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The Effect of the Bankruptcy of Enron on the Functioning of Energy Markets
Subcommittee on Energy and Air Quality
Prepared Statement of The Honorable Joe Barton There
have been many surprises related to Enron, most of them unpleasant. Employees lost jobs and in some cases their retirement
accounts, stockholders generally lost their investment, and creditors and other
companies had to unwind deals or wait in hopes of payment. I am glad that the full Committee and the Oversight
Subcommittee are doing all they can to explore the many issues surrounding the
fall of Enron. Not
all of the surprises have been unpleasant.
We knew energy markets worked, but I think we were all surprised by the
strength they showed last fall. Even
at the highest point of the crisis, the lights stayed on and consumers saw no
real price increases. Electricity
was delivered where it needed to go, and natural gas still arrived on time.
The biggest market-maker in both electricity and natural gas left the
market, and the result was nary a blip on reliability and prices.
That is a testament to the strength of competitive markets. Today's
hearing is about the effect of the bankruptcy on the functioning of energy
markets. We will leave the autopsy
of the Enron body to other subcommittees - we are here to discuss energy-related
issues surrounding Enron's collapse.
I welcome all of the witnesses here today, including a very distinguished
first panel of Federal and State government witnesses. I
ask each of the witnesses to tell us his or her perspective of the effect
Enron's bankruptcy had on energy markets.
Are there lessons we can learn from those amazing days when markets
overcame tough obstacles? Do we
have enough market transparency and disclosure?
Do we need more? Are there
some types of disclosure, transparency or regulation that would actually hurt
markets? What is actually happening
in the markets today? Some
witnesses here today will say that energy markets actually work better today as
a result of Enron's behavior before their downfall.
I am glad that Chairman Wood has already said the FERC will review some
of these specific allegations. I
am not here to say that energy markets work perfectly.
If they did, we would not need to improve them.
H.R.4, still awaiting action by the Senate, seeks to improve both the
supply and conservation of energy, with an eye toward a better long-term balance
in supply and demand. During our
experience last year on the Western electricity crisis, we learned about the
lack of adequate generation in the West and the awful disparity in takeaway
capacity from interstate natural gas pipelines into California.
And
since nearly everybody in town tells me that electricity markets are not
operating at their maximum efficiency, we have drafted H.R.3406 to improve
transmission, increase generation nationally, encourage renewable energy and
conservation, and otherwise reduce barriers to wholesale competition. This Subcommittee will return to that legislation soon, after
full committee Chairman Tauzin and I decide the time is right. Despite
the good news of the past few months, this is a dangerous time in the real world
of energy markets. The stock
markets are spooked, fearful of new problems in other companies and accounting
relationships. Credit-rating
agencies have rightfully taken a new look at the complexity and business
strategies of companies that trade energy and match buyers and sellers.
Both factors cause companies to hunker down and ride out the storm.
Our
Nation needs energy companies to do more than simply show Wall Street and
Congress that their house is in order. We
need energy producers, energy traders, and energy utilities leading us toward a
better future. We still need these
capital-intensive projects to increase generation through new power plants, and
we still need innovative companies promoting efficiency in the generation,
marketing and consumption of energy. We
got lucky in the West last summer and again this winter.
Mild temperatures and economic concerns dropped demand, masking the
still-present problem of demand outstripping supply. While Enron is on the front page, the real story is inside the paper. Every time a company cancels or postpones a power plant project, the future looks scarier. Every time our confidence in energy trading decreases, we take a step backwards. But the genie of wholesale competition cannot and should not be put back in the bottle. Now is not the time to re-regulate energy markets. But now is the time to learn what we can learn from Enron and make energy markets better. We always want the furnace to turn on, the pilot light to be lit, and the bill to be affordable, no matter what happens to participants in the energy market. That is the real reason we are here today.
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