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

http://www.nytimes.com/2002/05/11/opinion/11DAVI.html ^ | 5/11/02 | GRAY DAVIS

[Liz]

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.

Gray Davis is governor of California.

[Liz]

(Graydavis is) joining Sens Feinstein and Boxer in asking AG Ashcroft to start a criminal investigation into Enron's actions.

And while the DOJ is at it, it might start criminal investigations into graydavis' activties in the matter, as well.

[Liz]

............a gray's in fighting mode ping..............

[gitmo]

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.

These comapnies were driven into insolvency by consumer price caps. The market fluctuated, wholesale prices increased, and these companies were forced to sell at a lower price than it cost them.

Enron was trying to find a way to sell energy in CA and still make a profit. Shame.

[daviddennis]

The first thing to understand about this manipulation is that it did not occur due to a deregulated market. Rather, it was an effort to manipulate the rules to Enron's advantage, much as most of us will (at least try to) manipulate the tax system to our advantage come April 15th.

In a pure free market, Enron's manipulations would not work. But they took advantage of incentives built into the system which had a perverse effect. For example, they bought price-controlled electricity from a California company, sent it over the hill, and re-sold it to California at a decontrolled price. They could only do this because out of state purchases were not controlled, while in-state purchases were.

Of course if they had bought the power from the Californian company and sold it in another state, that would have been, well, legal. And the result would have been far worse blackouts than we actually experienced. That probably would have happened if there had been deregulated markets in other states, but not in California. If I can buy power for $250 a megawatt and sell it for $350, I'm going to do it.

So Enron's manipulations most likely helped keep the lights on in California. Yes, at a price, but we probably wouldn't even be talking about Gray Davis' reelection if they hadn't played ball with the state.

Finally, if the power crisis was so great for Enron, why did they collapse with a thud heard 'round the world shortly thereafter? I'd be very curious to know how much they actually made on the power crisis -- and how they lost it all, and then some.

D

[Amerigomag]

Davis obsures the fact that he was a participant in this financial scam rather than the victim: in this case the rate payers/tax payers of California.

Davis purchased the power at ludicrous rates with other people's money. Davis used other people's money in a careless and reckless manner to further and personnally inrich himself. Davis is as culpabale of fraud as any other participant in this matter.

Were Davis a liscensed investment broker in California he would be vigorously prosecuted for his actions since he publically insists he knew these rates were artificially created by illegal activities.

Had Davis simply said "no" in late 2000 there would have been a few days of very minor personal inconvenience to a small number of Californians and then the traders would have backed off.

[Grampa Dave]

GOVERNOR BENITO DAVIS'S AD ON EBAY:

REMEMBER! IT ONLY TAKES THIS MUCH TO BUY ME. THE BEST INVESTMENT YOU CAN MAKE FOR YOUR BUSINESS. BUY ME FOR YOUR BOTTOM LINE!

I HAVE BEEN BOUGHT BY ENRON, WHOREACLE, LOGICON, INSURANCE COMPANIES AND OTHER SATISFIED CUSTOMERS.

[Liz]

Your thesis is well-postulated.

My questions are these: (1) Did the Enron gang conduct business with an eye toward simply making an honest profit?
(2) Did they do business with the intent of deceiving, hence lawbreaking? We can't look inside the hearts and souls of the
Enron gang. We can only apply the facts as we know them against Enron's actions.

As notorious safecracker Willy Sutton once said, he only robbed banks because that's where the money was.

[Liz]

Gramps, that pic is hilarious. BTS, I'm curious. What was GD actually saying at the time the pic was taken?

[Liz]

Davis obscures the fact that he was a participant in this financial scam...............

Naturelment. GD's raison d'etre for composing the article. Might try to determine
if the LA Slimes was offered and perhaps rejected the Times damage control piece.

[Grampa Dave]

This is a SF Chronicle picture, and I'm afraid to go there!

[Atilla_the_Hun]

Here is the gist of the article...

Did Enron attempt to have a role in shaping California's dysfunctional 1996 I use this date because I wasn't gov...Republican Pete Wilson was running against Klintoon rather then paying attention to Calif State business, So I can blame the Republican's, again and again... deregulation law that was written by the overwhelming Democrap controlled state legislators, but don't tell the reader this.. as it attempted to influence the Bush administration See I am going to blame the Republican's every chance I get and hopefully the public won't review all the ENRON, signed by I.GRAYOUT.DAVIS on energy policy and even helped to shape the membership That are appointed by the Gov ...uhhhh I.GRAYOUT.DAVIS uhhh again don't tell the reader this because I can blame the Republican's again... of FERC?

