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Enron's Long Shadow / Artikel, engl.

verfasst von JüKü, 17.05.2002, 17:48

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Enron's Long Shadow
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by Christopher Westley

[Posted May 17, 2002]



"[T]he arguments against markets are clear.
California is strike one, and Enron is strike two. My God, we don’t need
strike three." --Federal Energy Regulatory Commission member William
Massey


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The state’s politicians were eventually rescued
by the incoming Bush administration, when it imposed price caps on Western power
markets (an action that forced energy consumers in non-Western states to pay
higher prices), thus relieving California taxpayers the brunt of the burden
caused by their politicians’ policies.

It was only a matter of time before the Feds
realized that political capital could be created from this mess. Now, the
Federal Energy Regulatory Commission is investigating all electricity
sellers for evidence of similar pricing schemes employed during California’s
energy crisis.

The FERC's Web site posted a notice
to all energy traders doing business in California to preserve documents
detailing trading strategies that are similar to those of which Enron is accused. In
true Soviet-like fashion, the FERC has issued a deadline by which suspected
firms must"admit or deny" their complicity in engaging in spurious
pricing schemes during the time period.

The result has been a crash of stock prices
throughout the wholesale industry, as investors assume that any energy firm that
has business in California will be considered a fair target by government
regulators. Wholesalers such as Reliant Resources, Dynegy, and CMS Energy Corp.
have now been implicated in schemes that, if true, would have exaggerated their
firms’ reported profit margins.

There are several things wrong with this
still-developing episode. Let’s list a few.

First, California’s actions may very well have
the effect of chasing out investment capital into the state that otherwise might
have been used to provide dearly needed electrical generation. If this
indeed happens, then it will be easier, from a political perspective, for the
state to impose its designs on socialized energy production in the state. In
the process, it legitimizes efforts to further socialize energy production on a
national basis. Besides discrediting any future efforts to engage in real
deregulation of any market, the true endgame of the Enron saga may be complete
state control of energy production.

Second, California Gov. Gray Davis, who first
proposed the idea of the complete socialization of energy production, was once
dead in the water, both to his political enemies and friends. By trumpeting
Enron’s supposed manipulation of California’s energy laws today, politicians
can now divert attention from their own complicity in the affair in an election
year, and Davis can once again be touted as a possible presidential candidate.

Third, it is important not to lose sight that the
energy crisis in the state was created by the state itself when its notion of
deregulation mixed price caps on consumer markets with more fluctuating prices
in wholesale markets. The result was predictable and horrendous. Consumers
had little incentive to conserve their use of electricity or to search out
substitute goods. In the face of such over-consumption, power
providers compensated in the wholesale markets, where prices predictably
skyrocketed.

Since rising relative prices attract suppliers to
any market, many firms entered California’s wholesale market. It is ironic
that these firms are now under the glare of FERC regulators.

Fourth, if California were a separate country, it
would have to live with the effects of its economic policies. However, in
the current political climate, states with bad economic policies have an
incentive to impose them on neighboring states. For instance, in the event
that Arizona implemented an electricity deregulation plan that avoided all price
controls, then one wouldn’t expect energy shortages, blackouts, or unusual
discrepancies between retail and wholesale prices in that state. The
dichotomy would be obvious to everyone, including voters.

Faced with this situation, politicians in
California have two choices. They can either remove price controls in their
state, or they can press the federal government to force all states to implement
similar rules to its own. Since the state has been trying to get the
federal government involved in its self-created energy problems for several
years, it is obvious which choice has been made. 

Fifth, it is not clear that Enron, or any firm
that might have engaged in power trading, violated any law at all. The fact
that there is little evidence of firms engaging in such activity outside of
California reflects the pressure that firms in this market inherited in the face
of price controls. Whether these firms may have violated ethical
norms is beside the point. Price controls clearly encourage such
activity. Therefore, any solution to this problem that involves a heightened
regulatory burden will fall short.

Besides, we certainly would not expect firms to
be successful in driving up prices in the long run in a less regulated setting
that implies freer entry and exit. Just as it is impossible for monopoly
prices to be charged in the long run without extra-market forces protecting the
monopolist, so it would be impossible for energy firms to manipulate energy
prices in the long run without extra-market forces protecting them. This is
because the firm that can force higher wholesale prices simply attracts to the
market other firms that will be able to provide electricity at lower prices.

The media, as well as the state’s court
intellectuals, love the Enron scandal and its continued fallout. It allows them
the opportunity to broadcast on a daily basis the myth of market failure so as
to justify ever increasing levels of government intervention in our lives. Yet,
this scandal was fueled by government intervention, not by market forces, and
continuing this intervention because it furthers the cause of the political
class simply lays the groundwork for greater debacles in the future. Is
anyone listening?


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Christopher Westley is an assistant professor of economics at
Jacksonville State University and co-author of"Enron:
Market Exploitation and Correction" in Journal of Financial
Decisions. See his Mises.org Articles
Archive and send him MAIL.



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Enron's Long Shadow / Artikel, engl. - JüKü, 17.05.2002, 17:48