The California Energy Crisis: Surprise. Guess Who Did and Didn't Do It.

http://www.projo.com/opinion/contributors/content/CT_calif7_.Bank_COANG3I_v13.25a8a80.html

Howard Kaloogian: Now we know who really created Calif. energy crisis
From the Providence (Rhode Island) Journal

July 3, 2008

HOWARD KALOOGIAN

CARLSBAD, Calif

GITMO AND GUNS are getting all the press. But energy mavens are talking about another recent far-reaching -- but little noted -- U.S. Supreme Court decision on the California energy crisis: It took them seven years but they finally figured it out.

The revisionist part of the story is well known: Big bad oil traders like Enron gamed the market and drove up energy costs fifteen-fold. The blackouts, insolvent utilities and economic chaos are remembered as the worst energy crisis in American history.

But the Supreme Court turned this conventional wisdom on its ear and said there may have been misconduct by energy sellers, but no one ever showed that caused the crisis.

To paraphrase Bart Simpson, the court, in part, said: They didn't do it.

This left the real villains hiding in plain sight: The regulators who enforced the worst law in the history of the Golden State: the California energy deregulation of 1996. The same regulators who now say that despite the Supreme Court ruling they intend to continue their expensive vendetta on energy producers.

The stakes are high and it is worth remembering how we got here. So let's go back. Way back to 1996. I was a member of the California legislature then.

I voted for what I thought was deregulation. Soon after the "deregulation" became law, one thing became apparent: This was not deregulation, but re-regulation -- complete with price controls and trading restrictions that did not produce one extra watt of power.

Once in the hands of the befuddled regulators, this bill went from a bad idea to a nightmarish reality.

Anticipating the Supreme Court and Bart Simpson, the energy economist Geoffrey Styles figured it out six years ago:

"California's energy crisis grew out of years of neglect, over-regulation and a fatally flawed 'deregulation' scheme that, upon scrutiny, failed to meet any common-sense definition of that term." As the architects of an electric-power deregulation process that grossly distorted the market, California's elected officials and regulators deserve their own share of the blame.

The regulators established the price caps and scheduling system that Enron's traders so effectively exploited with their bizarrely named strategies, and the legislature and governor froze retail electricity prices, while letting wholesale prices float (far above retail), deliberately opening up a gap that soon brought the state's two largest utilities to their knees.

When prices returned to earth, utilities -- locked into long-term deals they signed at the peak of the market -- suffered what the Supreme Court is calling "buyer's remorse."

They demanded refunds from the energy companies. Some agreed. Others did not, saying the sales were fairly negotiated between sophisticated buyers and sellers. And a deal was a deal. So off they went to court.

After a lower court and the Federal Energy Commission found no evidence that dirty dealing caused the crisis, the most overturned court in America got into the act -- the Ninth Circuit Court of Appeals. These judges said the federal government had a duty to rip up these contracts because of the high prices.

But the U.S. Supreme Court was having none of that.

In giving short shrift to claims that the reviled energy companies were behind the crisis, the court said legally what California voters knew intuitively when they voted the first time for Arnold Schwarzenegger. Absent massive mismanagement, there would have been no crisis.

The Supreme Court has sent a message. California citizens have the right to expect even better: Stop the war on energy producers. Declare victory and go home. Redeploy California's private army of $700-an-hour lawyers who have frittered away tens of millions of dollars in pursuit of this now hopeless legal endeavor.

Roads and parks and even taxpayers could use the money for utility bills.

A real energy policy recognizes that markets and contracts produce power.

Regulators and rhetoric do not. The governor and his regulators should be able to figure this out. The Supreme Court sure did.

