Wednesday, January 30, 2002

Enron's defenders insist it had no role in high energy prices in California. They will no doubt insist as well that it was just a coincidence that just after Enron went bankrupt, the prices sharply dropped.

Update: This premium story on Salon connects the dots. Electricity prices are driven, in California, by natural gas prices. At the end of 2000, the market rate for natural gas delivery to Southern California was $59.12 a decatherm, whatever that means. On the other side of Arizona, in San Juan, New Mexico, the going rate was $10.12 a decatherm. And the cost of delivery is less than a dollar --- meaning that someone was picking up $48 or so per decatherm in arbitrage between the two markets.

From May, 2000 till June, 2001 Enron controlled over 50% of gas sales for delivery to Southern California, so they were clearly picking up quite a bit of this action. How much is impossible to say, as the transactions were subject to no reporting requirements... but it's kind of suspicious that since Enron stopped trading, the "California premium" has just about vanished.


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