Enron Refuels Energy Debate
The nation’s energy industry is mobilizing in the aftermath of Enron Corp.’s collapse against attempts to slow down or reverse deregulation of power markets, setting the stage for the biggest debate over the issue since the California energy crisis last year.
Electricity suppliers and other energy players are talking with James J. Hoecker, former chairman of the Federal Energy Regulatory Commission and now a Washington lobbyist, about creating a coalition of deregulation proponents that will lobby Congress, testify at forthcoming hearings, file comments on proposed rules and, if necessary, take legal action to block efforts to re-regulate the industry.
“Our concern is that some people are now saying that Enron could not have amassed such an inflated stock value and done the things that it did if not for the fact that energy markets have become much freer in the last three years,” said Hoecker, insisting that Enron’s bankruptcy filing Dec. 2 instead appears to have been caused by accounting practices unrelated to energy deregulation.
The national debate over energy deregulation was largely overshadowed by the Sept. 11 terrorist strikes. But Enron’s collapse has reignited the issue, with critics of deregulation saying energy is too vital to the public good to be left to volatile markets. Some lawmakers are advocating a go-slow approach on further deregulation of energy markets.
“There is a lot more skepticism about deregulation now,” said Howard A. Learner, executive director at the Environmental Law & Policy Center, a Chicago-based advocacy organization that favors a hybrid model of competition and government oversight.
Hoecker, who has been criticized by California leaders for not doing more to help the state during last year’s energy crisis, said he expected a decision about the new coalition to be made shortly, but declined to identify specific participants.
Some companies, such as Dynegy Inc., already have deployed their lobbying forces.
One factor propelling the lobbying push was FERC’s Jan. 15 announcement that it was moving quickly to hire a director for the newly created Office of Market Oversight and Investigations, which will be responsible for overseeing and auditing the nation’s energy markets.
FERC Chairman Patrick H. Wood III floated the new office last fall, but industry leaders fear that FERC may try to give the office sweeping new powers in light of the Enron debacle.
Wood, a former Texas utility regulator appointed by President Bush, declined to be interviewed.
FERC Commissioner Nora M. Brownell, another Bush appointee who favors deregulation and competitive markets, said the industry need not worry about punitive responses from FERC’s new oversight division. She said the California energy crisis, in which some suppliers were accused of creating electricity shortages to inflate prices, highlighted the need for a greater federal role.
“To make the markets work, you have to have a market oversight function that people believe in,” Brownell said. “Before, there wasn’t a place people could go. When the industry understands that this is going to be fair, they’ll calm down.”
Enron Leaves Lobbying Void
Houston-based Enron had been the most vocal supporter of deregulation, but its tumble into Bankruptcy Court has forced other industry players to step up to the plate to fill the lobbying void.
“Enron was the 800-pound gorilla for deregulation,” Learner said. “With Enron out of the picture, now everyone else in the industry can’t piggyback on its political and financial juices.”
Enron grew from a small natural-gas pipeline operator into the world’s largest energy-trading operation. At its peak, it handled one in four wholesale deals for electricity, gas and other energy products.
Because Enron helped keep energy trading exempt from oversight by FERC and the Commodity Futures Trading Commission, deregulation supporters are bracing for an effort to bring the energy markets--and particularly online trading--under more government supervision.
Energy companies also fear that an Enron-related backlash might cause some states to rethink their deregulation plans or prompt new federal regulations that would limit how much they can charge and what their access to different markets might be.
California, for one, has taken a big step back from deregulation.
To stabilize prices, the state purchased more than $10 billion of power for utility customers in the last year and won’t be out of the power-buying business until at least 2003.
What’s more, the Legislature created a public power agency that is authorized to build more power plants if private industry fails to come through with adequate supplies.
With these and other factors causing uncertainty, California politicians are debating whether the solution lies in more or less government regulation.
State Sen. Steve Peace (D-El Cajon), who helped craft California’s 1996 deregulation plan in the Legislature, said California politicians and business leaders must unite to fight Hoecker’s agenda. The chief beneficiaries of the sort of “wild West” form of deregulation Hoecker’s group espouses, Peace said, are bound to be big oil and gas companies based out of state.
