De-Regulated Electricity Ghosts: Enron, and California Blackouts

Former CPUC Legislative Director

Former CPUC Legislative Director Bill Julian

Don’t let ghosts of Enron haunt us again

Sacramento Bee 9-25-16

BY BILL JULIAN Special to The Bee



Remember Enron, rolling blackouts and double-digit electricity rate increases? How could we forget so soon.

California embarked on a momentous and catastrophic experiment to deregulate its electrical system 20 years ago this month. We are still paying the price.

The Legislature passed AB 1890 authored by then-Assemblyman Jim Brulte and co-authored by 45 members of the Assembly and 25 senators, and sent it on to Gov. Pete Wilson. There was not a single dissenting vote. Wilson signed the measure on Sept. 24, 1996.

In hindsight, deregulation was an open invitation for abuse of retail consumers, you and me. The integrated electric grid – engineered to provide reliable electric service using strategically located power plants – was dismantled, or, in the advocates’ jargon, unbundled.

Regulators compelled utilities to turn over control of the transmission grids to a new untested organization, the Independent System Operator, or ISO, operated by a stakeholder board dominated by wholesale sellers.

Utilities had to sell generating plants to third-party marketeers and purchase electricity for consumers from a new untested wholesale “market” created by the legislation, the Power Exchange.

Electricity sellers bought the utilities’ power plants because they understood that they were buying market power, and could employ various strategies to create the appearance of shortages to justify high prices. The ISO was clueless back then.

The Federal Energy Regulatory Commission, or FERC, loosely regulated energy marketeers, abrogating the obligations to the end users, you and me.

It fell apart in June 2000, when retail rates in San Diego tripled. Enron and others were manipulating the wholesale market, withholding energy and price gouging.

As California policymakers learned, the state had given away its ability to respond to the crisis and protect residents and businesses from the predatory sellers, including Enron, Coral, Shell and NRG, companies that were intent on exploiting California’s scheme.

That power had been passed to FERC, which was lackadaisical and at times openly hostile to consumer protection.

Gov. Gray Davis was reduced to pleading before federal commissioners in Washington, D.C., for relief in the days after the 2000 presidential election. The federal commission responded by eliminating all controls over wholesale price gouging.

The next six months saw rolling blackouts, rate increases and rapid deterioration in California’s budget reserves, until President George W. Bush’s new energy commission appointees mercifully ended the crisis by reinstituting price caps in June 2001.

The Legislature learned many of the important lessons and acted on them. It clawed back state authority to protect retail customers and would not give it away again.

Perhaps most importantly, the Legislature reorganized the ISO governance to provide for a board appointed by the governor and confirmed by the Senate.

The organization, which is based in Folsom, must be responsive to state policies for consumer and environmental protection, and control the use of the grid for the benefit of California end-use customers.

But we are still paying the price for AB 1890’s errors and federal commission’s slothfulness. Just two weeks ago, a federal appeals court affirmed a 2015 FERC decision that electricity sellers manipulated the markets 16 years earlier, during three months in the summer of 2000. California first told federal commission about that 16 years ago. What took so long?

Other cases have been settled for pennies on the dollar. Your electricity bills still reflect energy crisis costs resulting from California’s attempts through the state Department of Water Resources to sign expensive longterm contracts to keep the lights on in spring 2001, after utilities became insolvent and no longer creditworthy in the eyes of the price-gouging sellers.

Today, 20 years after AB 1890, there are rumblings about undoing some of the energy crisis fixes, particularly California’s control over the governance of the ISO.

As Jerry Brown’s administration pursues greater regional electricity coordination with other Western states – including ones that still depend on coal – this core California protection is being placed at risk unnecessarily.

For more than 60 years, California’s energy supply arrangements have included regional coordination. That coordination is advancing under the current regime of the ISO, without any change in basic decision-making authority.

A recent legal analysis contracted by the ISO concludes that there is no impediment to utilities from outside California joining ISO-managed grid arrangements under the terms of its existing tariffs.

There is no reason to sacrifice a core protection to advance a responsible, prudent path of regional coordination of electricity supply. Once given away, the power to protect is hard to win back.

Bill Julian was legislative director for the California Public Utilities Commission during the energy crisis, .