The Ugly Side Of Deregulation

Without a doubt you don't know what happened when California tried to deregulate the electricity market. Although everyone got in on the fun Enron led the way.

Darkstar....ricochet......Fatboy...Get Shorty....

My favorite was ricochet in which power was sent into the California market then 'bounced' off the mountains to charge them double.

Get Shorty was cool as well. The traders would hold up the grid until the market started 'getting short' and charged them for the 'holding'.

reply to post by spooky24


There's two sides to the Enron story. The second one never received the media exposure.

California's "policy" of not building/upgrading refineries, electrical generation plants left them as an importer of energy.

Many "Enron"-like electricity producers were coal fired. The EPA had ordered them to reduce the number of days of operation in order to decrease emissions from those plants. Court ordered fines were set to penalize the coal fired plants. These would be enacted on a daily basis. As the coal fired plants had extant contracts to supply electricity to other states/locales, they were stretched to the limit honoring those contracts. Not honoring them would have left other consumers energy short and would have sued the "Enrons" for breach of contract to cover their political rear ends.

Now California, with a major population increase, has no in-house energy to supply this increase due to their internal "regulations" restricting new and upgraded plants.

So California tries to "buy" energy from Enron who replies we don't have a surplus to sell to you.

California sues Enron, I don't know what the legal argument was, perhaps discriminatory, and wins!

Enron is court-ordered to supply energy to California.

Now there's a classic "rock and a hard place". Court ordered to supply Ca., court restricted coal firing days, maxed output to supply existing contracts facing breach of contract suits if they take energy away from those users.

They fired up the extra days, paid the EPA fines, and of course, surcharged California those extra expenses plus, plus.

Now Ca. goes after Enron as the evil Corporation who gets smeared in the media for price gouging...

Moral of the story is "regulated" or not, state or federal, the game playing is on both sides, private AND public.

The rest is just smoke, including, I suspect, the motive behind this thread...follow the money trail.

reply to post by nwtrucker


That is true RE: Enron.

I was telling my wife the other day that we should close our borders to Californian's. They are moving here en masse.

FWIW, my motive for this thread relates to my sitting in my office and thinking about how the smaller companies are being gobbled up by the larger companies. How "deregulation" simply allowed consumers to more readily join national level energy providers.

My current investments in the oil and gas industry, from my own capital, are roughly $0. I am a hospitality guy.

reply to post by bigfatfurrytexan

My apologies, poorly worded. More accurately, it should be I suspect a vested interest automatically, and am pleasantly surprised when proven wrong. LOL.

Where the Regulation/deregulation argument falls down is the grey areas where it overlaps.

Trucking is largely deregulated, including Ca.. Yet, they regulate the type and model of tires on trailors entering the state, enforce no idling laws even in 100 plus degree days-other states as well- higher emission standards than anywhere else. They even banned the sale of all new diesel-powered vehicles for a period a few years back.

My point is those national companies could, in all likelihood, buy up the little guys in regulated states if they wanted to force the issue in court. It's just cheaper for them to go elsewhere...for the time being.

Energy companies fall into that grey area. heavily regulated both on what they can charge, how that energy is produced, hours of operation...on and on. As "utilities", they have a lock on the business but have to jump through regulatoru hoops as well.

California enjoys leper status in the remaining lower 47. They even sued the province of British Columbia for surcharging natural gas exports covering Ca.'s shortfalls.

A pox on all of them....

reply to post by nwtrucker


Well put. I spent better than a year trying to understand-on a personal level-the fall of Enron. Eventually, I satisfied myself with a fair understanding of the vehicles that were used to hide debt. Especially the Raptors and LJM. However, I never really understood how Enron traders made 247 million dollars in 9 months trading electrics futures in California in a deregulation environment.

One would think any attempt at deregulation anywhere in America in the energy market would instantly bring back the horrors of rolling blackouts, wild swings in both supply and pricing, inept politicians, clueless legislature and finally hospital emergency rooms being closed because of lack of power.

I know the national media, upon hearing an attempt to deregulate the energy market, is going to highlight all the suffering Califoinas went through that summer.

How could this ever be put to the people, in an attempt, to disenfranchise the memory of the last failure at the attempt to reduce prices?

reply to post by spooky24


I really have no issue with a "deregulated" energy sector. By "deregulated" i mean, you don't have individual franchise owners paying franchise fees, and other such nonsense.

I am 100% behind regulating the industry on the whole. The nature of utility services makes them easy to manipulate people with. They are also a national security issue.