Newly disclosed practices by energy traders in California look fishy indeed. But they didn't cause the state's power crisis of 2000-01, as Gov. Gray Davis and assorted congresspersons want everyone to believe.
Memos released by Enron Corp. this month document the company's now-infamous tendency to innovate first and check legality later.
"Now, after billions of dollars of damage to California's economy, the truth is out," Davis declares. "These memos amount to a confession by Enron of its efforts to exploit the system."
Davis wants compensation. But there's more to this story than misbehavior by overly ambitious traders.
The shenanigans wouldn't have been possible in a free market with responsible oversight.
What Davis calls deregulation was in fact a disastrous system of price and market controls imposed by a state historically resistant to activities essential to energy supply.
Traders didn't let California's generation capacity become chronically deficient then encourage consumption as shortage developed. They didn't gut utilities then blame them for the crisis.
The state's government did, cheered on by its congressional delegation.
Traders did what traders do: They found ways to buy and sell electricity profitably.
There's nothing inherently illegal about arbitraging the value disparities that regulation breeds.
Specific trading schemes might have violated a vague California prohibition against "gaming." And specific practices might have been deceptive.
Those possibilities warrant the investigations now under way and others likely to follow. Some of the recently disclosed behavior might indeed be found to have been illegal.
But prosecuting traders and ruining companies won't fix what's wrong with California's energy market.
Only the state's elected officials can make the necessary repairs. Yet they have persistently eluded responsibility, blaming others-other states, companies, federal regulators-for a homegrown fiasco.
In a single sentence, Davis typically rips Enron for "siphoning billions out of California during the energy crisis" and doubts that "the energy market can function without diligent government oversight."
Somehow, those "billions" didn't keep Enron out of bankruptcy.
And California's version of "diligent government oversight" should only enhance the appeal to other states of genuine deregulation and responsible governance.
(Online May 17, 2002; author's e-mail: [email protected])