Diese Präsentation wurde erfolgreich gemeldet.
Wir verwenden Ihre LinkedIn Profilangaben und Informationen zu Ihren Aktivitäten, um Anzeigen zu personalisieren und Ihnen relevantere Inhalte anzuzeigen. Sie können Ihre Anzeigeneinstellungen jederzeit ändern.
Special Presentation The California Crisis and the Enron Debacle Will Deregulation Survive ? IEEE Luiz Maurer São Paulo, S...
<ul><li>Deregulation of power sector in 2001 </li></ul><ul><li>Focus of this presentation </li></ul><ul><li>California and...
DEREGULATION OF THE POWER SECTOR IN 2001
DEREGULATION OF THE POWER SECTOR HAD MANY SETBACKS IN 2001 <ul><li>California crisis </li></ul><ul><li>Enron collapse </li...
VERDICT HAS BEEN SIMPLE:  BLAME IT ON DEREGULATION <ul><li>“ Deregulation is a failed experiment”  </li></ul><ul><li>Calif...
WHICH RAISES SEVERAL GENUINE QUESTIONS <ul><li>Why did those things happen? Points in common? </li></ul><ul><li>Could it h...
FOCUS OF THIS PRESENTATION
  FOCUS OF THIS PRESENTATION
CALIFORNIA AND ENRON IN A SNAPSHOT
CALIFORNIA IN A SNAPSHOT <ul><li>Started full deregulation in 1996 </li></ul><ul><li>First problems in 2000 – price spikes...
ENRON IN A SNAPSHOT (I) <ul><li>Reported losses in October, with significant write-offs  </li></ul><ul><li>Raised investme...
ENRON IN A SNAPSHOT (II) <ul><li>Frustrated attempt to sell trading floor and EOL at a large premium </li></ul><ul><li>Cla...
ENRON INVOLVEMENT IN THE CALIFORNIA CRISIS
ENRON IS PERCIEVED AS A SCAPEGOAT  IN THE CALIFORNIA CRISIS   <ul><li>The most active proponent on deregulation </li></ul>...
ENRON DOES NOT DESERVE THE BLAME <ul><li>Does not own generation facilities (except wind) </li></ul><ul><li>If claimed ref...
CAN WE BLAME IT ON DEREGULATION?
CALIFORNIA IS NOT DEREGULATION <ul><li>Several design problems – some anticipated </li></ul><ul><li>D/Cs not allowed to si...
ONE CAN NOT HONESTLY BLAME ON DEREGULATION FOR ENRON’S DEMISE <ul><li>“ Trading Natural gas and electricity, the core busi...
HAVE ENRON AND DEREGULATION CREATED ANY VALUE TO SOCIETY?
“ ENRON WAS MOSTLY RIGHT ABOUT ONE THING: DEREGULATION” <ul><li>“ Moving aggressively, it became the largest trader of ele...
“ TESTAMENT TO THE FLEXIBILITY OF THE U.S. ENERGY MARKET” <ul><li>“ Enron could fail without disrupting gas or electric su...
DEREGULATION HAS BROUGHT SIGNIFICANT BENEFITS TO US CONSUMERS <ul><li>Recent study by Boston Pacific Co. indicates that 19...
AND THERE ARE MANY SUCCESS STORIES OUTSIDE OF CALIFORNIA AND ENRON <ul><li>Well functioning power pools in the US do not r...
RELEVANCE OF THIS DISCUSSION TO BRAZIL
ONE WAY OF TELLING THE STORY <ul><li>Embarked on a restructuring program in   1998, towards privatization and deregulation...
THE FLIP SIDE OF THE COIN <ul><li>Model designed for Brazil is significantly different from California’s (Appendix) </li><...
THERE ARE SUCCESS STORIES ON THE USE OF MARKET FORCES <ul><li>The way the rationing program was designed illustrates how m...
IN CONCLUSION
IT IS NOT FAIR TO BLAME IT ON DEREGULATION <ul><li>For many, California should not be called deregulation – it is a “botch...
APPENDIX DEREGULATION MODELS  IN BRAZIL AND CALIFORNIA
 
Nächste SlideShare
Wird geladen in …5
×

E 22 P8 Energy The California Crisis

512 Aufrufe

Veröffentlicht am

The California Crisis and the Enron Debacle
Will Deregulation Survive?

Veröffentlicht in: Business, Technologie
  • Als Erste(r) kommentieren

  • Gehören Sie zu den Ersten, denen das gefällt!

