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The facts were trade and government secrets at the time. But the energy
industry failed the smell test in 2000 and 2001 as it tried to justify
soaring wholesale electricity and natural-gas prices in California.

Now, as investigators and regulators unravel the reasons for a financial
and fiscal mess we'll be cleaning up for decades, we're learning what
everyone suspected. Market games helped engineer the price spikes.

The latest manipulation was highlighted in Monday's finding by a federal
administrative law judge, who said a dominant natural-gas company squeezed
supplies in order to squeeze customers. His ruling came a few days after
California's Public Utilities Commission reported that electricity
generators mysteriously failed to use available capacity during the crunch,
also driving up prices.

And don't forget the sleazy games by energy traders who gleefully worked
the system, in schemes best summed up by an Enron insider's boast in a
memorandum made public in May, that ``Enron gets paid for moving energy to
relieve congestion without actually moving any energy or relieving any
congestion.''

How much of this was illegal, as opposed to simply amoral, remains to be
seen. Unfortunately, California's response -- confusion, lawsuits and
policy tweaks -- hasn't been sufficient.

More unfortunately, even if the state suddenly did all the right things --
including a hard-nosed program designed to free ourselves from the gougers'
grips -- we would need a willing federal partner. But it's foolish to think
that the Bush administration would do much to help one of its least
favorite states, or do anything that conflicts with its love of
traditional, non-renewable energy sources.

If the lawsuits against various energy companies and traders bear any
fruit, the best we can expect is to pay off some of the massive debts the
state amassed to prevent a total collapse in early 2001. That's a
reasonable approach, but don't expect miracles.

State policies are moving the wrong way on utility regulation, meanwhile.
Instead of relentlessly pursuing smart deregulation -- still a good idea if
it gives customers genuine choices -- state laws and regulations ``put the
utilities back in the business of buying energy for captive customers,''
notes V. John White, executive director of the Sacramento-based Center for
Energy Efficiency and Renewable Technologies (www.ceert.org).

It's tempting to call for an outright state takeover of the utilities --
tempting but a bad idea. When there's genuine competition, as we could
achieve in electricity generation, the private sector tends to do a better
job. Instead of abandoning deregulation, California should find a way to
inject real competition into the market.

We do need to recognize that the current system of delivering electricity
defies privatization, at least under current conditions. Smart regulation
is essential.

But the best response to gouging is to use less of what the gougers
control. There are two ways: conservation and replacement. We need more of
both.

The best recent step is a new state law that slowly but surely ratchets up
the use of electricity from renewables. By 2017, California's utilities
will have to get 20 percent of their power from solar and other renewable
sources. Several power companies are expected to do this even sooner.

But this law has an element of old-line thinking, the captive-customer
model we need to be getting away from, not sustaining. Lip service to newer
ideas isn't enough.

The state should be removing barriers to micro-generation systems, small
generators that can run on a variety of fuels and provide decentralized,
harder-to-disrupt electricity to homes and businesses. This technology is
coming along fast. State policies are not keeping pace.

Investing to save energy is increasingly the smartest move of all.
California should be doing more to encourage this, whether through tax
incentives or outright grants in low-income households. California hasn't
done badly on conservation in a general sense, and energy customers did
react to last year's soaring rates and blackouts by cutting back, but it's
lunacy to wait for the next crisis when we can do something to avoid it
altogether.

Maybe this is all pointless. The Bush administration's energy policies, so
grossly tilted toward the unholy trinity of oil, coal and nuclear, are
making us all more vulnerable. Never mind what might happen if the coming
war in Iraq goes badly.

It's pointless to hope for a sane federal policy -- a crash program to
drastically speed the inevitable transition to a hydrogen-based energy
system. But the largest state, one of the world's major economies in its
own right, does have some clout. We can hit the rip-off artists where it
hurts, and protect ourselves from even more serious disruptions. Maybe next
year.

-- 
-----------------
R. A. Hettinga <mailto: rah@ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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-- 
-----------------
R. A. Hettinga <mailto: rah@ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'