The Enron Corp. financial disaster and its reverberating political damage could help facilitate new rules designed to tame increasingly volatile international energy markets.
In the US, the Senate last month rejected a proposal by Sen. Dianne Feinstein (D-Calif.) that sought to impose strict regulatory oversight on many financial risk mechanisms, including forward contracts. A powerful group that included Wall Street, the White House, and Federal Reserve Chairman Alan Greenspan helped kill the measure. They argued her method is too restrictive—that companies need tools to manage risk in commodity markets that by their nature are unpredictable, thanks to the vagaries of weather, politics, and geology.
Nevertheless, some lawmakers are still very sympathetic to Feinstein (OGJ, Apr. 15, 2002, p 32). They argue that energy marketing companies profit too much from information gaps that exist in deregulated markets.
Not forgotten
Feinstein’s proposal may be dead now, but a coalition of natural gas producers, service companies, consumer groups, towns, and small municipal utilities want Congress to resurrect it. The Coalition for Energy Market Integrity & Transparency last month said it supports Feinstein’s call to have traders in over-the-counter markets and online trading platforms show regulators that they can fulfill contractual obligations.
The group also said energy markets need to be more open and transparent. To achieve that goal, the US should require accurate, timely supply, transportation, and storage reports, with strong penalties imposed on companies that misrepresent the numbers or fail to provide information, the group said.
The Energy Information Administration this spring is taking over weekly gas storage reports compiled previously done by the American Gas Association, but it remains unclear what happens to companies that refuse to give EIA the information. The AGA survey was voluntary.
Improved oil market information is still desperately needed as well, according to six major international organizations involved in gathering energy data. That group, which includes the International Energy Agency, Organization of Petroleum Exporting Countries, and the United Nations, has held periodic meetings over the past year to assess the quantity, quality, and timeliness of basic monthly oil data. Recommendations are expected at a meeting in Osaka, Japan, this September.
Accounting revisited
Although the Feinstein measure failed, Congress is expected to quickly pass Enron-inspired accounting reform legislation this year. The House on Apr. 24, with a 334-90 vote, passed a bill designed to expand financial disclosures and prevent the kind of auditing failure that helped lead to Enron’s bankruptcy last year.
The proposal directs the Securities and Exchange Commission to create a new auditor oversight board and requires companies to disclose financial transactions not reflected on balance sheets; it also requires corporate officers to notify the SEC within 2 business days when they sell company stock. Currently, there is a 40-day window to report insider transactions. The Senate is expected to pass an even stronger package: Congress may also revise accounting rules to limit mark-to-market accounting.
