While the US government is not expected to rescue the world’s largest energy marketer, Enron Corp., from almost certain financial ruin, policymakers are facing increasing public pressure to find out how the collapse happened and make sure it doesn’t recur in the energy sector or elsewhere.
At least two congressional committees plan hearings to investigate what went wrong at Enron. The Bush administration is considering further administrative reviews, possibly through an interagency task force, government and industry sources said Friday.
Federal courts are also bracing for thousands of lawsuits surrounding the financial mess, from former clients, shareholders, and employees who allege the company engaged in fraudulent accounting to shield mounting losses.
On Capitol Hill, the House Committee on Energy and Commerce and the Senate Committee on Energy and Natural Resources both said Thursday they will hold hearings next year on the Enron collapse.
Meanwhile, policymakers also expect hearings in committees that handle banking issues because of concerns over financial management. Additionally, labor committees in the House and Senate may investigate how the stock collapse has impacted employee 401(k) accounts.
Analysts say the financial exposure to shareholders and former clients could be nearly $20 billion, although the actual figure will become clearer after an anticipated bankruptcy filing.
Lawmakers say a primary motivation for conducting hearings is to analyze what happened in order to avoid more Enron-type collapses at a time when the US economy is in recession.
Analysts said the timing of Enron’s decline was fortunate. It had a modest, temporary impact on markets because the recession and weather conditions dulled energy demand and drove prices down.
If markets had been tighter, as they were last summer, Enron’s problems would still have been temporary but could have reverberated longer as gas and electric markets adjusted to the shortfall. Yet even last year, the market would have rebounded, analysts say. That’s because although Enron was the world’s largest power and gas trader, it managed less than 20% of the transactions in either market.
The Federal Energy Regulatory Commission, which oversees gas and electric wholesale markets, will monitor the situation, but has said there is no need to regress to a regulatory structure that limits competition.
Rather than blaming open markets for Enron’s problems, policymakers are hoping to zero in on the role independent accounting firms play in verifying a company’s financial position to its shareholders and federal regulators, US officials say. A growing consensus among Wall Street analysts is that Enron’s accounting practices, which some thought were suspect, should have been examined more closely.
Even before the proposed merger between Dynegy Inc. and Enron fell through last week, there were signals Congress would pursue its own investigations beyond the Securities and Exchange Commission inquiry.
US Rep. John Dingell (D-Mich.) ranking member of the House energy panel, last week urged an accounting oversight group to determine if the Andersen consulting firm, formerly Arthur Andersen LLP, violated conflict of interest rules when it audited Enron.
“This problem is not limited to Enron. There are likely other ticking time bombs out there with smoke-and-mirror earnings. Our accounting and auditing system and its oversight are seriously broken and need immediate reform,” Dingell said.
He alleged Andersen may have not wanted to disclose accounting irregularities because it also had large consulting contracts with Enron (OGJ Online, Nov. 21, 2001). Andersen has denied any wrongdoing.
Now, with bankruptcy looming, other lawmakers are also stepping in.
On Tuesday, House energy panel Chairman Billy Tauzin (R-La.) said there was no reason why the government should bail out Enron. Nevertheless, 2 days later he directed his legal staff to investigate why Enron fell apart. Hearings are expected next year. Dingell, a member of the committee, is expected to pursue why federal regulators did not catch the problems sooner.
In the Senate energy, chairman Jeff Bingaman (D-NM) plans hearings that will focus on the importance financial data transparency and competition in gas and electric markets.
Nevertheless, energy policymakers, both on Capitol Hill and in the Bush administration, have also been careful to stress gas and electric markets are still structurally sound.
“While the impact on consumers is still unclear, our Committee will continue to monitor the situation closely. It is important to note that there are a number of well capitalized energy firms which have significant trading operations,” Bingaman said. “Also, with respect to Enron’s pipeline and power generation assets, if the company files for bankruptcy, the courts will ensure that those operations continue to function and serve their respective markets.”