why did Enron go bankrupt?
After all, the thefts were just in the tens of millions. The answer in our opinion lies in California. In 1996 the California legislature passed the electricity restructuring plan without a single “no” vote. That alone should have been a danger signal. The plan was complex, but the essentials were a separation of generation from transmission, price caps to residential consumers, and relegation of all wholesale trades into the spot market. The spot market trading began in April of 1998. This was the year when the world market prices for crude oil, adjusted for inflation, hit an all-time low. Since oil and natural gas are substitutes in some uses, including the generation of electricity, gas prices were also very low. The market conditions made living out of the spot market deceptively attractive. When markets are calm, spot prices are typically lower than long-term contract prices. The difference between the spot and contract price is the insurance premium or options price. Living out o
