Barbarians at the Gates

Deck: 

FERC... SEC... CFTC...Congress ... Ratings Agencies... Stockholders... Bondholders... Private Equity Investors?

Fortnightly Magazine - June 15 2002
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No one has yet quantified or qualified the devastation to industry reputation, electric competition, or energy companies' future earnings power caused by the current round of energy trading scandals that is shaking the industry to its core.

But it may not be necessary to spend much time on the task. One can easily deduce where another round of FERC hearings on California market manipulation, SEC probes on "round-trip" or "sham" trades, new congressional and CFTC investigations on energy trading, more ratings agency downgrades, and huge investor selling could lead.

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The endgame could be Draconian levels of utility regulation at the state and federal level. It might even stifle altogether electric competition initiatives by state PUCs and FERC. It certainly has led to an investor backlash. And if the industry is not careful, it may tarnish forever the image and prospects of a competitive power market.

Of course, we have seen it all before, with Enron and in other industries that have been jolted by scandal.

The solution to an industry-wide crisis could be to let those companies that are found guilty of "criminal behavior" and "market manipulation" fail as businesses.

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