12/13/2001

Bottom Line Energy Issues - Enron Meltdown Hurts Deregulation

December 2001

 
By Lewis Tagliaferre
Fortune magazine named Enron "America's Most Innovative Company" for five consecutive years, the top company for "Quality of Management,"and the second best company for "Employee Talent." After rising to a high of $90 in August 2000, the value of Enron stock plummeted to less than a dollar in November on news the energy trading giant had been issuing unreliable financial statements for four years and was burdened with insurmountable debt. Its bond rating was reduced to junk status in just a few weeks after disclosures of shoddy accounting, fraudulent financial reporting undiscovered by its independent auditors, poor judgement and possibly illegal actions by senior executives, and plain old hype by independent stock analysts since 1997. Enron was forced to close its highly touted online trading operations and seek a friendly buyer. Initial overtures from Dynegy, Inc. to buy the firm for less than 10 percent of its highest market cap were withdrawn when a due diligence audit produced even more bad news. Although he assumed responsibility for the company's plight, ex-chairman and CEO Ken Lay still received a base salary of $1.3 million for 2000 and earned a bonus of $10.6 million. "In hindsight, we made some very poor investments in non-core businesses," Lay said. An understatement to be sure. Lawmakers, regulators and investors sought to assess the damage. Congressional hearings have been scheduled, securities regulators vowed to investigate and competitors assessed their impact if Enron files for bankruptcy as expected.


The demise of the nation's largest energy trader bodes ill for its investors, employees, and customers. It also raised concerns that the investor support for deregulation, already uncertain, would cave in completely. "Enron was the most visible and ardent cheerleader of deregulation. When people are edgy and nervous and not sure about what's going to happen, they want to stick with what they know," said Jim Owen, speaking for the Edison Electric Institute, trade group for investor-owned utilities. A.G. Edwards & Sons analyst Mike Heim said, "The energy-trading business has probably taken such a hit to its reputation that it would be difficult to retrench and go forward." But Federal regulators took a calmer view. The rapid disintegration of energy giant Enron Corp. has not harmed U.S. electricity and natural gas markets, and will likely spur more openness in trading done there, the head of the Federal Energy Regulatory Commission said. "Enron is a human tragedy, but it is not an impediment to transparent power markets. In fact it makes the case to hasten their day," FERC Chairman Pat Wood told Reuters News. The exit of a major player is something that the industry can survive."


Still, public opinion appears shaken. The Enron implosion "helps foster the continuing atmosphere where people wonder and worry whether electricity can ever be deregulated into a free market," observed Sharon Reishue of Cambridge Energy Research Associates. A public opinion survey by Deloitte & Touche also determined that 56 percent now expect electric rates to increase rather than decrease under deregulation. Since Ken Lay is a personal friend and advisor to Pres. Bush, some political analysts think he might delay pushing for federal deregulation policy beyond the 2002 election campaign. A year ago, Enron was the darling of government leaders and energy analysts. Ken Lay was a member of the Bush energy policy advisory team. Now Enron is facing a flurry of lawsuits and potential liabilities that cast a dark shadow widely throughout the whole process of deregulation.

 


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Visit our website today to learn about the design flexibility of a Morton building and the endless possibilities of partnering with our designBUILD team.


Wood construction is both cost and energy efficient. Check out Morton Buildings and our designBUILD team online today to discover all the benefits of post-frame construction.


When choosing a metal-clad building for your next construction project, consider Morton Buildings, Inc., and their designBUILD team, we’ll make your dream a reality.

We Can Help You Reduce Energy by 30%

Our mission is to help our customers manage their buildings' energy costs, improve reliability, and enhance performance while having a positive impact on the environment.
CLICK HERE to find out how.

 

Add highly responsive multi-zone comfort to any building project, in any climate. Our CITY MULTI H2i R2- and Y-Series VRF systems give you flexibility to fit the needs of any building. Enjoy 100% heating capacity at 0°F outdoor ambient, and 85% heating capacity at -13°F outdoor ambient.  For more information, log on to www.mitsubishipro.com


Tennant Company is a recognized leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. With thousands of satisfied customers already using award winning ec-H2O technology, why not see what you're missing? Test ec-H2O on your soils in your facility. Get a free demo.


Tennant Company is a recognized leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. With thousands of satisfied customers already using award winning ec-H2O technology, why not see what you're missing? Test ec-H2O on your soils in your facility. Get a free demo.

 

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