Back in December 2001, California suffered from two rolling blackouts, which means that there was not enough electricity for America’s largest state. Accordingly, electricity prices shot through the roof, in some cases by a factor of ten. How could this possibly happen and more important, who was responsible for this energy crisis?
It all started with the deregulation of the electricity market in California a few years earlier. Thanks to the complicated and hard-to-follow new rules, a few smart guys inside Enron, such as Tim Belden, found plenty of loopholes to exploit the California energy system.
Basically, the Enron energy traders followed two massively effective strategies to make money out of ‘those poor grandmothers in California’ (sic). First, the traders created artificial electricity shortages by shutting down power plants. In energy shortage, they exported power out of the state. When prices soared again, the traders brought it back in.
However, the real money was made by arbitrage, essentially by betting that electricity prices would go up. As a result, the Enron traders made billions of dollars for the company, while the State of California was being plundered. The whole California electrical system, built a hundred years ago by Edison, was all of a sudden turned into a casino...
Based on the documentary 'Enron: The Smartest Guys In The Room'