E 22 P8 Energy The California Crisis

  1. 1. Special Presentation The California Crisis and the Enron Debacle Will Deregulation Survive ? IEEE Luiz Maurer São Paulo, SP March 22, 2002
  2. 2. <ul><li>Deregulation of power sector in 2001 </li></ul><ul><li>Focus of this presentation </li></ul><ul><li>California and Enron in a snapshot </li></ul><ul><li>Enron involvement in the California crisis </li></ul><ul><li>Can we blame it on deregulation? </li></ul><ul><li>Have deregulation and Enron created any value? </li></ul><ul><li>Relevance of this discussion to Brazil </li></ul><ul><li>In conclusion </li></ul>AGENDA
  3. 3. DEREGULATION OF THE POWER SECTOR IN 2001
  4. 4. DEREGULATION OF THE POWER SECTOR HAD MANY SETBACKS IN 2001 <ul><li>California crisis </li></ul><ul><li>Enron collapse </li></ul><ul><li>Spillover effects on perceived “Enronites” – e.g. Calpine, losing US$ 2 billion </li></ul><ul><li>PG&E bankruptcy in San Francisco </li></ul><ul><li>Energy shortage in Brazil </li></ul>
  5. 5. VERDICT HAS BEEN SIMPLE: BLAME IT ON DEREGULATION <ul><li>“ Deregulation is a failed experiment” </li></ul><ul><li>California, first state to fully introduce wholesale + retail competition – was also the first one to fail </li></ul><ul><li>Enron, the champion of deregulation, following a death spiral which led to Chapter 11 </li></ul><ul><li>Therefore: </li></ul><ul><ul><li>General skepticism from the public </li></ul></ul><ul><ul><li>PUCs delaying retail competition </li></ul></ul><ul><ul><li>FERC more prudent in setting up RTOs </li></ul></ul><ul><ul><li>More discussions on how electricity should be traded, transmitted and paid for </li></ul></ul>
  6. 6. WHICH RAISES SEVERAL GENUINE QUESTIONS <ul><li>Why did those things happen? Points in common? </li></ul><ul><li>Could it happen again and again? </li></ul><ul><li>Is deregulation something evil? </li></ul><ul><li>What are the alternatives? </li></ul><ul><li>Go back to the old good days of cost plus regulation and central planning? </li></ul><ul><li>Should states put an end on customer choice? </li></ul>
  7. 7. FOCUS OF THIS PRESENTATION
  8. 8. FOCUS OF THIS PRESENTATION
  9. 9. CALIFORNIA AND ENRON IN A SNAPSHOT
  10. 10. CALIFORNIA IN A SNAPSHOT <ul><li>Started full deregulation in 1996 </li></ul><ul><li>First problems in 2000 – price spikes directly affecting customers, reflecting supply-demand mismatches and T constraints </li></ul><ul><li>Winter widespread rolling black-outs </li></ul><ul><li>Financial distress imposed on utilities, forced to buy on a spot basis </li></ul><ul><li>Finger pointing – Enron as the scapegoat - personal issue between Mr. Gravis and Mr. Lay </li></ul><ul><li>Proposed solutions: State role as a buyer </li></ul><ul><li>Last season – problem mitigated, with customer response and [stranded] contracts (?) </li></ul><ul><li>Discussions on US$ 9 bi refund from cowboys </li></ul>
  11. 11. ENRON IN A SNAPSHOT (I) <ul><li>Reported losses in October, with significant write-offs </li></ul><ul><li>Raised investment community eyebrows, but explanations far from convincing </li></ul><ul><li>SEC investigation – need to report retroactively </li></ul><ul><li>Stock prices declining, triggering clauses of financial derivatives </li></ul><ul><li>Cash badly needed, stocks in a death spiral </li></ul><ul><li>Frustrated attempt to merge with Dynegy </li></ul><ul><li>Chapter 11 filing in early December, followed by massive corporate layoffs </li></ul>
  12. 12. ENRON IN A SNAPSHOT (II) <ul><li>Frustrated attempt to sell trading floor and EOL at a large premium </li></ul><ul><li>Class actions, Congress hearings, Powers Report </li></ul><ul><li>Scandals of all sorts, particularly related to special entities and Enron CFO </li></ul><ul><li>Key executives and board members fired </li></ul><ul><li>AA – criminal charges for obstruction of justice </li></ul><ul><li>Investigations on the way and will continue for months to come </li></ul><ul><li>After all, the largest bankruptcy in America </li></ul>
  13. 13. ENRON INVOLVEMENT IN THE CALIFORNIA CRISIS
