Enron was involved in California from the beginning of the state's move to deregulate its electricity system. The company was a key voice calling for the federal legislation that set the various deregulation plans in motion. That law, known as the Energy Policy Act of 1992, was one of President George H.W. Bush's final acts as president.

California was among the first states to jump on the deregulation bandwagon. At the tail end of a crippling recession, companies were leaving the state in droves, complaining that the price of doing business there was too high. That cost included high taxes, and among the highest energy costs in the nation.

In its zeal to deregulate, California set up a poorly designed system, deregulating the wholesale side of the energy market, while leaving price caps in place on the retail side. So wholesale prices skyrocketed for the utilities buying power from the producers, while at the same time, the utilities were prevented from passing the spike to ratepayers.

Lenny Goldberg, lobbyist for the Utility Reform Network (TURN), says Enron played a key role in setting up California's broken marketplace. "Unlike the market in Pennsylvania, which is transparent and works, Enron was pushing for a pretty murky, nontransparent, easily gameable market. They wanted much less authority and power in the [Independent System Operator], so it would be much easier to manipulate the market."

The ISO was designed to be a central command station coordinating the scheduling for the delivery of power so that everyone would get the power they needed. But Goldberg says Enron's insistence that the coordination be conducted essentially in private helped energy producers artificially manipulate the market.

During hearings before the Public Utilities Commission, as the state was crafting its deregulation plan, Enron argued for establishing a separate power exchange, or PX, to serve as a sort of clearinghouse, a place where competitive forces would lower the price of power for California electricity consumers.

"Their argument was that you don't want utility-like people running a market," says John Rozsa, an aide to Sen. Steve Peace, who played a key role in the Legislature's first attempts at electricity deregulation. "It gave them the ability to arbitrage between markets, and that's what their business was. What Enron really wanted was a dark market -- contracts that were not subject to any regulatory scrutiny."

Though it is unclear just how much Enron made off the California energy crisis, a hint comes from the company's stock price during the spring of 2000. During the second quarter of 2001, the peak of the California crisis, the company reported earnings of $404 million (45 cents per share) compared with $289 million (34 cents) a year earlier, an increase of nearly 40 percent. The previous quarter, Enron reported a 34 percent increase in quarterly profit.

Goldberg says Enron's biggest profits in California may have come from a spike in natural gas prices during the state's energy crisis. "I don't know. Ask Arthur Andersen whether Enron made any money on the California market," he quipped.

Now, congressional Democrats are calling on Dick Cheney to clarify just how influential Enron was in shaping the administration's hands-off approach to the California crisis.

While the state was in the midst of rolling blackouts and soaring wholesale energy prices -- prices that many argue were artificially manipulated by Enron and other energy producers and traders -- the White House refused to intervene as Enron and power plant owners cashed in.

But throughout the California meltdown, Enron continually downplayed its role. "California is a very, very small percentage of our profitability," Enron spokesman Mark Palmer told the San Franicsco Chronicle last year.

Indeed, when California Gov. Gray Davis asked the Federal Energy Regulatory Commission (FERC) to reimburse California consumers to the tune of $8.9 billion for what he says were artificially high energy prices, Enron was far down on the list of companies the state wanted money from.

"I don't think anyone would dispute the statement that they made significant profit off the situation we found ourselves in the past year, year and a half," Joe Dunn said of Enron. "They like to describe themselves as a minor player in the California energy market, and as evidence of that they cite that they were only 10 percent of the final sales of electricity through the ISO. That's an interesting statistic, but that's not the whole picture. Enron was probably the most significant trader; the trading of a given megawatt may go through 15 different owners before it's ultimately sold through the ISO."

Recent Stories