Vlad writes: People have to understand that in a deregulated energy market, like in any commodity market, the price reflects the marginal cost unless a true shortage exists. The inability to supply also leads to scarcity prices. In California, they were either facing a shortage or prices were too high. One can not have both surplus and shortage prices without market manipulation. Indeed it appears to be a basic contradiction between markets and public policy objectives.
Here are some relevant extracts from an article by Jason Leopold, Dow Jones Newswires, published Wednesday, Feb 20, 2002:
For more than a year, California Gov. Gray Davis and other state officials have alleged that energy companies, including Enron, manipulated the price of electricity and natural gas in the state by withholding supplies to create an artificial shortage and gouging utilities by charging prices for power that were 10 times higher compared with previous years205
The letter, sent to Boxer last week by David Fabian, a former employee for Enron`s trading unit who wrote the company`s trading software for electricity and natural gas sales, claims Enron congested the state`s
transmission lines and then resold the power in the state`s wholesale electricity market at skyrocketing rates. Fabian worked at the unit from 1997 until the end of 2000205
Enron held the so-called ``firm`` transmission rights for Path 15, California transmission lines that carry electricity from the south to the north. Firm transmission rights, which are auctioned to energy companies,
give holders the right to reserve space on lines, and rent out that space. Path 15 has been identified by the Federal Government as a major bottleneck in California`s power grid. Bottlenecks on Path 15 have contributed to rolling blackouts in northern California.
``Enron would clog up NP and SP and then gouge people when they needed to use the line to ship power,`` Fabian said in an interview205
The California Independent System Operator, manager of the state`s high-voltage power grid said that the kind of congestion Fabian described in the letter may be what the ISO calls ``phantom congestion.`` The grid operator uses the term to indicate that an entity is sending power over a line simply to congest it.
A spokesman for the grid operator said he could not say specifically if Enron engaged in this type of behavior, but there is evidence that ``phantom congestion`` took place during the height of the state`s power crisis, which caused electricity prices to skyrocket. California is seeking $9 billion in refunds from generators, including Enron, for allegedly gouging utilities.
The now-defunct California Power Exchange CalPX said Enron had congested the Silver Peak Line, which runs from the Central Valley to San Diego. Deliberately congesting the transmission line could have congested other transmission lines in the area and produced higher prices for power, including that sold by Enron, according to the documents...
