My comment last week:

>I suspect that the entire energy mess in California has been one giant
>conspiracy by Texas Republicans to make Gray Davis, the Democratic governor
>of California, look bad.

...got me a lot of private email during the last weekend. I only had time to
respond to one correspondent and time to now to respond to the list. I wrote
this in part last Saturday:

=======================================

Dynegy, Reliant, El Paso, and Enron all have their headquarters just steps
away from  Haliburton's headquarters in Houston. [Vice President Dick Cheney
was the former chairman of Haliburton.] Of all of these, it's Enron that's
most in control.

Enron doesn't produce anything. It's a gaming house, which they politely
refer to as a brokerage firm, filled with computers and Ph.D.'s in
mathematics and economics. And it's Enron that's profited most from and done
the most to create California's mess.

While it would be completely unfair to say that Enron created the
deregulatory environment that they're now profiting from, it is wholly
justified to say that early on saw the opportunity that was presenting itself
to massively profit from it. While the people at Enron describe themselves as
steely-eyed capitalists, most people who understand the situation would tend
to call them "major league a**holes," to use Cheney's elegant phrase.

The Bush Republican Party of Texas is centered in downtown Houston, in a few
block area called "Energy Gulch". Not only have these energy companies
funnelled obscenely massive amounts of money into the Republican Party,
they've also managed to lubricate legistators in the various state and
national governments to alter trade and commerce rules in their favor. There
is no clearer definition of "soft money" corruption that this.

While the various states, especially in the West, have eagerly entered into
deregulation measures over the past decade, based heavily on the promises
made by these energy companies, they didn't fully understand what they were
being offered. The Republican government of California during Pete Wilson's
tenure was the original instigator of energy deregulation in California. The
state officials who made these deals and passed their laws were in essence
trusting amateurs who either naively believed in a free-market economy or the
promises of extremely cheap energy now find themselves up against sharks.

Nonetheless, it's a game that's time is nearly over. After California's
experience, almost every western state that was on the road to deregulation,
including New Mexico, with either Republican or Democratic legislatures, has
begun furiously backpedaling, saying the hell with the Bush wing of the
Republican's party advice.

Nonetheless, in terms of apologetics, you can still get the smokescreens of
"it's all the conspiracy & paranoia kooks" from the arch-conservative end of
the Republicans. In that regard, my favorite senator is Larry Craig of Idaho.
He had this to say:

   http://www.senate.gov/~craig/con_feat.htm#editorial

as did the president of Dynegy, Chuck Watson:

   http://www.dynegy.com/dcfiles.nsf/Files/cw040501.pdf/$File/cw040501.pdf

The "shortage of supply" that Watson mentions was a manufactured event, not a
natural phenomenon. As an integral part of the California deregulation, the
cooperating power companies (and the two largest in California, PG&E and SCE,
participated) were forced to sell off their generating facilities. These
plants were bought by the Texas companies and Duke Energy of North Carolina,
which are now massively profiting from what appears to be an enforced
shortage.

The most likely outcome of all of this is that California will likely
"nationalize" a significant proportion of its state-internal power production
facilities and build the necessary remainder under its own auspices, run as
government facilities in the manner that Los Angeles runs its power
production facilities, basically removing all effective out-of-state control.

========================================

While many of you will immediately want to write in response, after I wrote
the above text, which was based wholly on my understanding of what is going
on, I searched around on the web to find any sort of documentation to confirm
my understanding. Although I found a great deal of material, these two recent
articles by the (generally quite conservative) Washington Post and by the
Sacramento Bee are worth reading with great care:

     http://detnews.com/2001/business/0103/10/business-197824.htm

     http://www.sacbee.com/news/special/power/050601california.html

I would tend to believe that the Sacramento Bee series of articles on the
subject are very likely to be nominated for a Pulitzer Prize.

In the Washington Post article, Kenneth Lay, the chairman of Enron, decries
the balkanization of the western power grid. As he says: "Right now they want
to kind of build a wall around their state," telling the utility companies
that California's power may not be exported, Lay said. But California depends
on power transmitted from outside its borders. How can it insist on a one-way
trade? Lay said.

   "Lay acknowledged that the idea could spread. "Different states are trying
to put barriers on any power in their states leaving their state," he said.
"You can't have interstate commerce that way."

In one sense you can say that Enron is merely capitalizing off the
circumstances that have presented themselves, and perhaps surprisingly, the
single most important enabling technology for Enron was the rise of the
internet. Enron is the world's largest B-2-B business. What they do (both
legitimately and in terms of market manipulation) simply couldn't be done if
it had to be done by telephones and people calling one another. The spot
market just couldn't be made to move quickly enough.

However, the balkanization of the western grid is a way of breaking Enron's
grip on the market and the reason why Lay is upset. Enron's one-year rise of
80 billion dollars in gross revenue may not last much longer. If you own
stock in Enron, it might well be a good time to sell. The western state
governments simply aren't going to allow what happened to California to
happen to them as well.

Wirt Atmar

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