Ken Lay and revisionist history

The purveyors of revisionist political history are back at work this week, inspired by the death of Enron Corp. founder — and convicted felon — Kenneth Lay to revive the myth that were it not for Enron and Lay, California wouldn’t have experienced its 2001 energy crisis.

“We cannot allow his death to rehabilitate his image,” state Sen. Joe Dunn, D-Santa Ana, was quoted in one obituary. “This is a man who is responsible for damaging millions of lives.”

Dunn led a legislative investigation into Enron’s exploitative energy trading schemes, and this year ran for state controller as “the man who cracked Enron,” an overblown claim that didn’t save him from being rejected by Democratic voters.

Attorney General Bill Lockyer had the good manners to remain silent about Lay’s death from a heart attack three months before he was to be sentenced for lying to mask the failing company’s condition. It was Lockyer who in 2001 told an interviewer that, “I would love to personally escort Lay to an 8-by-10 cell that he could share with a tattooed dude who says, ‘Hi, my name is Spike, honey’.”

Dunn and Lockyer have been the most vociferous politicians in blaming Lay and Enron for California’s energy woes, but they’re not alone. Gray Davis, the governor when the crisis struck, claimed vindication last May when Lay was convicted along with associate Jeffrey Skilling. The energy meltdown _ soaring costs and blackout-inducing shortages _ began political slide that culminated in Davis’s 2003 recall.

Did Lay’s Enron play a role in the crisis that continues to cost California consumers tens of billions of dollars? Of course, but it was just one of many factors, and not even the most important one.

Lay was an advocate of electric utility deregulation, but so were many others. Properly constructed, deregulated energy markets have worked elsewhere and could work in California, but the state’s politicians fumbled.

In the mid-1990s, then-Gov. Pete Wilson and Daniel Fessler, Wilson’s Public Utilities Commission president, pushed for deregulation, saying that competition could bring down California’s high power rates. The PUC formulated a plan but the Legislature _ especially a state senator named Steve Peace _ decided to intervene. Lobbyists for utilities, power generators, traders such as Enron and consumer advocates engaged in marathon negotiating sessions known in the Capitol as the “Steve Peace death march” and produced a scheme that legislators, including Lockyer as a state senator, unanimously endorsed in 1996.

Retail power rates were frozen while utilities bought juice from a newly created wholesale market at prices that had no caps. It worked well enough for a few years because wholesale rates were low and stable, but when power shortages _ chiefly from a drought in the Pacific Northwest _ emerged in 2000, utilities began experiencing billions of dollars in new costs that they could not pass on to their retail customers, driving them toward bankruptcy. The illogical system began to collapse.

The scheme’s flaws were compounded by Davis’ paralysis when the first shortages hit in 2000. Had he and his PUC president, Loretta Lynch, acceded to utilities pleas to abandon the spot market and sign long-term supply contracts, the crisis could have been averted. Even Enron was willing to sell long-term power for about five cents a kilowatt-hour. Davis’ deer-in-the-headlights procrastination encouraged the market manipulators and six months later, when the state finally sought long-term supply contracts to avert blackouts, prices were much, much higher.

It was California politics at their worst. The system grants every “stakeholder” on a major issue a virtual veto if it is not satisfied with the product, and satisfying every interest often results in unworkable monstrosities. The 1996 scheme was one such product; all interests were placated but in the rush to ratify the agreement, no one explored potential downside risks _ the same expedient approach that later generated the state’s chronic budget deficits.

It’s convenient for politicians such as Lockyer and Davis to blame Enron, but if they had been doing their jobs 10 years ago and six years ago, the crisis wouldn’t have occurred.