It was a scam after all.
As California faced desperate electricity shortages in 2000 and 2001, power giant Enron was manipulating the market to drive up prices and turn modest power shortages into critical ones. This arrogant behemoth, since brought down by its own hubris, toyed with the public health and safety of California to boost its own profit, and there's finally a smoking gun to prove it.
Internal Enron documents released by the bankrupt company's new management describe these unethical, if not illegal, trading practices in detail and indicate that other companies were doing the same thing. All the while, everyone from Enron's then-chief Kenneth Lay to Energy Secretary Spencer Abraham and regulators who should have smelled a rat were saying it was all California's fault. For failing to build enough power plants. For adopting a power deregulation plan that wasn't free-market enough. For environmental laws with a Malibu mind-set.
The Federal Energy Regulatory Commission refused to accept its legal responsibility to rein in a wildly out-of-control market. Ultimately, commissioners said, the free market would work. For California, that meant a year of crisis, of rolling blackouts, of one major utility going bankrupt and another flat broke, of the state doling out $6 billion to buy daily power and an additional $40 billion for long-term contracts at what we now know are grossly inflated rates. FERC finally acted out of political necessity; it was too little, too late.
The Enron memos go on in pages of sneering, "gotcha" detail about such things as how to get paid for not putting any energy on the grid. In another ploy, the firm would buy power in California at a capped price of $250 a megawatt-hour and resell it in Oregon for $1,200--at a time when California was flirting daily with blackouts. The schemes had cute names like Death Star and Fat Boy.
When California complained and Gov. Gray Davis denounced the energy manipulators, an Enron official said, "California is trying to perpetuate the greatest political dodge of the last 100 years."
Yes, deregulation was flawed, California was short of power plants and a drought in the Northwest had reduced hydroelectric power. Davis was slow to react to the crisis. But these factors alone did not cause the state's power costs to go from $7 billion in 1999 to $27 billion the next year.
FERC should help the state obtain substantial refunds from the power-generating companies that charged exorbitant prices. The state has asked for $9 billion, an amount that federal regulators had deemed far too high but that they now should regard as just about right.
The Justice Department should investigate possible criminal violations. The state should demand that all of its long-term contracts, signed under the duress of the inflated market, be nullified and renegotiated without delay. And FERC should extend its modest market controls beyond the present Sept. 30 expiration. Electricity is vital to public welfare. It must not be held hostage by manipulators piously invoking the free market.
They scoffed in Washington and Houston when Davis called the energy manipulators pirates. Now we know he was right.