Howard Kaloogian is a lawyer and a former member of the California State Assembly. He can be reached at [e-mail]

Comments

[FogCityJohn]

This post also misrepresents how energy deregulation worked in California. There were rate freezes (not "caps"), it's true, but these were enacted to *benefit* the utilities, not consumers. It worked this way: Utilities assumed that after deregulation, the magic marketplace would make wholesale electricity cheaper. They could therefore purchase out-of-state power more cheaply and lower their costs. But they said they couldn't be asked to pass on these savings to consumers because then they'd never recover their "stranded costs," i.e., investments in power generating plants that utilities said would no longer be needed because they'd be buying cheap power from elsewhere rather than generating it themselves. So they got the PUC to freeze utility rates for a number of years so that consumers would continue to pay the same retail price for electricity even though the utilities would, theoretically, be getting cheaper wholesale power.

The whole scheme fell apart when (surprise!) deregulation permitted price manipulation that *increased,* rather than decreased, the cost of wholesale power. So the rate freeze turned out to have the opposite effect of what had been intended. The utilities had to pay sky-high rates for power on the open market, but then couldn't pass those increased costs on to consumers. By insisting on the rate freeze, the utilities ended up getting screwed by Enron's price manipulation.

[joebaggadonuts]

While setting the record straight, maybe Howard can explain the statements in the Wikipedia page about him. http://en.wikipedia.org/wiki/Howard_Kaloogian

[Oldtimer]

Howard you really do take Huff Posters for fools don't you?
Energy deregulation in California came under Pete Wilson - a Republican.
Texas vultures like Enron saw the Golden State and turned it into the golden goose by
gaming the sysytem. IAnd the Bushies looked on and shrigged as their Texas buddies
raped the golden goose. Hell, if Enron could create droughts in the West and sell water from the
midwest for a 200% profit they would do it and Bush would let them. This is why America needs another FDR, another NEW DEAL that builds public projects for the public good. Last time I
checked the Tennessee Valley Authority and Hoover Dam were humming along like the
energizer bunny. Obama needs to re-create the PWA and it's first project should be to channel
midwest flood water from the Mississippi to the Continental Divide. This water will fuel the
Colorado drainage which has been drying up at a faster rate. In this manner everybody wins.
The PWA creates thousands of middle class jobs, alleviates flooding while delivering water to
the drought stricken West. Climate change is moving rainfall patterns and the snowpack in
Southern Sierra and Rockies is disappearing. FDR would solve this with the stroke of a pen.

[WASanford]

I was in California in the summer of 2001 and I remember it being a long and very hot summer. Every air conditioner on the West Coast was working overtime. Unfortunately, a small Texas Company had gained control of the extra energy they’d use and were withholding it for higher prices. Californians were suffering brownouts and blackouts. One of them killed my neighbor, an older woman who was generally liked was found unconscious on the floor of her apartment by heat exhaustion. She died on the way to the hospital.

Howard, I’m sick of people like you. You go around leaving piles of crap on the floor and when someone steps in it you always find someone else to blame. I can’t tell you how happy I am that you’re no longer in our state legislature. In fact, I’d be even happier if you left California. And take your dammed pocket-able Supreme Court justices with you.

No matter where you are in America, you’re now being “Enroned” while the petroleum industry is pointing at all kinds of scapegoats. They need to drill off California’s shore or in Alaska, all the while ignoring the oil leases they already have in hand. Or maybe we will buy the crapola that our falling dollar is at fault. Meanwhile they are making out like the bandits they are.

American capitalism has spawned an unwholesome, avaricious and predatorily version of itself and it’s our duty to destroy it.

[Oldtimer]

I agree we have once again reached a point where capitalism is "unwholesome, avaricious
and predatory". This is why America is in great need of another New Deal. It will provide
middle class jobs, it will build infrastructure for the public good, it will pump the economy on
a keynesian model rather than the greed of Milton Freidman and the Chicago school of
market idolatry.

[WASanford]

Thank You!

