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It was in this fertile ground that Death Star, Get Shorty and their kin were planted. These two strategies were particularly devious. In the former, Enron was being paid for taking away excess energy that it never really put in, while in the latter, it was buying and selling commitments it never made. This kind of trade, known as "gaming" the market, is prohibited by the California ISO's regulations, but because there were seven different energy markets the ISO had to keep tabs on and because it is so difficult to pin down whether a company has the energy it says it has who has ever seen a megawatt hour?--the trades were able to slip by.
By December 2000, with prices rising amid a cold snap in Oregon and Washington that made those states want to hold on to excess energy, the ISO was even less inclined to investigate whether Enron was telling the truth about its supply. "When you're 30% short, you're looking for every megawatt," says ISO chief Terry Winter. On Dec. 8 of that year, Winter's stamina was exhausted. He wrote to the FERC asking for price caps to be lifted. Result: the price of a megawatt hour, which was $43.80 at the beginning of 2000, skyrocketed to $292.10 by the end of it. Death Star had struck.
The FERC imposed price caps again in June 2001, which allowed Davis to renegotiate those long-term contracts. But the caps are temporary, and if the FERC decides to remove them this year, there is nothing to stop other energy suppliers from following Enron's strategies. "It's like a cheap Western movie," says Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif. "The outlaws come to town. They loot the town. The sheriff comes in. They head to the hills with their loot. As soon as the sheriff disappears, it's going to be the Wild West all over again."
That is why it is such a propitious time for these memos to arrive and why a legal solution, which could take years, is less important to California than a political fix. Even Davis is sidestepping the question of whether Enron did anything illegal. "It doesn't matter to me if this conduct rises to criminality," the Governor told reporters last week. "The feds' responsibility is to make sure rates are reasonable and just."
Also, putting the matter in federal hands avoids the question of how much California is to blame for a system that effectively created a casino. Nevertheless, the lawyers behind these memos and the chairman of the FERC will appear before Congress this week, and West Coasters can feel that something is being done about their energy costs. This is how California likes to deal with those who mock it by putting them on television.