuitive regulations that put central planners in control and let profit-driven entities play the system for all it was worth. When reality hit, the governor was AWOL, which allowed a problem to explode into a crisis.
Now, Gov. Davis is grasping at anything to hide his culpability and mismanagement, not to mention to paper over his troubles with the latest Oracle scandal.
The Enron memos are significant, but they only tell one small chapter in a long and intricate story.
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