Peace argues that California’s experiment with deregulation failed not because it was poorly constructed but because federal regulators in Washington, unduly influenced by companies such as Enron, refused to referee the market.
Hoecker disagrees: “There’s a big difference between reasonable oversight and re-regulation.”
Other energy lobbyists stress that Enron’s demise was largely unrelated to its energy business.
“The failure of Enron wasn’t a failure of the competitive markets,” said Dynegy spokesman David Byford. The Houston-based energy company, which abruptly called off a proposed purchase of Enron in November, is dispatching its lobbyists to Capitol Hill and regulatory agencies to urge Washington not to overreact to Enron’s implosion.
Rep. Christopher Cox (R-Newport Beach), a member of the House Energy and Commerce Committee, rejected the notion that Enron’s meltdown should cause Congress to rethink deregulation.
“Enron could have been in the Hula-Hoop business and done exactly the same thing,” he said.
Enron’s swift demise last fall after disclosures of more than $600 million in losses and the existence of several complex, off-balance-sheet partnerships is being investigated by several federal agencies and members of Congress.
Still, because of the California electricity crisis, further deregulation of energy markets was already in some trouble. Now critics of deregulation are pouncing on Enron’s troubles to bolster their case.
Rep. Henry A. Waxman (D-Los Angeles) has called an electricity deregulation bill the “One Last Gift for Enron Act.”
But deregulation supporters say that Enron’s troubles have nothing to do with energy markets.
A spokeswoman for Rep. Joe Barton (R-Texas), chairman of a House energy subcommittee, said her boss was pressing ahead on his electricity restructuring bill.
Barton believes that “Enron’s problems were Enron-based. They weren’t demonstrative of a greater flaw in the energy markets or industry,” Samantha Jordan said.
Deregulation Push Expected to Lose Steam
“We need to figure out how to prevent future energy collapses like Enron,” Waxman said during a recent debate. “The answer will require more regulation and oversight and oversight of energy marketers--not more deregulation.”
Waxman contends that the theory advanced by deregulation proponents is based on a belief that large energy companies will always bet right in the energy market.
But as Enron proves, that’s not the case, he said, contending that some of the company’s problems eventually will be traced to bad decisions about energy purchases.
A spokesman for Rep. Edward J. Markey (D-Mass.), a member of the House Energy and Commerce Committee, expects the Enron collapse to damp enthusiasm for deregulation because lawmakers will want to sort out the implications of the Enron collapse for the energy markets.
Although some in Congress argue that Enron’s collapse has nothing to do with their core energy businesses or the energy markets, Markey spokesman David Moulton said he doesn’t know how anyone can reach that conclusion without further study.
“We don’t know the full extent of Enron’s ‘book’--that is, the long-term energy contracts or derivatives that they entered into with other firms. It is quite possible that there could be issues with some of those other trades, but we won’t know for sure unless we look,” Moulton said. “We’re opposed to taking the government out of the business of overseeing the electricity markets. You can’t just take the government out of the business and expect to get a good result.”
Learner of the Environmental Law & Policy Center said the regulatory “black hole” may have enabled Enron to inflate the amount of revenue it was collecting from trades.
The debate is likely to pick up Jan. 29, when Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, has scheduled a hearing on what Enron’s collapse means for energy markets.
More than $12 billion of investment in new power plants has been shelved in recent weeks as financial markets effectively raised the cost of capital and began more closely scrutinizing the debt and balance sheets of borrowers, energy experts say. Such cutbacks could lead to power shortages and higher costs for consumers.
Enron Collapse Didn’t Rock Energy Market
But Craig Goodman, president of the National Energy Marketers Assn., and others contend that the Enron collapse proved that deregulation works because it did not result in immediate price spikes, trading hiccups or loss of confidence among energy traders.
“The fact that Enron’s demise caused literally no dislocation in the marketplace proves that deregulation can work,” he said. “Indeed, dozens of new and old wholesale players, with huge amounts of real assets, not just paper assets, have stepped in to fill the void left by Enron.”
According to FERC’s Brownell, “The markets worked with ruthless efficiency.”
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Times staff writer Nancy Vogel in Sacramento contributed to this report.