[NickHP]

Sorry Howard. The Supreme Court is loaded with reactionary right wing - aka corporatist judges. They chose W. Bush by not finishing the recount in Florida. He chose to gut the treasury and ignore the calls for FERC to oversee trading in 2001-3. I knew people who were just agog at the prices they were being offered by California for electricity at that time. And then Governor Schwarzanegger settles the Enron lawsuit at pennies on the dollar.

[TxAggie]

WA I am part of that oil industry that you claim is "ignoring" the leases it has. I can guarantee you that is not the case when it comes to the company I work for. We maximize our production and we are constantly seeking better technology to manage the assets we have. We have leases on slightly less than 1 MM acres and produce apprximately 30 MMBOE per day. I presume you have fallen victim to the democratic talking points. I have worked the Gulf of mexico for 20 years, I am very familiar with the western and central gulf (that is the portion we can drill in), I have worked Alaska, onshore USA and Internationally. We (the industry) does need more access to the larger offserve potential areas like the eastern Gulf of mexico and the billions of proven barrels of reserves offhore California. I am certain I cannot dissuade you from your opinion that I am a crook although we have never met but as you sit in California and you deny offshore exlporation, you require your own boutique gasoline blends and you do everything you can to make it difficult for the oil industry to operate in your state, please think as you look in the mirror this morning that you too share the culpability for the energy problems we have today.

[leduck]

Ever hear of depletion wa?

there are things that are required to find oil
1. source rock (shale) with 3% - 8% organic
2. this source rock must have passed throught he oil window at some point
3. must have reserve rock (sandstone, limestone or dolomite)
4. this reserve rock must be plenty porous and permeable
5. and must have a good oil cap (that doesn't leak -- non-porous)

drill here drill now is a campaign slogan -- that's all

I live in CA and i know what Enron did
but this is different
the falling dollar doesn't help
but but our main problem is production has been flat since 2005
while demand keeps rising

read about Peak Oil

[joebaggadonuts]

When you say "we need," do you mean your 401K full of your oil company's stock needs? When you have a financial stake in the outcome, the public is entitled to know it when the statements you make publicly support that financial stake.

[thebaron]

Are you serious???
The public's "misconceptions" about Enron are fueled by the fact that there are readily available recordings of Enron traders discussing their gaming of the California energy market. In addition to all of the other evidence of energy company misdeeds. Have you honestly never seen any of this evidence? Any resources put toward investigating the energy crisis further so that guilty parties could face punishment would be money well spent, as it might encourage likeminded folks from trying the same thing in the future.
Additionally, though the Republican Party was able to force Grey Davis from power thanks to public anger from the energy problems, he has been largely vindicated as evidence of Enron's role in the shortages has emerged.
Energy companies and their paid mouthpieces can try to revise history all they want to, but the evidence will always be there, and accessable to all who want it (thanks You Tube, the Google, etc)

[MamaBird62]

Take a look at "The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron ," by Bethany McClean and Peter Elkind for a more politically unbiased point of view than what is presented here by Mr. Koologian, another republican apologist.

[Zenobius]

Hmm, may I suggest that the Supreme Court demanded strong evidence that the energy companies were solely responsible, and in its absence exonerated the energy produces from responsibility. This may be legally appropriate, but it seems unrelated to reality. California energy deregulation was a bad law, poorly enforced, which some energy suppliers, like Enron, exploited mercilessly.

In short, there is blame enough to go around.

It seems pretty clear that Californians were mostly NOT thinking about energy deregulation at the last election, when they elected Schwartznegger. Whatever his election was, it was not an endorsement of Enron.

[BillZBubb]

Sure, the right wing Supreme Court "figured it out". The same ones that figured out Exxon didn't have to pay for it's colossal oil spill in Alaska. The right wingers on the Supreme Court couldn't figure out 2 + 2.

Energy deregulation is a scam to steal from the people and give to the big energy interests. The claim that California's deregulation was flawed doesn't hold water when the results of other states with "better" deregulation are compared. Every "deregulated" state is now paying HIGHER energy prices than most regulated states.