Enron’s Cautionary Tale of Deregulation

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We’ve already chronicled several of the failures of other states’ attempts at deregulating electricity.  But so far, we haven’t talked about the most infamous deregulation debacle in history: The Enron Scandal.  Now that electric deregulation legislation has been introduced in Lansing, we thought it would help to look back to the California energy crisis, which so powerfully illustrated the dangers of full electric deregulation.

“At the beginning of this year [2001], the Enron Corporation, the world’s dominant energy trader, appeared unstoppable. The company’s decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York.” the New York Timesexplained in fall 2001. “But less than a year later, everybody seems to have lost.” 

Consumers Lost

Perhaps the biggest losers were the people of California.  To inflate prices, Enron created a gap between supply and demand by causing artificial shortages.  Dozens of large-scale blackouts affected millions of Californians during times of peak demand, including a dangerous heat wave. 

Deregulation directly threatened access, reliability, and fairness in ways that inconvenienced thousands and had far more serious consequences for others.

In-State Businesses Lost

Price volatility directly harmed many California-based small businesses, shrinking their margins and contributing to some closing their doors entirely. 

Moreover, while out-of-state trader Enron was able to price gouge with impunity, in-state energy providers were required by California law to buy from spot markets at very high prices—but were unable to raise retail rates to account for the huge increases.  As a result, Pacific Gas & Electric, a company founded in California in 1905, declared bankruptcy. 

Workers Lost

Tens of thousands of workers were laid off within California’s energy industry, and pensions earned over a lifetime were wiped out in short order.  Ripples were undoubtedly felt throughout the state’s entire economy that resulted in many more jobs lost.

Learning from Enron

Enron is a classic example of how deregulation fails families and businesses.  A system of responsible regulation would have prevented them from being able to wreak the havoc on California’s market that they did.

Even in a best-case scenario, House Bill 5184 would send Michigan dollars to out-of-state companies and jeopardize the reliable electricity our families and businesses depend on.  When Michigan’s economy is finally showing signs of recovery, taking such a risk would be foolhardy at best, negligent and disastrous at worst.

Consider taking action by writing your state legislators today; it takes just a few minutes through our website.