  14. 14. ENRON IS PERCIEVED AS A SCAPEGOAT IN THE CALIFORNIA CRISIS <ul><li>The most active proponent on deregulation </li></ul><ul><li>Learned the “tricks of the trade” to manipulate the wholesale market </li></ul><ul><li>Making money on gas and electricity – and created artificial constraints </li></ul><ul><li>Not the only one – but played a leading role </li></ul><ul><li>Strong proponent on no caps on spot prices </li></ul><ul><li>Gov. Davis: Where do I go to get my money back? </li></ul>
  15. 15. ENRON DOES NOT DESERVE THE BLAME <ul><li>Does not own generation facilities (except wind) </li></ul><ul><li>If claimed refund had merits -- < 0.5% </li></ul><ul><li>1994 Hearings – warning that the proposed system would be capricious and lead to high pricing </li></ul><ul><li>State rejected Enron’s offer of long term power in 2001; later, sold to state at prices lower than average (US$ 181/MWh vs. US$ 243/MWh) </li></ul><ul><li>Intrastate pipelines are filled to capacity – 5,530 mcf versus 6,150 mcf entering the state </li></ul><ul><li>Enron is a net buyer – indeed to receive refund </li></ul><ul><li>And a lot of high prices reflect scarcity in supply or T constraints </li></ul>
  16. 16. CAN WE BLAME IT ON DEREGULATION?
  17. 17. CALIFORNIA IS NOT DEREGULATION <ul><li>Several design problems – some anticipated </li></ul><ul><li>D/Cs not allowed to sign long term contracts </li></ul><ul><li>And were exposed to spot price volatility </li></ul><ul><li>But in most cases consumer rates frozen, creating imbalances for D/Cs, and financial distress </li></ul><ul><li>In places where rates reflected spot prices, lack of hourly metering did not help in peak shaving </li></ul><ul><li>Extremely complex market design – some rules conducive to price gouging </li></ul><ul><li>ISO stakeholder board not capable to change </li></ul><ul><li>Usually referred as a “botched deregulation” </li></ul>
  18. 18. ONE CAN NOT HONESTLY BLAME ON DEREGULATION FOR ENRON’S DEMISE <ul><li>“ Trading Natural gas and electricity, the core businesses, were solid ventures on deregulated markets” – from nothing in 94 to 900 TWh now </li></ul><ul><li>Many failed attempts to enter into new regulated businesses, mostly overseas </li></ul><ul><li>No modesty to admit they had different KSFs with diverse industry dynamics </li></ul><ul><li>Bulk of non-core assets under-performing – “less than decent rates of return” </li></ul><ul><li>Even decent rates of return would not have satisfied investors appetite – based on expected P/E ratios </li></ul><ul><li>“ Company managed to hide from investors and regulators its bad management and possibly corruption by shamelessly promoting its image” </li></ul>
  19. 19. HAVE ENRON AND DEREGULATION CREATED ANY VALUE TO SOCIETY?
  20. 20. “ ENRON WAS MOSTLY RIGHT ABOUT ONE THING: DEREGULATION” <ul><li>“ Moving aggressively, it became the largest trader of electricity and gas derivatives </li></ul><ul><li>Enron had real insight into the role of new types of securities in deregulated power markets </li></ul><ul><li>Enron’s actions, while self-serving, were generally good for the economy as a whole </li></ul><ul><li>The company promoted greater competition in electric power. Enron battled against entrenched state and local electric power companies that opposed deregulation to preserve their monopolies </li></ul><ul><li>Enron’s total expenditures on political influence were tiny compared with the potential benefits to consumers from competition” </li></ul>
  21. 21. “ TESTAMENT TO THE FLEXIBILITY OF THE U.S. ENERGY MARKET” <ul><li>“ Enron could fail without disrupting gas or electric supplies” </li></ul><ul><li>There were no price spikes, electricity outages </li></ul><ul><li>Enron’s trading functions immediately assumed by others </li></ul><ul><li>“ Part of the reason the markets adjusted so smoothly to the Enron collapse was the liquidity and risk allocation provided by the wholesale markets Enron had helped create” </li></ul><ul><li>For most regions of the US, there is significant market liquidity with multiple buyers and sellers meeting consumer needs </li></ul>
  22. 22. DEREGULATION HAS BROUGHT SIGNIFICANT BENEFITS TO US CONSUMERS <ul><li>Recent study by Boston Pacific Co. indicates that 1985-99 adjusted prices declined on average by 30% for residential and 36% for large customers </li></ul><ul><li>Despite not being the sole factor, large prices decreased occurred when competitive pressure was greatest </li></ul><ul><li>Recent study from the US Federal Trade Commission indicates that retail marketing is in a transition period </li></ul><ul><li>“ In this hybrid environment of regulation and competition, many of the expected benefits have not emerged … </li></ul><ul><li>Nothing that has happened so far indicates that competition will not produce additional benefits to electricity customers” </li></ul>