[Grampa Dave]

I would like to see what companies Davis's campaign chest had invested in before and during the power crisis last year.

Last year, I posted that an audit trail of any investments made by his campaign fund re energy companies could be really revealing. Look at both buys and shorts. I doubt that he had his money in CDs getting less than 2% at the rates at the end of 2000 and most of 2001.

[SAJ]

First, a side note. Willie Sutton, as stated in his autobiography 'Where the Money Is', was a bank robber, not a safecracker. He employed cracksmen in his 'gang'.

Second, attempting to read the minds of Enron's traders as to their motives or 'criminal intent' is a laughable waste of time. I've traded with these guys (and, yes, 98+% of them are men) for years and I'll tell you right now what their motive is, every day: make a profit...which, oddly, is my motive, too.

When the loonies in the Calbanian legislature dreampt up that faux-'deregulation' scheme, they guaranteed -- guaranteed -- that the citizens were going to get their pockets picked all day, every day, if the power mkts EVER became even slightly unbalanced. And you'd better believe that every decent energy trader in America (elsewhere, too, probably) was out for a piece of their pocketbooks, yr hmbl srvnt included. The nearest thing I've ever seen to a dead layup lock cinch.

A Calpine trader famously (well, in the NY Slimes anyway) characterized trading with the bureaudorks in ISO and with the waterboys as 'playing poker with second-graders'. He was far too charitable; it was playing poker with kindergartners with Alzheimer's.

You'll notice that Grayout Doofus doesn't ever even allege specific 'criminal' (sic) acts. That's because he cannot; the rules the legislature and the other assorted Calbanian morons implemented were (still are, btw) so self-contradictory that not even a Philadelphia lawyer could tell you which practices were lawful and which not. Some number of people are whining that Enron, Calpine, Duke and the boys 'gamed' the system. You bet your sweet butt they did -- which is the best possible argumenr for prohibiting incompetent hustlebuck shysters and Pollyanna do-gooders from even running for office or otherwise being employed by taxpayers. If you should invent a game where the rules are not clearly defined AND you can only win under, in essence, perfect circumstances, you've only yourself to blame when you get your clock cleaned (notice how Grayout now is trying to crawfish on the state's long-term power contracts? what did you expect?)

Gitmo's got it right. The retail price caps were the fuse on the dynamite; well before NG reached $70/MMBTU @ Topock in the second week in December, the whole market was going to blow. Curiously, even as late as early October, the dildoes could have saved the situation by simply removing the regulations and the caps and letting the market clear (which, if you don't happen to know from experience, happens in typically 48-72 hrs; the power mkts are VERY efficient, when they're allowed to be), but noooooooooo -- these clowns literally bet the ranch on a mild winter, and how bloody bright is that? Worse, they knew perfectly well in the summer that power was going to be tight, NG particularly, and took NO constructive action (made things much worse, actually).

It was the episode of the Taggart tunnel in real life, courtesy of The Doofus Who Would Be King.

[randita]

Some number of people are whining that Enron, Calpine, Duke and the boys 'gamed' the system. You bet your sweet butt they did -- which is the best possible argumenr for prohibiting incompetent hustlebuck shysters and Pollyanna do-gooders from even running for office or otherwise being employed by taxpayers.

I LOVE IT!

Conveniently Davis didn't comment on his own ISO's complicity in "gaming the system". The CA ISO was found to have called Enron and others getting them to put fake bids in on excess power they were selling, so that other companies who wanted to buy the power, then resell it, would have to pay the CA ISO more.

[Liz]

Here is the gist of the article...

Yup. Love it. Strip away gradavis' don't-blame-me whine and that's what you get, alright.

[heleny]

Davis didn't comment on his own ISO's complicity in "gaming the system".

For anyone who missed the Sac Bee article May 5th, here it is:
California: Surprise culprit in energy price rigging (the state itself!)

[Ernest_at_the_Beach]

Excellent comments!

[Ernest_at_the_Beach]

Gray Davis himself!!

WOW!!!

Let me add a few more pings and banners etc!

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[Ernest_at_the_Beach]

And one more:

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[ElkGroveDan]

Honest. I ran outta gas.

I had a flat tire.

I didn't have enough money for cab fare.

My tux didn't come back from the cleaners.

An old friend came in from outta town.

Someone stole my car.

There was an earthquake,...

...a terrible flood,

...locust's.

It wasn't my fault!! *