Remember the California Blackouts?
Remember the effect of deregulation on California's energy markets? Will the Supreme Court validate the disastrous effects of that deregulation?

I received an interesting email recently from Howard Kaloogian, a former member of the California legislature. The following is a tad on the long side but well worth the read:

The U.S. Supreme Court is about to make its first  decision
on the worst energy crisis in American history: The California energy crisis
of 2000-2001.

            The legal repercussions of this decision could change the way
energy is bought and sold in America for generations. For good or bad.

            As a former member of the California legislature when this
disaster of a law was passed unanimously (yes, I voted for it), I saw first
hand how bad regulators turned this consensus law into such an epic disaster.

            Here's the crux of the story:: In 1996, the California legislature
“deregulated” the state's energy markets. (Ironically, the first act of
this “deregulation” was to impose price controls.)

            Within five years of the “deregulation,” prices had exploded,
blackouts were common, and the state's largest utility went bankrupt after
wholesale prices rose to as high as seven times the retail price.

            In that superheated environment, several large utilities in
the Western U.S. and the state of California entered into long term contracts
for energy - just as the price peaked.

            Soon after, prices tumbled and some buyers - suffering buyer's
remorse -- claimed the high prices were the result of unlawful trading
- by Enron among others - and that the long-term contracts should be renegotiated.
           
            And money refunded.

Some energy generators insisted their contracts were fairly negotiated
without coercion between sophisticated buyers and sellers. They were unable
to reach an agreement to change the contracts.

So the buyers asked the Federal  Energy Regulatory Commission (FERC) to
rip up the expensive, long term contracts. The energy providers said that
the failure to maintain the sanctity of the contracts would wreak havoc
in the energy markets by introducing a dangerous element of uncertainty
into the creation of energy supplies.

About two years ago, the Ninth Circuit Court of Appeals agreed with the
buyers and ordered FERC to modify the contracts. Soon after, the Supreme
Court agreed to hear the case on appeal. A recent Associated Press story
indicated the Supreme Court appears unwilling to invalidate the contracts.
But we will know one way or the other in the next few days.

This case was one of several that grew out of the energy crisis in California
and throughout the West during 2000-2001. In addition to the long-term
contract case before the Supreme Court, there are other proceedings in
which the state and the large utilities are seeking refunds for the high
price of energy purchased on the spot market during the crisis. To date,
the utilities have recovered about $6.2 million in refunds.

As a state legislator in California when this law was passed - I've seen
first hand how much damage this law - and even more importantly - its implementation
has done. And could continue to do if the Supreme Court does not reverse
the Ninth Circuit.

________________________
Here are some background links Mr. Kaloogian also sent:

HeraldNet: Supreme Court hears Snohomish County PUD case <http://www.heraldnet.com/article/20080219/NEWS01/280030648>

Haas School: California Electricity Crisis
 <http://www.haas.berkeley.edu/news/manifesto.html>

Panelists maintain support of energy deregulation, criticize Gov. Davis:

10/01 <http://news-service.stanford.edu/news/2001/october24/energy-1024.html>

'Attorney Generals Office issues statement on wholesale energy rates <http://www.atg.wa.gov/pressrelease.aspx?id=18790