Court ruling on energy crisis could have dramatic impact

The U.S. Supreme Court is about to make its first decision on the worst energy crisis in American history: The California energy crisis of 2000-01.

The legal repercussions of this decision could change the way energy is bought and sold in America for generations. For good or bad.

As a former member of the California Legislature when this disaster of a law was passed unanimously (yes, I voted for it), I saw first-hand how bad regulators turned this consensus law into such an epic disaster.

Here's the crux of the story: In 1996, the California Legislature "deregulated" the state's energy markets. (Ironically, the first act of this "deregulation" was to impose price controls.)

Within five years of the "deregulation," prices had exploded, blackouts were common, and the state's largest utility went bankrupt after wholesale prices rose to as high as seven times the retail price.

In that superheated environment, several large utilities in the Western United States and the state of California entered into long-term contracts for energy - just as the price peaked.

Soon after, prices tumbled and some buyers - suffering buyer's remorse - claimed the high prices were the result of unlawful trading - by Enron, among others - and that the long-term contracts should be renegotiated.

And money refunded.

Some energy generators insisted their contracts were fairly negotiated without coercion between sophisticated buyers and sellers. They were unable to reach an agreement to change the contracts.

So the buyers asked the Federal Energy Regulatory Commission to rip up the expensive, long-term contracts. The energy providers said that the failure to maintain the sanctity of the contracts would wreak havoc in the energy markets by introducing a dangerous element of uncertainty into the creation of energy supplies.

About two years ago, the Ninth Circuit Court of Appeals agreed with the buyers and ordered FERC to modify the contracts. Soon after, the Supreme Court agreed to hear the case on appeal. A recent Associated Press story indicated the Supreme Court appears unwilling to invalidate the contracts. But we will know one way or the other in the next few days.

This case was one of several that grew out of the energy crisis in California and throughout the West during 2000-01. In addition to the long-term contract case before the Supreme Court, there are other proceedings in which the state and the large utilities are seeking refunds for the high price of energy purchased on the spot market during the crisis. To date, the utilities have recovered about $6.2 million in refunds.

As a state legislator in California when this law was passed, I've seen first-hand how much damage this law - and even more importantly, its implementation - has done, and could continue to do if the Supreme Court does not reverse the Ninth Circuit.

Howard Kaloogian is a former California assemblyman, whose district covered parts of northern San Diego County. He lives in San Marcos and can be reached at howardkaloogian@gmail.com.