  23. 23. AND THERE ARE MANY SUCCESS STORIES OUTSIDE OF CALIFORNIA AND ENRON <ul><li>Well functioning power pools in the US do not receive the same publicity as California </li></ul><ul><ul><li>PJM – considered one of the most dynamic </li></ul></ul><ul><ul><li>New York </li></ul></ul><ul><ul><li>New England </li></ul></ul><ul><ul><li>MISO </li></ul></ul><ul><li>55.000 MW installed last year mostly in competitive environments </li></ul><ul><li>Other countries/regions have also developed vibrant markets </li></ul><ul><ul><li>Europe – Nordic countries, UK </li></ul></ul><ul><ul><li>Australia, New Zealand </li></ul></ul><ul><ul><li>Argentina </li></ul></ul>
  24. 24. RELEVANCE OF THIS DISCUSSION TO BRAZIL
  25. 25. ONE WAY OF TELLING THE STORY <ul><li>Embarked on a restructuring program in 1998, towards privatization and deregulation </li></ul><ul><li>Alleged lack of incentives for expansion leading to a major rationing crisis </li></ul><ul><li>State companies not allowed to expand; private sector not comfortable with risks entailed by the new model </li></ul><ul><li>Supply demand imbalance, lack of investments, drought, demand growth, environmental problems, transmission constraints, etc. </li></ul><ul><li>On the surface, it bears a strong resemblance to California </li></ul><ul><li>Point in common: deregulation </li></ul>
  26. 26. THE FLIP SIDE OF THE COIN <ul><li>Model designed for Brazil is significantly different from California’s (Appendix) </li></ul><ul><li>Most reasonable observers agree that Brazilian reform is half-way through </li></ul><ul><li>The issue hinges on implementation, not design </li></ul><ul><li>It is widely known that some incentives are not in place, or still entail significant risks to investors – e.g. VN, FX, D/Cs willingness to sign PPAs </li></ul><ul><li>Less conspicuous but probably more important – penalties for under contracting </li></ul><ul><ul><li>Penalty is MAE price exposure </li></ul></ul><ul><ul><li>This assumes that contracts among consenting adults will be honored, with no bail-outs </li></ul></ul><ul><ul><li>Rationing illustrated how sensitive the subject is </li></ul></ul>
  27. 27. THERE ARE SUCCESS STORIES ON THE USE OF MARKET FORCES <ul><li>The way the rationing program was designed illustrates how market forces may help allocate a scarce resource </li></ul><ul><li>Quota system with penalties for those who exceeded this baseline – or bonuses for low income consumers </li></ul><ul><li>Penalties linked to MAE price – to avoid the California effect and affect utilities’ finances </li></ul><ul><li>Large clients allowed to exchange quotas </li></ul><ul><li>9 months of rationing with minor black-outs </li></ul><ul><li>Recognized as a success story. Brazil saved US$ 10 billion by avoiding rolling black-outs </li></ul><ul><li>Demonstrable possibility to leverage demand elasticity </li></ul><ul><li>Customer choice created more appetite for retail competition, to be introduced in 2003 </li></ul>
  28. 28. IN CONCLUSION
  29. 29. IT IS NOT FAIR TO BLAME IT ON DEREGULATION <ul><li>For many, California should not be called deregulation – it is a “botched” re-regulation </li></ul><ul><li>Deregulation did not kill Enron – the deadweight of regulated businesses did – but no excuses to actions of management </li></ul><ul><li>Not fair to blame on Enron for California crisis </li></ul><ul><li>Enron collapse suggests need for greater financial and pension fund regulation – but never back to the old days of cost plus regulation in the power sector </li></ul><ul><li>Deregulation, particularly in the wholesale market, has worked in many countries/regions and has brought many benefits to customers </li></ul><ul><li>There are also good lessons to be learned when designing wholesale and retail competition </li></ul><ul><li>Brazil may leverage on those and on the lessons drawn from the market-based rationing program </li></ul>
  30. 30. APPENDIX DEREGULATION MODELS IN BRAZIL AND CALIFORNIA

×