The collapse of energy giant Enron did not impact the nation's energy trading industry or energy supplies, yet long-term energy prices in the West fell by nearly a third in the market the day after Enron declared bankruptcy, Senate hearing witnesses said Tuesday.
"At this time we have no indication that manipulation of any futures market was attempted by Enron," said Commodity Futures Trading Commission Chairman James Newsome.
Still, the connection has some western lawmakers wonderng whether Enron's dominance in the energy field would enable it to set "forward prices."
"That certainly raises questions about whether Enron was manipulating the West Coast market," said Sen. Ron Wyden, D-Ore., speaking at a hearing of the Senate Energy and Natural Resources Committee.
Since such transactions are exempt from federal regulation and are conducted largely in secret, it's impossible to gauge whether actual manipulation occurred, witnesses told the senators.
Since the Enron bankruptcy, the nation's largest in history, energy companies — especially their balance sheets and debts — are coming under closer scrutiny from Wall Street and from credit agencies, said Mark Stultz, vice president of Electric Power Supply Association, which represents independent energy producers and traders.
"There's an increased sensitivity and awareness," said Stultz. But he insists the markets have been resilient with trading volumes higher now than they were before the Enron collapse.
Much of Enron's trading activities involved unregulated transactions — over-the-counter energy derivatives that Congress exempted in 2000 from regulation by the CFTC.
Enron's complex system of trading in everything from electricity and natural gas contracts to so-called derivatives — financial contracts used to hedge or speculate on a commodity — was conducted without close scrutiny from either federal or state regulators.
"Enron may have been using its market dominance to set forward prices," said Robert McCullough, an energy consultant whose clients include Northwest utilities. Enron "had enormous ability to swing those forward (long-term) markets" and inflate prices, he said
But Pat Wood, chairman of the Federal Energy Regulatory Commission, emphasized that "the collapse of Enron has not caused damage to the nation's energy trading or energy supplies" and spot electricity prices are largely unchanged.
It would be wrong to think that Enron's collapse "sounds the death knell for competition," Wood told the panel. In fact, Enron's bankruptcy has been something less than devastating to the market, he said.
Wood and Newsome told the committee that they would look into broadening their regulatory oversight if Congress wanted, but they were not certain additional authority "would prevent further Enron-like problems."
Sen. Frank Murkowski of Alaska, the panel's ranking Republican, agreed. He called the Enron meltdown "a story of lies, deceit and cover up" but "not an energy market failure...The lights stayed on and energy prices did not spike."
The Senate panel is exploring whether trading in these contracts should face the same regulations as other commodities. Sen. Jeff Bingaman, D-N.D., chairman of the committee, said that a top priority should be enactment of laws requiring disclosure of energy transactions by private energy companies.
"As we evaluate how well the market is working, we need to be clear here that electricity restructuring does not mean deregulation," said Bingaman.
The Associated Press contributed to this report.