It is interesting how the press still loves the simplistic interpretation of Enron’s role in the California black-outs back in 2000 and 2001. As in this recent article, the press seldom talks about California’s own role in creating its blackouts. As serious studies have shown, California planted and nurtured the seeds of its own energy problems — California’s own actions are clearly the leading cause of their blackouts.
Enron’s role in the blackouts is interesting and counter to the simplistic way that the press presents it. Enron was a huge proponent of energy de-regulation and championed transparency in energy markets. Enron’s belief was that if everybody in the energy marketplace had access to the same information, then Enron would benefit because Enron would analyze and use the information better than anybody else. And that is pretty much what happened.
The “manipulative trading schemes” that Enron used in California were based on the same information available to everyone in the marketplace. Enron was not withholding information — they were using available information, including California’s own arcane set of state energy rules, to make money from trades in the California energy market.
One thing to remember is that Enron was not an energy “broker” who simply matched consumers to suppliers. Enron was actually a principal in every one of its trades, meaning that Enron took a genuine financial risk — Enron bought and sold actual energy product. Therefore, if Enron paid or accepted too little or too much money in a contract, then it had to know how to cover that risk. Really, all Enron was doing in California is putting together buy and sell strategies that enabled it to buy and sell from the most favorable sources.
Enron did nothing in the California trades that was not available to others in the market. Enron simply out-smarted everyone else. Therefore, the question about those trading strategies always struck me as more of an ethical question rather than a legal one. Knowing that California, through its own ineptness, had put itself into a vulnerable energy situation, should Enron have refused to execute those trading strategies even though they were legal?
The real lesson from those Enron strategies should have been to teach states not to duplicate the energy actions and rules of California. Basically, California wants to shield itself from the weaknesses that its own actions have created. The fact that California remained vulnerable to the trading strategies recently used by JP Morgan shows that California has learned nothing and still blames others for its own mess.