software system to help predict demand for electricity around the country, along with detailed flow charts of power grids and transmission pathways.
The trading infrastructure was up and running, ready to do business, but there was one significant problem: the electricity markets in which it would trade were still being built. There was an important truth embedded in this situation: Koch’s trading floor was only one half of the coin of the marketplace. The other half of the coin was the public policy and politics that would create the trading market itself. It was common for Koch’s traders and other libertarians to talk about markets as if they were organic systems that lived, grew, and evolved on their own if only left alone by the government. In fact, markets are always a system of exchange created by rules, and those rules are almost always created by the government.
This was certainly the case for the new electricity markets in which Koch was hoping to trade. A new market for electricity was being created in the United States, piece by piece, during the 1990s. One state after another was changing the rules of the power business in a process that was called deregulation—but that was a lot more complicated than simply repealing rules. The deregulation effort was really more of a reregulation effort, a political movement to shift the rules in favor of independent traders and away from a state-regulated utility system that was born in the New Deal era. It wasn’t clear until years later what an important role Koch Industries played in helping shape the effort.
As Darrell Antrich was helping set up Koch’s trading desk, another arm of Koch Industries was actively shaping the markets in which Antrich would trade. Koch was uniquely prepared to execute on this double-edged strategy. The company’s ability to influence politics had expanded dramatically since the early 1990s, when Koch was investigated by the US Senate. Over the next decade, Koch expanded its political lobbying office, increased its political contributions, and funded libertarian think tanks. Perhaps most significantly, Koch Industries became a vital supporter of a little-known national policy network called the American Legislative Exchange Council, or ALEC, which pushed efforts to deregulate electricity trading around the nation. ALEC promoted these policies in state legislatures where policy making was often ignored by national media outlets and where political influence came cheap.
The economic rewards of this approach proved to be enormous, but they also came at a cost. This cost was paid most dearly in the state of California, where electricity deregulation ushered in a statewide economic disaster.
Darrell Antrich would end up getting engulfed by this disaster. Years later, he found himself being deposed by federal investigators and accused of orchestrating illegal market manipulation from Koch’s trading floor. This would have been surprising to the people who worked with Antrich every day. Everything about Antrich was straight-arrow. He graduated from Texas A&M in 1992, and he embodied the midwestern work ethic so prized at Koch. He was known as a conservative family man, a guy who might go out socially but wouldn’t close down the bar. He was quiet, reserved, and had the analytical mind of a well-trained accountant. He worked for the accounting firm Ernst & Young for a year before being hired by Koch in a midoffice support job helping traders, and was later promoted through the ranks.
To understand what went wrong, it is important to understand the political process, which Koch heavily influenced, to deregulate the energy markets of California. The giant state was a gold rush for electricity traders, and the ensuing calamity there was a microcosm of America’s political economy of the 2000s. The policy process to set the rules, while open to the public, was largely ignored and driven by lobbyists and special interest groups like ALEC. The mind-numbingly complex system that resulted was then gamed and manipulated by a tiny group of traders who understood the rules of the game better than anyone else. When the bottom fell out, these traders and the general public blamed the state of California, which scrambled to stanch the bleeding with taxpayer money and bailouts. All the lessons of the 2000s were there in California, early in the decade, and they were ignored.
One man who couldn’t ignore the lessons, because they destroyed his career, was the public official who was later credited with being the author of California’s deregulation plan. Oddly enough, he was a liberal Democrat, and a moviemaker, no less. His name