Tags: Fraudulent | Enron | Fraudulent | Gov. | Davis

Fraudulent Enron, Fraudulent Gov. Davis

Thursday, 16 May 2002 12:00 AM

California, the state that drove one of its own utility companies to bankruptcy. Well, at least California was not to blame. It was all the fault of Enron Corp., the big energy company that grew so crooked that it eventually fell under the weight of its crookedness.

"They [Enron] wanted to bilk us for every dollar they could, and that is exactly what they did," Gov. Gray Davis, D-Calif., said last week. "It is in black and white ... saying: 'Here is what we intend to do. We are going to manipulate the system. We're going to make a killing and drive up our stock prices.'"

Davis, king of smokescreens, camouflage, bluster and demagoguery, is at it again.

Release of internal Enron memoranda has enabled him to find someone else to blame for California's electricity crisis in 2000-01, a crisis that has left his state paying billions of dollars more than it should for electricity, contributing to the state's budget deficit, estimated at more than $20 billion.

Yes, Enron, we now know, was a corrupt mess, a fraudulent company, and Davis knows we know. Enron can easily be blamed. But was it Enron that caused the crisis?

Professor James Sweeney of Stanford University, the author of a book on the electricity crisis, has examined the Enron memos. Sweeney concludes: "No strategy of Enron's that is identified in the memo could cause the California electricity crisis, nor even significantly increase the overall price level. Most exploited clumsy elements of the market rules."

"Clumsy elements of the market rules?" This is the heart of the matter. California "deregulated" electricity in 1996 but put a cap on the price utilities could charge for electricity. Prices of natural gas soared in 2000. The electricity companies were paying more wholesale than the retail price they were charging. That is not a good position for any company.

The utilities were obliged by the state government's rules to buy on the spot market, the refuge of the desperate, not in secure and cheaper long-term contracts that offer a fairer price. They indebted themselves to the point where no one wanted to lend to them. They came close to bankruptcy – and one of the two main utilities, Pacific Gas & Electric, eventually declared bankruptcy – and because they were in financial disarray, their suppliers and financiers had grounds on which to charge them a risk premium.

It was all a disaster, a disaster of regulation.

Companies selling their products, individuals selling their home or their car, sell in any market at the highest price at which they can sell. And so electricity generating companies did profit from the financial mess of California's utilities. But they did not create the mess.

Enron, being a corrupt company, sought to profit in corrupt ways. It was, in Sweeney's assessment, "a petty thief ... shoddy, possibly illegal." But for Davis's attempt to pin the blame for the whole crisis on Enron, Sweeney finds this analogy: "A destructive earthquake takes place. Someone is found looting a store. The mayor of the city has a press conference showing the felon and asserting that the felon was responsible for the earthquake."

Yet Davis is right. In this remarkable case a body can be held responsible for the earthquake. But it isn't Enron. It is a somebody.

For California's electricity crisis might have been alleviated at a stroke: a stroke of the governor's pen. By allowing the utilities to raise their prices in line with their higher costs and to buy electricity under much cheaper, long-term contracts, Davis could have calmed the whole crisis and saved his taxpayers billions of dollars. He chose not to.

Instead he resorted to bluster, attacking the private sector in a manner that was remarkable for an American politician.

Davis could have found the state control of industry and prices which he extols in any country in the Soviet bloc before 1990. Strangely, these countries were far less prosperous than California which, stripped off from the rest of the United States, has the world's sixth biggest economy. Is Davis not aware that the prosperity his state and his country enjoy have been created by private enterprise? It appears not.

Capitalism has many flaws, but it has given ordinary people in Western countries a standard of living unprecedented in human history. Ridiculously and offensively, Davis tries to shift blame for the mistakes made in regulating his state's electricity industry on to the private sector.

Enron, one of the worst and most prominent examples of corruption in America's private sector in many years, a fraudulent company that long pulled the wool over the eyes of the public and investors, is his latest cloak.

Pull the Enron cloak aside and there exposed is Davis, one of the worst and most prominent examples of poor public sector leadership in the United States in years. Fraudulent Enron and him do make a fine pair.

Copyright 2002 by United Press International.

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California, the state that drove one of its own utility companies to bankruptcy. Well, at least California was not to blame. It was all the fault of Enron Corp., the big energy company that grew so crooked that it eventually fell under the weight of its crookedness. ...
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2002-00-16
Thursday, 16 May 2002 12:00 AM
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