Sen. Jeff Bingaman (D-NM), Bush administration officials, and chief financial leaders said last week that Enron Corp.'s collapse does not mean competitive energy markets have failed. Lobbyists predict the company's troubles will be a red-hot topic through the spring and could affect the shape and tone of energy reform legislation.
Bingaman is chairman of the Energy and Natural Resources Committee, one of eight studying Enron's financial fall and watching its ongoing bankruptcy proceedings. Civil lawsuits are pending, and US officials have a criminal investigation under way as well.
Other congressional committees are investigating whether corporate officials committed fraud. The Securities and Exchange Commission last fall began questioning whether Enron's elaborate accounting methods offered an accurate snapshot of the true financial worth of the company.
"As we understand the actual events of this past fall when Enron's financial situation became known," Bingaman said in a written statement, "many parties who had been trading with Enron shifted to other physical markets.
"NYMEX-the New York Mercantile Exchange-also served as a major source of stability. In the end, Enron's demise had little impact on short-term energy markets," said Bingaman, a moderate Democrat whose energy reform legislation is expected to be debated later this winter. Bingaman said his bill, S 1766, promotes transparency and real-time reporting of trades in energy markets.
The provision would seek to ensure that consum- ers, state public utility commissions, and buyers and sellers of electricity receive timely information on wholesale electricity markets by requiring the Federal Energy Regulatory Commission to establish an electronic system to provide information about the availability and price of wholesale electric energy and transmission services.
"Market transparency is essential to efficient and competitive energy markets-both in the short term and over the longer term," Bingaman said. "Over the longer term, the market must signal the need for additional capacity and new fuel supplies to ensure reliable and affordable energy services."
International oil markets also should be more transparent, according to regulators.
A White House energy strategy blueprint released last May directs the Secretary of Energy to work with producer and consumer nations and the International Energy Agency "to craft a more comprehensive and timely world oil data reporting system."
Bingaman also credited FERC, the agency that oversees wholesale natural gas and electric markets, for increasing oversight of individual companies and creating a market monitoring function for gas and electric markets.
FERC responseEnron: legislators, investors weigh effects on market
FERC Chairman Pat Wood repeated earlier statements in which he characterized Enron's troubles as a human tragedy that does not reflect on the operation of competitive energy markets.
"I disagree with those who claim that the Enron collapse sounds the death knell for competition in energy markets or justifies nationwide reimposition of traditional cost-based regulation of electricity," he said.
Wood said available facts indicate the company's failure had little or nothing to do with whether energy commodities and their delivery to customers are monopoly-regulated or competitive. "Rather, Enron appears to have failed because of its questionable noncore business investments and the manner in which it reported on its financial position to its owner-investors and to the broader business community."
Wood said he supports Bingaman's idea of ensuring market transparency, but said the language in Sec. 208 of S 1766 may need retooling.
Wood said the bill's provisions do not "appear" to address at least two issues at the heart of Enron's situation: how they handled and reported risks and valuation underlying the trades they were conducting, and how they represented the value of the trades flowing through their platforms as corporate revenue.
He said those are broader financial reporting and regulation issues outside of FERC jurisdiction.
Secondly, Wood said there is a "difficult balance" between information that must be disclosed to make markets work and information that is proprietary.
"It is clearly to the public benefit to implement rules that disclose more information and improve market transparency, but it is not always easy in practice to find the appropriate point between reasonable information disclosure and protection," he said.
NYMEX response
Vincent Viola, NYMEX chairman, said that, based on available information, it does not appear that the failure of Enron was related to rules, or the absence of rules, governing trading in energy contracts.
"We cannot say with any certainty which of several possible causes brought about [Enron's] bankruptcy, but we do not believe the cause to have been the regulation or deregulation of energy trading," he told the committee in his written testimony. "Based on what we now know, we are not recommending or calling for significant changes in the way the over-the-counter markets are regulated."
However, Viola did say NYMEX wants online trading platforms to have the same kind of regulatory oversight that a traditional "open cry" system has.
"Chief among the lessons to be taken from the Enron bankruptcy is the value provided by the federally chartered, regulated commodity marketplace in supplying market oversight and credit enhancement. The ability of market participants to move from largely unregulated trading platforms to the exchange where transparency, liquidity, and market oversight are the watchwords, proved to be of critical value in avoiding broad-ranging disruptions as Enron's problems became known," he said.
"The situation could have been far different had the unwise proposal to nearly completely eliminate regulatory oversight of energy and metals futures and options contracts traded on electronic trading platforms been adopted as originally proposed," Viola said, referring to a regulatory change sought by Enron last year.
"As it turned out, market participants availed themselves of the safety and credit enhancement provided by the regulated marketplace. As Congress moves forward in the examination of the complex issues arising from the bankruptcy, and in consideration of how the benefits of transparency, market oversight, and enhanced competition can be extended to the broader energy marketplace, including that of electricity, these lessons should be remembered as future legislation is developed and considered," Viola said.
Other responses
Commodities Futures Trading Commission chairman James Newsome said his agency has seen no evidence to suggest that its regulations were violated but "we will continue to monitor the markets within our jurisdiction and we will continue toellipseaggressively pursue legal violations."
Newsome said the Enron situation and its ramifications deserve study and recommendations for improvement. "Some of these responses will come from Congress, while others will come from regulators and still others from industry."
Newsome said CFTC recently proposed a reorganization that will consolidate its market oversight functions in one division.
Meanwhile, Sen. Frank Murkowski (R-Alas.) said, "Enron's collapse appears to be a sorry tale of lies, deceit, shoddy accounting, corporate misconduct, and cover-up.
"Enron's employees and stockholders were devastated, thousands unemployed, billions lost, and retirement funds wiped out. But we cannot lose sight of the fact that this is a business failure and not an energy market failure."
Lobbyists predict that legislators will question whether regulators should have acted sooner, or if legal changes are needed. Those questions will be a heated topic on Capitol Hill through the spring and could affect the shape and tone of energy reform legislation, they say.
