Energy Trading on the Sly

California's rolling blackouts and other power emergencies in 2000 and 2001 weren't solely the result of the state's faulty deregulation plan. Memos just divulged by Enron indicate that market manipulations by energy traders also contributed, aggravating the problems if not causing them.

To its credit, Enron's new management gave the memos to government regulators soon after they were discovered, though they could have been held as privileged lawyer-client communication. The company, say its current lawyers, wants to cooperate with ongoing investigations.

Thus new light is thrown on practices that until now were mainly a matter of speculation by state officials who were sure they'd been conned by Enron and other traders. The memos detail strategies such as artificially creating congestion on power lines so traders could collect fees to relieve it, or buying power at a capped price in California, then selling it much higher out of state, then reselling it back to California. The Enron memos say other energy traders were engaged in similar strategies.

This constant gaming of the market, by the Enron memos' own admission, probably deepened power-shortage crises in the state. The manipulations certainly violated state regulatory rules, though they were not clearly detected at the time. Sen. Dianne Feinstein (D) of California suspects they also may have violated federal fraud statutes, and she is urging a Justice Department probe.

For now, the memos should spur federal energy regulators' investigations, with an eye to curbing such practices in the future.

California had unique energy problems, largely of its own making. But that didn't justify a free-for-all by crafty traders.